CRESCO Labs has become the latest multi state operator (MSO) to enter the European cannabis market as it announces a major deal to purchase Columbia Care.
Columbia Care, which recently became the first company to manufacture medical cannabis extract vaporisers in the UK, is set to be acquired by Cresco Labs in an all-stock transaction worth $2bn.
According to Cresco’s CEO Charlie Bachtell, the acquisition will grant it access to the ‘markets of tomorrow’ where Columbia Care already has an established presence.
It comes at a time of increasing consolidation in the North American market, coming just weeks after Tilray announced plans to acquire a major stake in rival Hexo.
Ripe For Takeover
When the deal is finalised, Cresco stands to acquire all outstanding shares in Columbia Care, creating a new entity that it says will have the largest annual revenue in the cannabis industry at roughly $1.4bn.
Stakeholders in Columbia Care will receive 0.56 of a Cresco Labs share for each share they hold, representing around 35% of Cresco overall.
Based on the closing price of both entities prior to the deal’s announcement, this represents a 16% and 19% premium for Cresco and Columbia Care respectively.
Like many of its North American peers, Columbia Care’s stock price has endured a difficult year, dropping from $5.9 in March 2021 to around $3 on the OTC Market at the time of writing, alongside a similar downward trend on the Canadian Securities Exchange.
Unlike numerous market leaders however, its financials are showing signs of consistent growth, with its stock performance more likely a result of external factors, like the lack of meaningful progress on US federal adult-use legalisation.
In the third quarter of 2021, its most recently reported period, Columbia Care broke records across the board, seeing revenues jump 144% to $132.3m year-on-year.
While it reported a net loss of just over $37m for the period, its gross profit increased significantly from $17.2m in Q3 2020 to $63m this year, with a gross margin of 49%.
This compares to rival Tilray’s 26% and is largely in line with Curaleaf. Meanwhile its quarterly growth rate of 29% blitzes its competition, beating all but one cannabis company with quarterly sales over $25m, according to figures from New Cannabis Ventures.
Opportunity for Cresco
Cresco, which boasts quarterly revenues of $217m, currently derives over 80% of its revenue from three US states.
The deal will allow it to significantly diversify its footprint, both across the US and internationally.
Alongside boosting its retail footprint from 50 to 83 stores, its acquisition will allow it to enter a further seven US states, alongside building its presence in Germany and the UK where Columbia Care has subsidiaries.
BusinessCann has contacted Columbia Care’s Head of International Operations for comment.
