Cresco Labs Inc’s Blockbuster Deal Will Create Largest Pot MSO by Revenue

Cresco Labs Stock Projected to Double

The U.S. and Canadian cannabis stock market has been on a roller-coaster ride over the last few years. Right now, they’re on a downward trajectory. This has more to do with the inactivity in Washington, D.C. on the legalization front than anything. Many marijuana companies have actually been posting record financial results.

Despite the general malaise, there are signs that the pot industry is getting ready for the federal legalization of recreational cannabis in the U.S.

One recent positive sign is Cresco Labs Inc’s (CNSX:CL, OTCMKTS:CRLBF) plan to buy Columbia Care Inc (CNSX:CCHW, OTCMKTS:CCHWF).

The deal should eventually help turn the tide on Cresco Labs stock, which is currently down by 10% year-to-date and 50% year-over-year.

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CRLBF stock’s future looks bright. Of the analysts providing a 12-month share-price forecast for Cresco Labs Inc, their average target is $11.01 and their high estimate is $15.22. This points to potential gains of approximately 83% and 152%, respectively.

Chart courtesy of StockCharts.com

About CRLBF Stock

Chicago-based Cresco Labs cultivates, manufactures, and sells recreational and medical cannabis products in the U.S.

The company has one of the largest business footprints in the country’s marijuana sector, with operations in 10 states. It has 21 production facilities, 50 dispensaries, and 51 retail licenses. (Source: “Investor Overview,” Cresco Labs Inc, last accessed March 29, 2022.)

Under the “Cresco” banner, it sells cannabis flower, vape pens, disposable pens, resins, and extracts. Under a few other brand names, the company sells marijuana flower, pre-rolls, vapes, capsules, tinctures, shakes, salves, chocolate, candies, tarts, and popcorn.

Acquisition of Columbia Care Inc

Cresco Labs is about to get a lot bigger.

The company recently announced that it had entered a definitive agreement to acquire New York-based Columbia Care Inc for approximately $2.0 billion. (Source: “Cresco Labs to Become the New Leader in Cannabis With the Acquisition of Columbia Care,” Cresco Labs Inc, March 23, 2022.)

The deal combines Cresco Labs’ popular marijuana brands with Columbia Care’s strong retail footprint. Once the merger is completed, the combined company will be the largest U.S. marijuana multistate operator (MSO) by revenue (about $1.4 billion).

Columbia Care stockholders will receive 0.5579 of a subordinate voting share of Cresco Labs for each of their Columbia Care shares. That represents a premium of about 16% for Columbia Care shareholders, based on the March 23 closing price, and gives them about 35% of Cresco Labs Inc’s shares.

The transaction will expand Cresco Labs’ presence to 17 states plus D.C. Columbia Care’s retail footprint includes 83 stores, far more than Cresco’s 50.

Cresco Labs will also have the top marijuana market share in Illinois, Pennsylvania, Colorado, and Virginia. By 2025, Cresco is expected to lead in seven of the top 10 markets.

Before the acquisition, the company derived more than 80% of its revenue from just three states. After the merger, Cresco Labs Inc’s products will be available to 70% of the current potential market.

Cresco Labs Inc’s CEO, Charles Bachtell, said, “This is how you turn brands like High Supply, Cresco and FloraCal into Miller High Life, Coca-Cola and Johnnie Walker Blue Label.” (Source: “Cresco Labs to Buy Columbia Care in $2 Billion Cannabis Deal,” Bloomberg, March 23, 2022.)

Analyst Take

Cresco Labs Inc’s transformational acquisition of Columbia Care Inc brings together two of the leading U.S. cannabis operators. It significantly diversifies Cresco Labs’ geographic footprint and the number of its retail stores.

On a pro forma basis, the combined company will be the biggest cannabis company by revenue and the No. 1 wholesaler of branded marijuana products. It will also have the largest nationwide pot retail footprint outside of Florida.

That should end up benefiting holders of CRLBF stock.