Cresco Labs, Columbia Care Struggle to Secure Approvals for Deal

Chicago-based Cresco Labs (CSE:CL) (OTCQX:CRLBF) and Columbia Care (CSE:CCHW) (OTCQX:CCHWF) won’t be able to finalize divestitures needed to secure nods from regulators for the two’s proposed multibillion megamerger, the companies said Friday.

According to a joint statement, the companies failed to meet the deadline of June 30 that was set in their arrangement agreement. The companies announced in March of last year their intent to merge, but the closure of the has been held up by regulatory hurdles.

Both parties said they are working in tandem to decide the next course of action and pledged to issue “further updates in the near future.”

The setback, though not entirely unexpected, marks a bump in the road for both Cresco and Columbia Care, which sought to join forces and capitalize on the ever-expanding U.S. cannabis industry.

The original accord intended to create the largest legal cannabis operator to date, reflecting the rising trend of consolidation within the industry as inflationary trends and economic uncertainty grip the markets at large.

What has been said

On a May earnings call, Cresco Labs’ CEO Charles Bachtell maintained that the deal could still be financially viable depending on the outcomes of divestitures. He also reassured investors that Cresco has alternative growth strategies should the merger fall through, pointing out the company’s strong presence in Florida, Illinois, Ohio, and Pennsylvania.

Mentions of backup plans grew as more concerns began clouding the financial aspects of the merger, as both companies have yet to achieve free cash flow positivity and clear looming debts.

Cresco Labs’ CFO, Dennis Olis, revealed plans for store expansions and ongoing facility enlargement, primarily in Florida and New York. But even those moves have entailed complex regulatory compliance, including limitations on retail operators in New York and changes in Florida’s regulatory environment.

The final shape of the post-merger entity had been hard to predict due to the various financial and strategic concerns. The two did not provided a revised timeline or specific next steps for the transaction, once again leaving investors and industry watchers waiting for the next update.