Columbia Care, Cresco Labs Sack $2 Billion Megadeal

After months of swirling doubt and some bought time, Cresco Labs (CSE: CL) (OTC: CRLBF) and Columbia Care (Cboe/NEO: CCHW) (CSE: CCHW) (OTC: CCHWF) have mutually agreed to terminate their planned $2 billion merger, according to announcements from both companies Monday.

The deal, once billed as a potential game-changer with aspirations of becoming a brand as mainstay as Coca-Cola, was seen as a huge bet on a pandemic-era U.S. cannabis boom. Now, regulatory hurdles and a changing industry landscape have led both companies to reassess their positions.

“In light of the evolving landscape in the cannabis industry, we believe the decision to terminate the planned transaction is in the long-term interest of Cresco Labs and our shareholders,” Cresco Labs CEO and co-founder Charles Bachtell said in a statement.

The planned merger faced more setbacks as time passed and valuations spiraled. And with marijuana still illegal at the federal level in the U.S., legislation to ease lending norms for legitimate cannabis-related businesses remains stuck.

Share prices of both companies were weighed down by the deal and the overall decline in cannabis stocks, which wilted after the prospects for banking relief and other reforms faded in Congress, Crain’s Chicago reported. Cresco’s stock was trading at $6.53 per share before the deal was announced and closed Friday at $1.57. Columbia Care shares were then trading at $3.12 apiece and now are selling at 42 cents.

In addition to the terminated merger, a deal involving hip-hop mogul Sean “Diddy” Combs to acquire divested operations in New York, Massachusetts, and Illinois was also called off.

Nicholas Vita, CEO and co-founder of Columbia Care, said, “After careful consideration, we are confident in the mutual decision to move forward as separate, stand-alone companies. This is the best path forward for Columbia Care’s employees, customers, and shareholders.”

Columbia Care has been busy on other fronts, implementing a restructuring plan that included the closure of its downtown Los Angeles facility and a 52-person headcount reduction. The company raised approximately $9 million from the sale of its Los Angeles facility.

Additionally, the company exchanged some of its debt, reducing the interest expense and extending the maturity of its notes.

Columbia Care also announced plans to consolidate its equity trading activity onto the Cboe Canada and delist its securities from the Canadian Securities Exchange.

Moving forward, Cresco Labs said it intends to focus on its “Year of the Core” strategy, which involves restructuring low-margin operations and scaling up in anticipation of growth in emerging markets.