Business
Cannabis MSOs Cresco Labs, Columbia Care terminate planned merger
Cannabis multistate operators Cresco Labs and Columbia Care are officially walking away from their planned merger, a deal that was valued at $2 billion when it was announced in March 2022.
There are no costs associated with terminating the deal, according to a Monday news release.
“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,” Charles Bachtell, CEO and co-founder of Chicago-based Cresco Labs, said in a statement.
The deadline to close the deal had been delayed twice, most recently until June 30.
Then, on June 30, the companies announced they had not divested overlapping assets required by marijuana regulators in several states.
The terminated deal also means that the companies’ plans to sell assets in Illinois, Massachusetts and New York to rapper and business mogul Sean “Diddy” Combs have been terminated, effective July 28, according to the release.
The sale to Combs would have created the largest Black-owned marijuana multistate operator in the United States.
Earlier this year, New York-headquartered Columbia Care streamlined its operations, laying off 25% of its corporate employees and shuttering some operations.
“Over the last 16 months we have reviewed every aspect of our business, remained decisive and have made substantive changes that significantly improved our operations – positioning us with significant strategic and operational strength at this inflection point in the company’s history,” Columbia Care CEO Nicholas Vita said in a statement.
What happened?
A spokesperson for Cresco told MJBizDaily that the companies were struggling to divest assets, as required, in Florida and Ohio this spring and summer.
“Every time we would get close, financing would fall through because of the capital landscape,” the spokesperson said.
Capital markets have been challenging for the U.S. cannabis industry, burdened by high interest rates, low share prices, the slow pace of federal marijuana reform, inflation and wholesale cannabis price compression.
“At its core, it seems that continuing macro-level challenges in a number of U.S. markets and a relatively shallow pool of investment dollars coming into the industry made the required pending asset dispositions less attractive than originally anticipated,” Matt Bottomley, an analyst for Toronto-based Canaccord Genuity, wrote in a July 31 newsletter.
Shares of the AdvisorShares Pure US Cannabis ETF (MSOS on the New York Stock Exchange Arca) – which includes some of the country’s largest multistate operators – have fallen from around $20 in March 2022 to just over $5.
Before the Cresco-Columbia deal was announced in March, the price of shares of Cresco Labs (CL on the Canadian Securities Exchange; CRLBF on the U.S. over-the-counter markets) fell from approximately $6.50 to just over $1.50 on Friday.
Over the same time period, shares of Columbia Care (CCHW on the CSE; CCHWF on the OTC markets) fell from $3.10 to a little more than 40 cents.
Citing these challenges, equity analysts were not surprised at the announcement of the terminated deal.
“The operational downturn on the back of this, alongside the combined debt of a merged company (with rapidly approaching maturities on the [Columbia Care] side), and then the difficulty in divesting assets as required by the merger (with assets now valued much lower than was the case, as well as a risk that potential buyers can actually get the cash together), meant the deal prospects looked increasingly slim,” Owen Bennett, senior vice president of equity research at New York-based financial services firm Jefferies Group, wrote in a July 31 newsletter.
Combs ‘committed to exploring opportunities’
The creation of the country’s first Black-owned cannabis MSO was also contingent on the deal closing between Cresco Labs and Columbia Care.
Combs Global, led by the rapper and business mogul known as “Diddy,” agreed to buy both production and retail assets for up to $185 million last November.
“For an industry in need of greater diversity of leadership and perspective, the substantial presence of a minority-owned operator in some of the most influential markets in the country being led by one of the most prolific and impactful entrepreneurs of our time is momentous … and incredibly exciting,” Cresco’s Bachtell said at the time of the announcement.
Though that deal also has been terminated, Combs Global President Tarik Brooks said the company hasn’t walked away from cannabis entirely.
“Combs Global remains committed to exploring opportunities and pushing for diversity in the cannabis industry,” he said.
Looking ahead
Cresco Labs will now focus on “swift restructuring of low-margin operations, improving competitiveness and driving efficiencies in markets where we maintain leading market share, and scaling operations to prepare for growth catalysts in emerging markets,” Bachtell said in a statement.
Columbia Care released a more detailed outline of its accomplishments so far this year as well as its plans for the third quarter in a separate news release.
That outline includes:
- Pursuing uplisting to a senior U.S. exchange and, in the interim, consolidating its shares on to Cboe Canada, formerly known as the NEO Exchange, and delisting from the Canadian Securities Exchange.
- Completing a corporate restructuring plan.
- Finalizing discussions with the largest holders of its 13% senior secured notes due in May 2024 to exchange into the company’s 9.5% senior secured notes, due in February 2026, on a one-to-one basis.
- Closing the sale of a 36,000-square-foot cultivation facility and retail outlet in downtown Los Angeles.
- Appointing two new members to the executive team: David Hart, as president and chief operating officer; and Jesse Channon, as chief commercial officer.
“With the uncertainty of the past 16 months behind us, along with the enthusiasm and energy that accompanies moments of renewal, our team welcomes the next stage of Columbia Care’s growth and expansion,” Columbia Care’s Vita said in a statement.
Source: https://mjbizdaily.com/cresco-labs-columbia-care-terminate-planned-cannabis-merger/
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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