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Columbia Care And Cresco Labs Call Off $2 Billion Merger Deal
A proposed $2 billion merger between Columbia Care and Cresco Labs that would have created the nation’s largest cannabis firm has been called off, the companies announced on Monday.
A planned merger between cannabis multistate operators Columbia Care and Cresco Labs valued at $2 billion has been called off, according to a statement from the two companies released on Monday.
Chicago-based Cresco Labs announced in March 2022 that it had come to an agreement to acquire Columbia Care, headquartered in New York, in an all-stock deal valued at approximately $2 billion. In February, the two companies unveiled a revised plan to give the firms more time to divest assets in some markets to comply with regulatory requirements.
Each already one of the largest vertically integrated cannabis companies in the United States, the planned deal between the two firms would have created the largest marijuana business in the country. But on Monday, the two companies announced that they had come to a mutual agreement to walk away from the deal, citing the regulatory and business climate facing the regulated cannabis industry. No penalties or fees related to the mutual agreement to terminate the merger will be incurred by either company.
“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 Cresco Labs, said in a statement from the company.
Bachtell added that this is a “tough economic time” for the cannabis industry as a whole and that Cresco will refocus on its core business, including a “swift restructuring of low-margin operations.”
Cannabis Industry Facing Challenges
CNBC reported on Monday that the deal began to fall through when the companies failed to divest assets necessary to achieve regulatory approval by a deadline that passed on June 30. Under state licensing laws, the companies were required to relinquish assets in some markets where both firms were doing business.
In addition to the regulatory issues faced by Columbia Care and Cresco Labs, the cannabis industry as a whole has been hampered by the continued illegality of marijuana at the federal level. Sales of regulated cannabis have declined in some of the first states to legalize marijuana as markets mature, while an entrenched underground industry continues to flourish.
Additionally, the failure of Congress to pass the Secure and Fair Enforcement (SAFE) Banking Act, a bill that would give state-legal cannabis companies access to traditional financial services, has led to a steep drop in investment in the industry. Federal regulations also impinge on regulated cannabis companies’ ability to carry out vital business functions, as was made clear last week when Mastercard warned banks and payment processors to stop allowing debit transactions for purchases of cannabis products.
Cresco Labs has a market capitalization of about $700 million, down from about $2 billion when the deal was announced, according to CNBC, while Columbia Care’s market value is about $200 million. In addition to the cancellation of the merger, the two companies noted that a November 2022 agreement to divest certain New York, Illinois and Massachusetts assets of Cresco and Columbia Care to an entity owned and controlled by Sean “Diddy” Combs has also been terminated, effective July 28, 2023.
Scrapping Merger ‘The Best Path Forward’
Nicholas Vita, the CEO and co-founder of Columbia Care, said that scrapping the planned deal was the best option for both businesses.
“After careful consideration, we are confident in the mutual decision to move forward as separate, standalone companies. This is the best path forward for Columbia Care’s employees, customers, and shareholders. We are thankful for the collaboration and partnership with the Cresco team throughout this extensive process,” said Vita. “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.
Lucas C. McCann, Ph.D., the co-founder and chief scientific officer of the cannabis regulatory and compliance consulting firm CannDelta, says that the “announcement of the failed merger between Cresco and Columbia Health is an alarming trend in the cannabis industry across the country.” But he adds that the news might result in a better business environment for independent operators down the road.
“The silver lining in this situation might be the opportunities it opens up for smaller businesses. The saying ‘Be Small, Keep it All’ seems to continue to be true for emerging and mature cannabis markets, such as New York,” McCann said, where fees for large operators are high compared to those for micro businesses, “making it prohibitively expensive for big businesses to thrive in these markets.”
“These high fees for big businesses will pave the way for smaller players to make a significant impact and continue to do so as the market matures,” he added in an email to High Times.
Source: https://hightimes.com/business/columbia-care-and-cresco-labs-call-off-2-billion-merger-deal/
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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