El Planteo – Ripe information for a green world

✍ 10 January, 2023 – 12:34

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Pablo Zuanic, of Cantor Fitzgeraldcarefully analyzed the scenarios and permutations of the operation between I grow y Columbia Care. Cresco announced the acquisition of rival Columbia Care for $2.1 billion in March 2022. Once the deal closes, Cresco Labs will become the cannabis company larger According to the analyst, the closing of the agreement represents an advantage for both I grow (OTC:CRLBF) as for Columbia Care (OTC:CCHWF).

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The agreement will grant Cresco a presence strategic business comprising 120 retail stores in 18 markets and vertical integration in 16 states. This would reach up to 55% of the US population, and would take Cresco to a leadership position in seven of the top ten markets by revenue by 2025, according to BDSA.

“If the Cresco-Columbia Care transaction were to close today, CCHWF shares would appreciate 35% based on the exchange rate (0.5579),” Zuanic says.

Although the closing of the operation has been delayed once again, he considers that the probability that either of the two companies will leave is minimal., given the strategic advantages for Cresco. Zuanic pointed out that, in a sector in the process of consolidation, it is doubtful that Columbia prefers to remain independent.

“It’s more about Cresco finding buyers for the assets it must divest to get approval from state-level regulators. We believe that the group led by Sean Combs (which we understand is a well-funded group), is getting good value for the Illinois, Massachusetts and New York assets at $155 million (not taking profits into account),” Zuanic explained.

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I grow signed a definitive agreement with a group led by Sean “Diddy” Combs to sell part of the assets for no less than USD 185 million.

Using the Illinois and Massachusetts “comparisons” as a benchmark, Zuanic estimates that the Combs group is only paying $10 million to $20 million for the New York assets. This, “despite the uncertainty (as the draft rules for incumbents have not yet been finalized), seems like a good deal.”

What is left to sell?

Zuanic explained that the future of the assets in Ohio, Florida and Maryland appear to depend on Cresco agreeing to a price. Why? Ohio could legalize recreational cannabis in 2023, Florida will double the number of licenses, and Cresco “plans to sell the paper license along with the assets that are already in operation,” Zuanic said.

Similarly, although the Maryland asset is a processing facility, Zuanic believes demand will hold steady in the state after voters legalized recreational cannabis in November 2022.

“Worst case scenario, we anticipate the shutdown to last until mid-2023 as Cresco and potential buyers wait for the state regulation landscape (especially Ohio) to clear up. Cresco has said that the passage of the SAFE Banking Act would not affect potential buyers, but we believe that, at the very least, it means less competition for buyers,” Zuanic said.

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“Again, it’s all about Cresco potentially having to accept lower prices, in our view, and getting less than the $300 million in gross proceeds it initially anticipated for all the combined assets to be sold,” the analyst continued.

“Although the lenders are few, we believe they will want to work with/support what will be one of the largest multi-system operators in the US once this deal is complete,” Zuanic explained. “Cresco still expects to close the transaction by the end of March 2023 and realize $300 million in gross proceeds.”

Cresco and Columbia Care are unlikely to walk away from the agreement. Our reading is that both Cresco and Columbia Care want to close this deal (ie, it’s not about Verano/Goodness Growth, where one party pulls out),” Zuanic concluded.

Via To gasolinetranslated by El Planteo

Image by Ilona Szentivanyi. All rights reserved to El Planteo and Benzinga.

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