Multi-Billion Dollar Cannabis Merger Deal Collapses

On July 31, a multi-billion dollar merger between American companies Columbia Care and Cresco Labs fell through. The deal could have created one of the largest cannabis firms in the United States.

Cresco Labs’ Offer Valued at $2 Billion

Back in March 2022, Cresco Labs’ management agreed to purchase all shares of Columbia Care for $2 billion. However, in February, the companies postponed the deal to avoid regulatory issues, and after several months, representatives announced the agreement was terminated in the interest of shareholders.

Cresco Labs CEO Charles Bachtell explained that the cannabis industry is facing tough times. The company now plans to restructure its business, apparently aiming to cut costs and focus on producing the most popular cannabis products.

Columbia Care’s Valuation and Industry Leaders

Cresco Labs’ market capitalization is estimated at $480 million, while Columbia Care’s assets are valued at $170.7 million. Therefore, buying Columbia Care for $2 billion did not make financial sense. The world’s largest cannabis company by market capitalization remains GW Pharmaceuticals, which produces cannabis-based medicines like Epidiolex and Sativex. GW Pharmaceuticals’ assets are valued at $6.8 billion.

Cannabis Sales Growth Slows Down

According to CNBC, the merger failed because the companies did not allocate enough assets in time to complete the deal. There is speculation that the companies may have intentionally violated regulatory requirements so that authorities would block the transaction.

When Charles Bachtell mentioned “tough times,” he was likely referring to lower-than-expected demand for cannabis. Last year, the U.S. market for recreational and medical cannabis grew by 20% to $30 billion. Previously, cannabis sales had been growing much faster—by 43-46% annually.

The most concerning news for American cannabis companies is that demand is not expected to surge. Analysts predict that U.S. consumer spending on cannabis will increase by 12% in 2023, 14% in 2024, and 15% in 2025. Given the relatively high inflation rate in the U.S. economy, real income growth for cannabis sellers will be minimal.