Headquartered in Chicago, Cresco Labs (CSE:CL) (OTCQX:CRLBF) and Columbia Care (CSE:CCHW) (OTCQX:CCHWF) have been unable to finalize divestitures necessary to obtain regulatory approval for their prospective multibillion megamerger, as announced by the firms on Friday.
In a shared announcement, the firms disclosed their inability to adhere to the June 30 deadline stipulated in their merger agreement. The merger, initially revealed in March of the previous year, has been delayed by regulatory impediments.
The two parties have expressed their commitment to collaboratively determine the subsequent steps and promised to release “additional updates in the upcoming days.”
Although somewhat anticipated, this hitch represents a stumbling block for both Cresco Labs and Columbia Care. These companies aspired to unite and leverage the continuously growing U.S. cannabis industry.
The initial agreement aimed to establish the most significant legal cannabis operator thus far, reflecting the increasing consolidation trend within the sector amid rising inflation and economic instability affecting the broader markets.
Statements Made
In a May earnings conference, Charles Bachtell, the CEO of Cresco Labs, insisted that the merger might still hold financial merit, contingent on the results of divestitures. He further assured shareholders that Cresco possesses alternate expansion plans if the merger does not go ahead, highlighting the firm’s robust presence in states like Florida, Illinois, Ohio, and Pennsylvania.
As the financial implications of the merger became increasingly uncertain, discussions of contingency plans escalated. Both organizations are still striving to reach a positive free cash flow and pay off outstanding debts.
Cresco Labs’ CFO, Dennis Olis, unveiled strategies for expanding their store network and continuing facility development, particularly in Florida and New York. However, these initiatives have involved intricate regulatory adherence, encompassing retail restrictions in New York and changes to Florida’s regulatory landscape.
The final configuration of the entity post-merger was difficult to forecast owing to numerous financial and strategic considerations. Neither company has provided a revised schedule or concrete next steps for the transaction, leaving investors and industry spectators in anticipation for the next disclosure.
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