Merger Between Two Firms Called Off

August 3, 2023 (Investorideas.com Newswire) The deal broke down because the parties could not sell assets that had to be divested for it to go through, noted a ROTH Capital Partners report.

Cresco Labs Inc. (CL:CSE; CRLBF:OTCQX) and Columbia Care Inc. (CCHW:CSE; CCHWF:OTCMKTS), two U.S.-based cannabis sellers, decided to terminate their previously agreed upon transaction in which Cresco would acquire Columbia, reported ROTH Capital Partners analyst Scott Fortune in a July 31 research note.

"The agreed deal (March 2022) was unable to finalize primarily due to the challenging cannabis macroenvironment leading to the inability to divest necessary assets (limited investment capital in cannabis) to meet regulatory approval," Fortune explained. "Both parties recognized the difficulties and parted ways with no break-up fees or penalties."

Rating, Target Price Unchanged

ROTH reiterated its Neutral rating on Cresco Labs, given it believes the ending of the deal was already priced into the cannabis firm's shares, noted Fortune.

The financial services firm also kept its 12-month target price of US$1.75 per share on Cresco, currently trading at US$1.57 per share in comparison. The price difference reflects an 11% potential gain for investors.

Near-Term Growth Possible?

How Cresco Labs is going to garner topline growth in the near term is a concern, Fortune wrote. This is because it lacks a significant presence in any of the expanding emerging markets, such as Maryland, New Jersey, and Virginia, which recently legalized recreational cannabis use. Cresco was going to gain these markets through its acquisition of Columbia Care.

As such, ROTH expects quarter-over-quarter revenue growth for Cresco Labs to remain flat for the rest of 2023. It anticipates year-over-year topline growth this year to be about 6%.

Thus, Fortune wrote, "We remain cautious on [the company]. We look for additional color to update our financial model after Cresco's Q2/23 earnings call sometime in August."

Retrenching Methods

With the merger in the rear-view mirror, Fortune wrote, Cresco Labs "can now focus on adding margin-accretive growth opportunities in existing and new emerging markets" to generate cash flow.

Management intends to do just that, continue pursuing and driving scale in higher-margin operations. Regarding its existing lower-margin operations, such as those in California and in other markets experiencing price pressure, Cresco will re-evaluate and potentially restructure those.

Also, the company will maintain its consumer packaged goods approach but likely shift toward adding retail, as it "needs increased verticality with more owned retail assets," noted Fortune.

Disclaimer/Disclosure: Investorideas.com is a digital publisher of third party sourced news, articles and equity research as well as creates original content, including video, interviews and articles. Original content created by investorideas is protected by copyright laws other than syndication rights. Our site does not make recommendations for purchases or sale of stocks, services or products. Nothing on our sites should be construed as an offer or solicitation to buy or sell products or securities. All investing involves risk and possible losses. This site is currently compensated for news publication and distribution, social media and marketing, content creation and more. Disclosure is posted for each compensated news release, content published /created if required but otherwise the news was not compensated for and was published for the sole interest of our readers and followers. Contact management and IR of each company directly regarding specific questions.

More disclaimer info: https://www.investorideas.com/About/Disclaimer.asp Learn more about publishing your news release and our other news services on the Investorideas.com newswire https://www.investorideas.com/News-Upload/ and tickertagstocknews.com

Global investors must adhere to regulations of each country. Please read Investorideas.com privacy policy: https://www.investorideas.com/About/Private_Policy.asp

Buy a cannabis guest post on Investorideas.com