Activist company

Columbia Care’s acquisition by Cresco CEO Charlie Bachtell would make his company the biggest in the US marijuana industry

The proposed acquisition of Columbia Care would also resolve some strategic issues plaguing Cresco. Buying the industry’s No. 6 would give Cresco a path to major new recreational marijuana markets set to open in New Jersey and Virginia, while adding scale and efficiency that could improve profitability. and impress investors.

If Bachtell succeeds, Cresco will rise to the top of an industry that is poised for explosive growth if Congress legalizes pot nationwide. But the deal carries considerable risk that could give rivals, including crosstown rivals Green Thumb Industries and Verano Holdings, room to play catch-up and rush if the deal doesn’t go through or doesn’t happen. is not well integrated.

“If they can get the deal done, it keeps Cresco among the top players and improves their profile in capital markets,” says Andrew Partheniou, Montreal analyst at Stifel GMP, who downgraded the stock to “hold” in because of the risks that lie ahead.

Columbia Care is the second largest acquisition in industry history, but also the most complicated. The overlap between businesses in markets such as Illinois, New York, Massachusetts, Ohio and Florida will require divestitures due to ownership limits in each state. The deal will also require federal antitrust approval.

“We have good relationships with regulators,” Bachtell says. “We’re good at that. I don’t know anyone in the industry who would be better able to navigate it than us.

Since Cresco is buying Columbia Care with stock instead of cash, the deal also requires shareholder approval from both companies. The owners of 25% of Columbia shares have pledged to support the deal. Bachtell must also persuade a majority of Cresco shareholders to exchange 100% ownership of the current company for two-thirds of a 58% larger company.

If Cresco obtains the necessary regulatory and shareholder approvals, the acquisition should be finalized in approximately one year. That’s when Bachtell would face a far bigger merger integration than any he’s undertaken to date.

Announced on March 23, the deal would increase Cresco’s annualized revenue by 58% to about $1.3 billion after divestments, based on 2021 numbers; more than double its number of stores to over 100; and will likely increase headcount by more than 50%, topping 5,000. Bachtell is expected to merge Cresco and Columbia operations while simultaneously executing divestments required by regulators.

“The juice is worth it,” says Bachtell, emphasizing his goal of making Cresco “the most important cannabis company.”

Observers note that Bachtell strayed from previous agreements when complications arose. Cresco pulled out of the $120 million acquisition of VidaCann in 2019 to save cash and canceled the $283 million purchase of Tryke in 2020 due to regulatory delays amid falling revenues. cannabis stocks.

Bachtell counters that Cresco completed five acquisitions worth $600 million last year, with 600 employees in four states. But the Columbia Care acquisition is exponentially larger, involving 18 markets and 2,400 employees.

He says Cresco will follow the same playbook it has used to successfully integrate previous acquisitions, retain employees and improve throughput and margins. “I’m very confident in our ability to get this deal across the finish line,” Bachtell added.

Since obtaining its first license in Illinois in 2015, Cresco has quickly expanded into other markets and has become one of the largest multi-state operators, alongside other Chicago-based companies such as GTI, Verano and PharmaCann. But it hasn’t always enjoyed the same recognition or respect from investors.

Cresco went public in Canada in 2018, the same year as Curaleaf and GTI, but is trading at a lower valuation because its profit margins are thinner.

“Profitability has been the name of the game over the past 24 months, and GTI has been rewarded for it,” says Alexander Gastevich, vice president of Chicago-based V. Gastevich Investments, a shareholder in Cresco, GTI, Verano and PharmaCann. “Cresco has focused a bit more on branding and the consumer side of things. When I talk to consumers in the city, Cresco is the most important name.”

Cresco formed an early partnership with Chicago pastry chef Mindy Segal, creating a line of weed-infused edibles, along with other brands. Bachtell’s long-term strategy to become the best-selling brand is to sell products not only in its own “Sunnyside” stores, but also through other retailers. Cresco claims to be the largest cannabis wholesaler in the United States

It’s one of the reasons Cresco has aggressively entered the huge California market. It’s a tricky strategy. California does not have the license limits found in Illinois and other states that protect prices. Late last year, a glut of supply crushed prices in California, the main reason Cresco missed revenue estimates. With the acquisition, Bachtell doubles in California.

“Cresco is the most aggressive large (multi-state operator) in California; the second was Columbia Care,” says Alan Brochstein, who follows the industry at Houston-based 420 Investor. “Cresco designed its business to create products to be sold by others.”

A soft-spoken former corporate lawyer, Bachtell is an unlikely spokesperson for the cannabis industry.

He was born in Berwyn but grew up in Sedona, Arizona where his mother was a successful realtor. Bachtell returned to Chicago in 2000 to attend DePaul University Law School after graduating from the University of Arizona, where he played college tennis.

Bachtell planned to be a sports agent, but became interested in real estate while working at a Chicago law firm. He joined Guaranteed Rate in 2007, just as the startup grew from about 200 employees to 3,500 workers, becoming one of the largest mortgage brokers in the country. Bachtell was general counsel before he and broker Joe Caltabiano applied for a license to grow medical marijuana in 2013.

“Having been through this with the mortgage industry overhaul after 2008, where regulations changed every week, it felt like we had read the book before,” Bachtell says.

He says the herb presented an opportunity to do good and do good. “Growing up in northern Arizona, there wasn’t a ton of negative stigma around the plant,” he says. “Show me another opportunity to change the way people think about medicine, change the criminal justice system, and get on the ground floor of something new.”

Cresco and others have come under fire from social equity activists who have been frustrated in their efforts to break into Illinois’ marijuana industry, which has been dominated by white entrepreneurs and investors who have got a head start on recreational sales.

Bachtell has, however, received praise for his debarment efforts, an incubator program for social equity candidates, and the transformation of his former Lakeview dispensary into a training center for new owners and their employees.

“Charlie is doing more than anyone else,” says Willie JR Fleming, a housing campaigner from Cabrini Green who is part of Public Square, a company that has obtained a craft-growing license.

Bachtell is among a select group of founders who have built companies from single-state licenses to publicly traded giants and remain at the helm.

“He built a top-five business,” Partheniou says. “That’s no small feat.”