Columbia Care is trading at a discount, says Beacon

Investors are still waiting on the proposed merger in US cannabis between Columbia Care (Columbia Care Stock Quote, Charts, News, Analysts, Financials CSE:CCHW) and Cresco Labs (Cresco Labs Stock Quote, Charts, News, Analysts, Financials CSE:CL), but in the meantime, Beacon Securities analyst Russell Stanley delivered an update to clients on Monday where he reiterated his “Tender” recommendation on Columbia Care.

Ahead of fourth quarter earnings from Columbia Care, Stanley said he’s forecasting $133 million in revenue and $21 million in adjusted EBITDA, noting that management had guided in its third quarter report for flat-to-low single digit topline growth over the fourth quarter with adjusted margins to come in the mid-to-high teens.

New York City-based Columbia Care, which has cannabis interests in 18 jurisdictions in the US and a strong presence in the Mid-Atlantic region, first announced one year ago the deal which would see Cresco buy CCHW for $2 billion. The deal originally had a closing date of March 31, 2023. 

But last month, the two companies said they’d agreed to extend the deadline to June 30, citing more work needed to complete the required divestitures and regulatory approvals. 

“We are making good progress on the remaining divestitures and moving closer to completing the Columbia Care Acquisition,” said Charles Bachtell, CEO and Co-founder of Cresco Labs, in a February 27 press release. 

“Given the current divestiture and regulatory approvals timeline, we now expect closing to occur sometime before the end of June 2023,” he said.

Meanwhile, stock prices continue to fall across the cannabis space, with CCHW going from a high of about C$9 in early 2021 to now below C$1.

Stanley’s take is that the required asset sales will have to be finalized by the end of next month for the newly extended timeline to be fulfilled, with Cresco management having said that progress has been made on the sales in recent weeks.

“These asset sales also require regulatory approval, so we estimate that CL/CCHW will need definitive sale agreements in place by the end of April in order to meet a June 30th deadline, though further extensions of that deadline can be negotiated. CCHW is now trading at a 38 per cent discount to the implied value of the offer, with the discount having expanded considerably since early December,” Stanley wrote.

With the update, Stanley reiterated a target price on Columbia Care of C$4.75 per share, which at press time represented a projected one-year return of 560 per cent.