Small and medium-sized cannabis operators who wish to enter or expand in the Massachusetts market could soon get the opportunity as Cresco Labs will have to divest some of the Bay State licenses involved in the announced acquisition of Columbia Care.
“This will certainly open up turnkey stores for new entrants to buy or possibly for some of the smaller players to quickly scale,” said Jon Decourcey, director of equity research and cannabis market expert for Viridian Capital.
Cresco Labs announced last month that it had reached an agreement to acquire Columbia Care, another multi-state operator, in a $2 billion deal. As a result, Cresco is poised to gain cannabis licenses in excess of state caps in Massachusetts, New York, Ohio, Florida, and Illinois.
Decourcey was reluctant to speculate on which assets that Cresco Labs might be planning to unload, other than guessing that Columbia Care’s second retail location, which was originally the first medical cannabis dispensary in Boston and is located in the heart of the city’s downtown Financial District, would likely remain with Cresco Labs.
“Certainly the Columbia Care’s Financial District store will not be sold but otherwise I think we’d have to know the financials and the market dynamics to figure which other ones would be,” he said.
In terms of potential buyers, Decourcey speculated that potential buyers would likely include smaller operators with more room for growth before hitting the state license limit.
“As for who might enter, I’d suspect some of the better single or few-state operators to enter. Most of the MSOs are fully scaled to capacity so I wouldn’t expect much movement there with the exception of maybe the few holdouts like a Terrascend.”
Terrascend is a Canada-based multi-state operator with cannabis facilities in Pennsylvania, New Jersey, Maryland, and California. The company recently announced an expansion into Michigan, but they have yet to enter any New England market.
On the other hand, David Rabinovitz, a cannabis consultant, argued that MSOs would likely be the companies that purchase Cresco’s excess assets.
“If Cresco wants a lot of money, they’re going to have to sell to an MSO. The only ones that are maxed are the MSOs based in Massachusetts,” he said. “Every time a new state legalizes adult use marijuana there’s a whole bunch of new MSOs that are created.”
Beyond the Cresco deal Rabinovitz expects the number of MSOs to grow until the point where they will be able to swap established facilities.
“I think you’re going to start seeing musical chairs with existing MSOs,” he said. “We’re going to start to see the Monopoly effect, where they’re going to start trading properties.”
As per state regulation, any individual or business entity in Massachusetts is limited to three medical treatment center licenses, three adult use retail licenses, three adult use manufacturing licenses and three adult use cultivation licenses. Medical cannabis licenses are vertically integrated, so operators are permitted to grow, process, package, and sell medical cannabis with a single license. In order to also get involved in the adult use market, the business entity must obtain a separate license for every stage of production the company wishes to participate in.
“Failure to obtain approval of such changes may result in a license being suspended, revoked, or deemed void,” said a Cannabis Control Commission spokesperson on background.
Following previous acquisitions of medical and adult licenses in the state, Cresco Labs possessed four dispensaries, two manufacturing sites and two cultivation sites with a combined canopy of about 62,000 square feet. Two of those dispensaries are licensed to sell both medical and adult use, with a third dispensary that is exclusively medical and a fourth that only sells adult use products.
With the addition of Columbia Care’s assets, Cresco Labs would gain an additional manufacturing facility, a tier-6 cultivation site, which can grow up to 50,000 square feet of canopy and three dispensaries that offer both medical and adult use cannabis.
This means that Cresco will have to give up three medical licenses and three adult use licenses. The company will also be maxed out on cultivation licenses, but it remains to be seen if it will have to give any of them up, in order to meet the state’s 100,000 square-foot limit for total canopy regardless of whether its for adult use or medical because the company’s total canopy will likely decrease when it relinquishes the vertically-integrated medical licenses.
Before Cresco Labs can close its deal to acquire Columbia Care, it will have to apply for approval for a change in ownership from the state’s CCC, according to an agency spokesperson.
As of Thursday, the CCC had not yet received any change of ownership applications from Cresco Labs in relation to the Columbia Care acquisition, according to a CCC spokesperson.
A Cresco spokesperson said that the company had yet to discuss any divestment plans publicly and as such, declined to comment.
