When the deal was announced in March, Cresco Labs said purchasing VidaCann would allow it to enter a Florida medical cannabis market that was projected to grow to $1.7 billion by 2022. VidaCann's licenses, retail dispensaries, and cultivation facilities were all supposed to support Cresco's growth ambitions in the Sunshine State.
"Entering the Florida market is consistent with Cresco Labs' strategy of entering markets with [outsize] demand with strong regulatory structures and is an important milestone for the company that dramatically impacts our growth trajectory," Cresco Labs CEO Charlie Bachtell said at the time.
Now, however, financing concerns have forced Cresco to abandon the deal.
"We recognize that responsibly allocating our shareholders' capital is fundamental to long-term success," Bachtell said in a press release on Tuesday. "While it sometimes means making tough decisions, we are committed to executing on a superior capital agenda, responsibly accelerating the top and bottom line, executing thoughtful and accretive M&A [merger and acquisition] transactions, and generating efficiencies as we scale."
Cresco said scrapping the VidaCann deal would eliminate $120 million in near-term cash requirements.
Out with one deal, in with another
At the same time, Cresco also announced that it had entered into sale-and-leaseback transactions with Innovative Industrial Properties (NYSE:IIPR) that will help it raise cash. Cresco will sell two properties in Ohio and Michigan to the cannabis-focused real estate investment trust (REIT) for approximately $38 million. Innovative Industrial Properties will then lease the properties to Cresco, which will continue to operate them as cannabis cultivation and processing facilities. The deal is expected to close in the next 30 days, subject to IIP's due diligence proceedings.
"With these two announcements, we have effectively strengthened our balance sheet to the tune of nearly $158 million between new non-dilutive funding and the elimination of a significant near-term cash outlay earmarked for the [VidaCann] transaction," Bachtell said.
Rather than enter the Florida market, Cresco will instead look to deploy its capital in markets in which it already has an operational presence, such as Illinois, Pennsylvania, California, and Nevada.
"We believe it's in the best interest of our shareholders to reallocate resources to these existing higher return opportunities with a view to looking for a more capital-efficient way to enter the Florida market over the longer term," Bachtell said.