Cowen downgrades Columbia, Cresco over lack of marijuana banking reform

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Investment bank Cowen has downgraded its outlooks for major cannabis multistate operators Columbia Care and Cresco Labs after U.S. lawmakers declined to include marijuana banking reform in an omnibus spending bill.

Analysts at New York-based Cowen downgraded both companies’ ratings from “outperform” to “market perform” and lowered their price targets in research notes issued Tuesday.

Chicago-headquartered Cresco is attempting to acquire New York-based Columbia Care in what would be a marijuana megamerger, but the deal has not yet closed.

Cowen “(believes) the 117th Congress’ failure to pass the SAFE (Banking) Act in omnibus makes (Cresco’s) acquisition of (Columbia Care) … incrementally less likely to close,” wrote equity analysts Vivien Azer, Victor Ma and Seamus Cassidy.

Although the companies have already announced some of the asset divestitures needed for the acquisition to close, the analysts wrote that other divestitures must be achieved in Florida, Maryland, and Ohio.

“Given the challenging backdrop and lack of any meaningful legislative progress on Capitol Hill, we believe this will result in uncertainty among both buyers and regulators that will at a minimum present a collective risk to the targeted $300 million in proceeds from these required divestitures,” the Cowen analysts wrote.

If the deal fails to close, they added, wholesale-dependent Cresco “would be negatively impacted by the potential for an industry-wide shakeout given their reliance on third-party retailers (who face mounting headwinds as capital access remains constrained).”

Even if the acquisition does close, Cowen believes “large-scale M&A integration risk is more prevalent in a dynamic and increasingly opaque environment without SAFE (Banking).”

Regardless of the perceived increased risks to the acquisition, Cowen wrote that the combined company would still be “attractive.”

In a Monday statement, Boris Jordan, co-founder and executive chair of Massachusetts-based marijuana MSO Curaleaf Holdings, said that “the entire (cannabis) industry will suffer as a result of this failure” of Congress to pass marijuana banking reform.