Columbia Care Inc. (CCHW:CSE; CCHWF:OTCMKTS) and Cresco Labs called off their merger announced in March 2022, reported ROTH Capital Partners analyst Scott Fortune in a July 31 research note. Since, Columbia Care has taken steps to "accelerate operational efficiencies and cash flow to better position the standalone business."
Fortune added that "execution on the balance sheet side along with right-sizing should still drive the upside of shares, currently trading below 0.5 times 2023 enterprise value:sales. We look for additional execution to improve margins while key new adult-use states drive topline growth to offset divestitures."
Significant gain for investors
ROTH reiterated its Buy rating and its $1 per share target price on the U.S.-based seller of medical and recreational cannabis, currently trading at about $0.42 per share. From this price, the return to the target reflects a material return, of 138%, for investors.
Steps taken to rebound
Columbia Care restructured its debt of about $330 million ($330M), of which $44M are due in less than a year's time. Specifically, it converted its 13% notes totaling $38.2M due in 2024 to 9.5% notes due in 2026. Also, it obtained commitments from several of its top holders.
"We view this as a key positive, as this reduces near-term obligations while lowering cash interest costs for the next three years," Fortune wrote.
Lowering head count
Also, the New York-headquartered firm reduced its number of employees by 52, on the gLeaf side, for an estimated increase to 2023 EBITDA of about $950,000.
Selling certain assets
Another of Columbia Care's strategy is asset divestiture. The cannabis firm just closed on the sale of its facility in downtown Los Angeles, California for about $9M gross. Of that, it should net $3M after taxes and the mortgage are paid.
"Proceeds will be used to reduce overall debt, and the sale will reduce annual operating costs by about $8.5M in California, according to management," reported Fortune.
The company has begun the process of divesting its assets in Missouri, too.
Prioritizing states
Fortune highlighted that Columbia Care's 85 dispensaries in 16 states will continue expanding revenue and margins and ultimately "lead to an easier path to managing future debt."
Plus, the company has additional dispensaries slated to come online, in New Jersey, Maryland and Virginia, and, the analyst added, "the right sizing of assets to prioritize these states will help drive margin growth through 2024."
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