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 US$1 per share target price on the U.S.-based seller of medical and recreational cannabis, currently trading at about US$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 US$330 million ($330M), of which US$44M is due in less than a year's time. Specifically, it converted its 13% notes totaling US$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 US$950,000.
Selling Certain Assets
Another of Columbia Care's strategies is asset divestiture. The cannabis firm just closed on the sale of its facility in downtown Los Angeles, California, for about US$9M gross. Of that, it should net US$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 US$8.5M in California, according to management," reported Fortune.
The company has begun the process of divesting its assets in Missouri, too.
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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- Doresa Banning wrote this article for Streetwise Reports LLC and provides services to Streetwise Reports as an independent contractor.
- This article does not constitute medical advice. Officers, employees and contributors to Streetwise Reports are not licensed medical professionals. Readers should always contact their healthcare professionals for medical advice.
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Disclosures for Roth Capital Partners, Columbia Care Inc., July 31, 2023
Regulation Analyst Certification ("Reg AC"): The research analyst primarily responsible for the content of this report certifies the following under Reg AC: I hereby certify that all views expressed in this report accurately reflect my personal views about the subject company or companies and its or their securities. I also certify that no part of my compensation was, is or will be, directly or indirectly, related to the specific recommendations or views expressed in this report.
Disclosures: Shares of Columbia Care, Inc. (CCHW.CN) may not be eligible for sale in one or more states. Shares of Columbia Care, Inc. (CCHW.CN) may be subject to the Securities and Exchange Commission's Penny Stock Rules, which may set forth sales practice requirements for certain low-priced securities.
ROTH Capital Partners, LLC expects to receive or intends to seek compensation for investment banking or other business relationships with the covered companies mentioned in this report in the next three months. The material, information and facts discussed in this report other than the information regarding ROTH Capital Partners, LLC and its affiliates, are from sources believed to be reliable, but are in no way guaranteed to be complete or accurate. This report should not be used as a complete analysis of the company, industry or security discussed in the report. Additional information is available upon request. This is not, however, an offer or solicitation of the securities discussed. Any opinions or estimates in this report are subject to change without notice. An investment in the stock may involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Additionally, an investment in the stock may involve a high degree of risk and may not be suitable for all investors. No part of this report may be reproduced in any form without the express written permission of ROTH. Copyright 2023. Member: FINRA/SIPC.