Arizona is the new market to flee.
Cresco Labs (CSE: CL) (OTC: CRLBF) has sold its sole Arizona business, Encanto, to an affiliate of Mint Cannabis for $6.5 million.
The move comes as Cresco seeks to sharpen its focus on core markets and products after its mega-merger with MSO counterpart Columbia Care fell apart this past summer.
“We are pleased to announce the closing of the sale of our remaining Arizona asset,” CEO Charles Bachtell said in a statement Thursday.
“As we have highlighted over the past several quarters, we are focused on strengthening our operations and increasing profitability. Our exit from Arizona aligns with our strategy of optimizing our portfolio by prioritizing assets with a greater path to scale.”
SSC Advisors played a role as financial advisor to Cresco for the transaction.
Cresco isn’t the only company exiting Arizona lately. Vext Science and Ayr Wellness also packed their bags for more lucrative state markets. Arizona’s sales growth has remained tepid, showing just a 2% uptick since its inception in 2021, according to data firm Headset.
Compounding that slower-than-imagined growth is the concentration of brands, driven by deeper investments in house brands produced and sold by the same vertical retailer. That consolidation trend ranks Arizona second only to Massachusetts in this aspect.
The state’s unofficial pay-to-play schemes and limited licensing structure also rendered the market unattractive for many.
Access to Cash
In addition to the Arizona sale, Cresco secured a 10-year, $25.3 million mortgage on its properties in Ellenville, New York. The initial funding provided $20 million, with the remainder reserved for future business expenses. The mortgage comes with an interest rate of 8.43%.
Batchell noted that management was “thrilled to secure a conventional mortgage on our New York real estate at very favorable terms.”
“This nondilutive financing is another sensible tool for optimizing our balance sheet and lowering our cost of capital as we continue to strengthen our overall business,” he said.
Cresco Labs has remained a heavyweight in the industry, operating Sunnyside dispensaries and owning a portfolio of some of the nation’s top cannabis brands.
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