Cresco Labs Inc, is buying rival Columbia Care Inc. in a $2-billion deal to become the top U.S. cannabis producer in one of the biggest deals in the industry.

$46 Billion Market

Cresco executives said the combined entity has the potential to be a brand as big as Coca-Cola or Johnnie Walker as the deal would help it dominate a market likely to reach $46 billion in sales by 2026.

Columbia Care investors will get 0.5579 shares of Cresco Labs for each unit held. Based on Cresco's Tuesday closing price, it represents a nearly 16% premium.

The deal, which was reported by Reuters on Tuesday, values Columbia Care's equity at C$1.36 billion ($1.07 billion).

The companies together will operate in 18 states, but overlapping footprints in several regions, including in New York, could require significant divestitures before the deal gets regulatory approvals.

Besides New York, Cresco could divest assets in Illinois, Ohio, Massachusetts, and Florida, using proceeds from the sales to cut debt, Chief Financial Officer Dennis Olis said on a call with analysts.

Success Rests on Scale, Streamlining

"The success of this merger will depend largely upon Charlie's [Cresco CEO] ability to execute and integrate at scale while monetizing the redundant assets," said Todd Harrison, founder of cannabis investment firm CB1 Capital, which owns shares in Cresco.

Both Cresco and Columbia Care are listed in Canada as marijuana remains illegal at the federal level and the two large U.S. stock exchanges do not allow companies that grow or sell the plant to list their shares.

Stoic Advisory Inc and Solidum Capital Advisors were the financial advisors to Cresco Labs. Bennett Jones LLP and Paul Hastings LLP were the legal advisors.

Canaccord Genuity served as financial advisor to Columbia Care. Stikeman Elliott LLP and Foley Hoag LLP were the legal advisors.

($1 = 1.2583 Canadian dollars)