Well then. This morning saw the announcement that Cresco Labs ($CL) is buying Columbia Care ($CCHV).

A ‘$2 billion’ dollar deal (actually, no dollars involved……just paper) that creates a company expected to sport the ‘largest annual revenue’ of any company in legal cannabis.

Whoopee shit.

Aside from the marginal everything about these outfits, the move itself isn’t a signal of sector health….nor confidence. And if one gets a feeling of deja vu (I’m reminded of Aurora buying CMED), it’s understandable.

Bulking up prior to regulatory/legislative catalysts is a tell – in that management at both of these companies is bereft of ideas on how to grow profitable organically. I’ll have more to say about this.

For now, and if you’re a shareholder in either of these outfits, I’d ask yourself a few basic questions:

1. Why do this prior to regulatory/legislative changes? Is the move anticipating multi-year delays in it happening?
2. If so, what’s the length of road to profitability? A 3 year window? 5? This summer? If MORE or CAOA comes in, asset divestiture will be imminent.
3. How much cost reduction is expected?
4. Put another way: Can a company with increasing state footprints across a siloed sector – realize more profit than each operating independently?
5. And the biggest question of all: why now?

My immediate reaction is that these C-Suites have little vision beyond claiming largest aggregate revenue. Fine.

But if the focus of leadership is on that metric – and assumes profitability will simply flow from it – all one has to do is point to Canada’s experience in the legal cannabis sector to lay waste to that assumption. Size and bulk are largely meaningless regarding actual profit generation now – in Canada or the US. Without verticality – there’s little to nothing.

This deal has all the feels of 2 companies desperate to press release themselves into relevance.

More to come.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in any of the companies mentioned.