Cresco Labs to sell off California facilities amid cannabis industry struggles

OG Article By John Pletz Watch Today's LIVE Episode on YouTube, X, and Rumble

July 23, 2025

Cresco Labs, a Chicago-based, publicly traded cannabis company, announced on July 21, 2025, that it is selling its California operations as part of a strategic restructuring to conserve cash and focus on more profitable markets. This decision comes amid ongoing challenges in the cannabis industry, including falling prices, high costs, and regulatory hurdles. Below are the key details surrounding this move.

Reasons for the Sell-Off

• Industry Challenges: The cannabis industry is grappling with price compression, high taxes, and competition from the illicit market. In California, the largest cannabis market globally, structural issues like fragmented retail and lack of a scaled footprint make sustainable profitability difficult for Cresco.chicagobusiness.comcannabisbusinesstimes.com

• Capital Preservation: Cresco’s CEO, Charlie Bachtell, emphasized that "capital is increasingly precious," and the company is focusing on deploying resources to markets with higher margins and clearer growth potential. The decision aims to strengthen the balance sheet and increase cash flow.cannabisbusinesstimes.comgrowcola.com

• Market Performance: California’s cannabis sales have declined, dropping from $5.1 billion in 2023 to $4.6 billion in 2024, with first-quarter 2025 sales at $944.6 million, down from over $1 billion in the same period of 2024. Additionally, California raised its cannabis excise tax from 15% to 19% on July 1, 2025, further squeezing margins.mjbizdaily.com

Details of the Divestiture

• Assets for Sale: Cresco is divesting its California-based cultivation, manufacturing, and select distribution operations. This includes:

  • Sonoma’s Finest (FloraCal California Cultivation): Holds distribution, processor, and medium indoor cultivation permits.

  • Cub City: Holds a small indoor cultivation and nursery permit in Sonoma County.mjbizdaily.com

• Retention of FloraCal Brand: Cresco will retain ownership of its premium FloraCal brand, continuing to produce and market it across key U.S. markets outside California.cannabisbusinesstimes.commjbizdaily.com

• Transaction Status: The company is in active discussions with prospective buyers, with the transaction expected to finalize within the next several quarters, subject to regulatory approvals and customary closing conditions.cannabisbusinesstimes.com

Financial Context

• Debt and Cash Flow: Cresco faces $400 million in debt due in 2026, prompting the need to preserve cash. In 2024, the company reported a record operating cash flow of $132 million, a 126% increase from 2023, and free cash flow of $114 million. However, it posted a $180 million net loss for 2023, partly due to asset impairments in California and other states.mjbizdaily.comgrowcola.comcannabisbusinesstimes.com

• Revenue Trends: First-quarter 2025 revenue was $165.8 million, down 15% from two years prior, though operational income improved to $13.6 million. The company had $158.9 million in cash and equivalents as of March 31, 2025, up from $90.4 million two years earlier, with debt slightly reduced to $371 million.chicagobusiness.com

• Stock Performance: Cresco’s stock (CRLBF) trades at $0.59 per share, down significantly from its peak of $15.86 in February 2021. Despite an 11% rise following the divestiture announcement, the stock remains under pressure, reflecting broader industry struggles.chicagobusiness.commjbizdaily.com

Strategic Shift

• Focus on Core Markets: Cresco is reallocating resources to states like Illinois, Ohio, and Pennsylvania, where it holds strong market positions. Illinois, for example, has a cap on licenses, which supports higher retail prices, though sales growth is slowing (recreational sales of $714.6 million from January to May 2025, up just 1% year-over-year).chicagobusiness.com

• New Market Expansion: Cresco recently won licenses to enter Kentucky’s medical marijuana market, where it secured one of two Tier 3 cultivator licenses, allowing up to 25,000 square feet of canopy. This move aligns with the company’s focus on markets with clear regulatory frameworks and growth potential.chicagobusiness.comcannabisbusinesstimes.com

• Previous Exits: Cresco has exited other underperforming markets, such as Arizona and Maryland in 2023, as part of its "Year of the Core" strategy to streamline operations and prioritize profitability.mjbizdaily.comcannabisbusinesstimes.com

Broader Industry Context

• Failed Merger: In July 2023, Cresco terminated a $2 billion merger with Columbia Care due to challenges in divesting assets and a tougher economic environment, including falling stock prices and tightening credit markets. This reflects broader industry consolidation struggles.cnbc.comcnbc.comfinance.yahoo.com

• Regulatory Hurdles: Federal illegality continues to limit banking access and impose high taxes under Section 280E of the Internal Revenue Code. The SAFE Banking Act, which could alleviate some financial constraints, remains stalled in Congress.digitaledition.chicagotribune.comfinance.yahoo.com

• California Market Dynamics: Despite being the largest cannabis market, California’s fragmented retail, high taxes, and competition from illicit sales create a challenging environment. Cresco’s lack of a scaled presence in the state further hindered profitability.chicagobusiness.comuk.investing.com

Conclusion

Cresco Labs’ decision to sell its California facilities is a response to the cannabis industry’s broader struggles, including declining sales, high taxes, and regulatory challenges. By exiting California, Cresco aims to bolster its financial position, reduce debt exposure, and focus on core markets like Illinois and emerging ones like Kentucky. The retention of the FloraCal brand ensures continued market presence, while the divestiture reflects a disciplined approach to capital allocation in a challenging industry landscape.