Cresco Labs Is Leading The U.S. Cannabis Market

Growth-Oriented Cresco Labs Delivers The Green 

Chicago-based Cresco Labs (OTCMKTS: CRLBF) may not be the U.S. largest integrated multi-state operator but we don’t think it will be long until it is. The company has been managing its capital, solidifying its markets, perfecting its operating, and delivering profits all while preparing for the next expansion. The next expansion may very well be into the New York region based on what we’re hearing in the news but there are other markets in need as well. Virginia recently legalized and there are a dozen other states with some form of recreational marijuana legislation in the works. Regardless, Cresco Labs has emerged as a best-in-the-breed for U.S. cannabis. 

“2020 was a remarkable year for Cresco Labs. We dedicated our resources to the most strategic markets, grew our leadership as the number one wholesaler of branded cannabis products, executed high-efficiency retail, and generated substantial operating leverage as we scaled. We laid out our objectives at the beginning of the year and we executed on what we set out to accomplish, resulting in the largest year-over-year revenue growth among tier-one MSOs,” said Charles Bachtell, Co-founder and CEO of Cresco Labs.

Cresco Labs, We Like What We See 

Cresco Labs, Inc has long been a favorite of our among cannabis operators if only because the company has always been so well run. Cresco Labs was not caught up in the hype of hyper-growth during the early days, was not forced to make the drastic changes that others in the business were, and is now sitting pretty with an operation that has been scaling and is ready to scale again. The $292.3 in quarterly revenue is up sequentially and nearly 300% from last year and testament to that fact. The revenue is also better than the consensus estimate if only by 86 basis points. 

The revenue gains were driven by increased wholesale and retail sales in turn driven by increased production and positive comp store growth. Retail sales grew to $68.8 billion among 19 stores for an average of $3.3 million while the company maintained its number 1 position in branded wholesale market share. Moving down the report, the scaling of business resulted in a widening of margins that is still accelerating. The Q4 operating margin expanded to 55% from 53% in the 3rd quarter of the year and came in at 51.5% for the full-year 2020 versus 48.2% in the prior year. 

As for the balance sheet, the company has ample cash and liquid assets to sustain operations. This is especially true following the sale of subordinate shares early in the Q1 2021 period. Offsetting that value-diluting action are three details that more than make up the difference. The company closed on a deal with Bluma Wellness in Florida, closed on the deal to acquire four dispensaries in Ohio, and entered into an agreement to acquire a Massachusetts operator further enhancing the company’s footprint, depth, and scale. The four Ohio stores are worth 9% to 10% revenue growth by themselves. 

“In 2021, cultivation expansions are underway and we are executing accretive M&A as we repeat our playbook in more states. Our best-in-class execution was on display in 2020 and it's what you can expect from Cresco Labs for years to come,” said Charles Bachtell, Co-founder and CEO of Cresco Labs,” continued Bachtell.

The Technical Outlook: Cresco Labs Falls 5% But May Be At A Bottom 

Shares of CRLBF are down in early action but may already be at a bottom. Support is apparent at the $12.00 level where it has been confirmed before. Assuming this level holds, we expect to see this stock consolidate at or near these levels before beginning another move higher. There is only growth in store for this company which means its share prices are only going to move higher over the long-term. These near-term pullbacks are best viewed as buying opportunities in our opinion. If and when the U.S. legalizes cannabis federally Cresco Labs will be among the biggest winners if it isn’t already the largest multi-state operator.