Cresco Labs CEO: Dominance of this state market will be key to US success
The marijuana industry is on fire again. Now that the industry is booming, investors are spoiled for choice. Fortunately, there are a few that best suit your wallet. But this one, in particular, is my main cannabis stock – an outright cannabis company (their business model is based entirely on marijuana).
Based in Illinois Cresco Laboratories (OTC: CRLBF) jumped 274% in the past 12 months, surpassing the S&P 500gain of 51%. No surprise here – the stock market performance reflects the rate at which the company increased its revenue last year. Although it does not yet have a large national presence, I am happy to see the company remain strong in its home state and take significant steps to stand out in the attractive cannabis market in the United States. Let’s take a look at his progress so far and his plans for the future.
Cresco’s revenue growth in 2020 amid pandemic deserves to be applauded
For the full year of 2020, Cresco saw a whopping 271% year-over-year revenue increase to $ 476 million. The company’s retail revenue for the year reached $ 202 million, up 316% year-over-year. Much of the credit goes to its Sunnyside retail platform, which management says generated average revenue per store of $ 3.6 million. Cresco has 10 Sunnyside stores in the emerging new cannabis market of Illinois. ) Its fourth-quarter revenue (ended Dec.31, 2020) also jumped 292% year-over-year to $ 162.3 million.
Another quarter of positive Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) net of biological assets of $ 50 million is an impressive jump from the $ 2.8 million in the previous year’s quarter. It also reflects the way the company has managed its operating expenses. Cresco’s 2020 was a reflection of what was to come in the next few years, according to management.
Cresco targets this state market to become a national player in cannabis
During the fourth quarter earnings call, CEO Charles Bachtell highlighted that California is one of the most key markets for Cresco Labs. Winning in this state will make a big mark in the cannabis space in the United States. I am okay! Although it is the oldest, California is still the largest cannabis market generating a huge amount of cannabis sales. In 2020, total cannabis sales in the state amounted to $ 4.4 billion. California is also the most populous state, with 39 million people.
Cresco’s revenue from the state has doubled since the first quarter and its “FloraCal brand was one of the top 10 flower brands in California in the fourth quarter,” according to management. Its other brands are also fast becoming the number one in the state.
Another MSO (multi-state operator) understanding the value of this strong market is Green thumb industries, which has just opened its first store in the state. Green thumb has licenses in 96 outlets, so if it chooses to expand its presence in California, that could give Cresco Labs a tough fight.
Besides California, Cresco also has opportunities in his home state of Illinois, which is an emerging cannabis market. Illinois legalized recreational cannabis on January 1, 2020 and has seen exceptional sales since then. Total sales of legal cannabis reached $ 1 billion, of which $ 669 million was solely for recreational marijuana.
Investing its resources in strategic markets is a priority for Cresco in 2021, and the CEO expects to have “significant operations in the seven of the 10 most populous states in the country that have cannabis programs.” The company plans to generate more revenue and profit organically as well as through mergers and acquisitions (mergers and acquisitions).
The future looks bright for Cresco Labs
Cresco Labs is in a stable financial situation. It ended its fourth quarter with cash and cash equivalents of $ 136.3 million and total debt net of issue costs of $ 184.5 million. As state legalization in the United States intensifies, this will open up exciting opportunities for the company.
Currently, 36 states and the District of Columbia allow marijuana for medical purposes, and another 15 and DC allow marijuana for adult use. New Jersey just legalized recreational cannabis, and Virginia may join the list soon as well. Other states, such as Pennsylvania, New York, and Connecticut, also have cannabis legislation in the works.
A Democratic grip on the White House is also raising hopes for federal legalization. This will allow pure and simple cannabis companies to register on the large purses and have access to more financial capital, fueling their growth. Legal cannabis sales in the United States increased 46% from 2019 to $ 17.5 billion last year.
This industry is poised to grow at a compound annual growth rate (CAGR) of 21%, reaching $ 41 billion by 2025.
If and when federal legalization occurs, not all marijuana businesses will have the finances and resources to grow. In such times, only the largest companies will thrive. As Cresco Labs moves towards profitability with drastic revenue growth and focuses on targeting key cannabis markets, I see this marijuana company rising to the top and absolutely worth buying and keeping for the long term.
This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.