Should you buy Cresco Labs in March?

The past 12 months have been an incredible journey for Cresco Laboratories (OTC: CRLBF). The Chicago-based cannabis company has gone from less than $ 2 a share a year ago to just under $ 17.50 a share last month. The stock has slumped slightly since then, closing at $ 13.34 per share on Thursday.

What may seem like bad omen is actually wonderful news for investors. At its current price, I think Cresco Labs is worth picking up.

Image source: Getty Images

A stellar neighborhood

The company posted excellent third quarter numbers through September 30, 2020. Cresco reported revenue of $ 153.3 million, up 63% sequentially and 323% year-over-year. He also recorded a record $ 46.4 million in EBITDA, an increase of 182% compared to the previous quarter. The company is expected to release fourth quarter numbers on March 25.

Cresco cited two factors for the record third quarter. It said its wholesale revenues, aided by larger harvests at its grow centers in Illinois, Pennsylvania and California, were $ 90.5 million, up from $ 64.6 % sequentially. On top of that, the company’s retail revenue jumped 60% to $ 62.8 million, thanks to two new stores in Illinois and improved same-store sales.

A flurry of good business

In the first two months of this year, Cresco Labs made two big acquisitions which should help it considerably in the long term.

Cresco announced in January that it was purchasing Bluma well-being for $ 213 million in stock, giving it an entry into Florida with seven operating dispensaries and eight more underway. Last month, the company added four retail dispensaries in Ohio, making it five in total in the state, with its purchase of Green creations.

With its last two offerings, the company is thinking like a good chess player – several steps ahead. Cresco now has 15 production facilities, 29 retail licenses and 24 operating dispensaries in nine states, including the seven of the 10 most populous states where marijuana is legal in one form or another, whether at medical or recreational purposes.

The company’s headquarters are in Illinois, where it just opened its 10th retail store, and the company’s brands are sold at all of its competitor’s dispensaries around the state. Ohio and Florida are exclusive medical marijuana states, with no guarantees that sales to adults will be legalized anytime soon. However, by strengthening its presence in both states now, before any other business calls, Cresco has the opportunity to be prepared when Florida, the third largest state in terms of population, and Ohio, the seventh. , will open.

Bar chart showing Cresco's economic progress over the past four quarters.

DATA SOURCE: CRESCO. TABLE BY AUTHOR.

Grow at a steady pace

I think Cresco Labs is a classic case of being slow to go fast. By that I mean he was conservative while build your business, allowing him to be prepared when the right opportunity arises. The company has relatively low debt and has focused on growing its brands as well as dispensaries and grow sites.

CRLBF financial debt to equity graph (quarterly)

CRLBF financial debt on equity (quarterly) given by YCharts

During the last four quarters, the cannabis The company increased its revenue by 370%, improved its adjusted EBITDA by 1,600%, and went from $ 45.2 million per quarter in the fourth quarter of 2019 to positive revenue of $ 4.9 million last trimester.

The company’s dispensaries operate under the Sunnyside brand, while each of its stores carries eight brands of cannabis-related merchandise: Cresco, Remedi, High Supply, Cresco Reserve, Good News, Wonder Wellness, FloraCal Farms and Mindy’s Chef Led Artisanal Edibles. . The focus on its brands has given Cresco greater visibility. Its brands are available in more than 700 dispensaries across the country. Meanwhile, the company’s wholesale business is helping it grow its revenue independently of its retail stores, preparing the business for expansion by strengthening distribution, and increasing awareness of Cresco.

The company posted a positive third quarter net profit of $ 4.9 million and wasted no time implementing it. Last month he received approval from the Arizona Department of Health Services to have adult sales at his Sunnyside dispensary in Phoenix. Although he only has one dispensary in the state, he already has two grow sites in Arizona.

Cresco is ready for the next step

It is clear that there is a lot of growth ahead for cannabis stocks. There are 15 states that allow sales for medical use, and 35 states and the District of Columbia allow sales for medical use. New Jersey, Virginia, Montana, and South Dakota recently passed laws allowing sales to adults.

Cresco, as a thriving vertically integrated company, is well positioned to benefit from the increase in the number of states allowing marijuana sales. Looking at the improvement in the company’s finances over the past four quarters, it looks like there is still a lot of potential left for investors interested in Cresco.

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 motley! 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.


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