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What You'll Want to Know About Cresco Labs' Q2 Results

By Keith Speights – Aug 22, 2019 at 6:00AM

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The U.S. cannabis operator saw sales skyrocket. But its spending soared, too.

Cresco Labs (CRLBF 3.31%) thinks that it's on the way to becoming a "North American cannabis powerhouse" with its pending acquisition of Origin House. The U.S. cannabis stock appeared to be on track to deliver a powerhouse performance earlier this year, with shares skyrocketing more than 90% by April. However, Cresco gave up a big chunk of those gains in subsequent months and is now up 24% year to date.

Investors learned how Cresco Labs performed in the second quarter on Wednesday when the company provided a quarterly update after the market closed. How did the cannabis company fare in Q2? Here's what you need to know.

Marijuana leaf in front of a yellow background.

Image Source: Getty Images.

By the numbers

Cresco Labs announced Q2 revenue of $29.9 million, a 253% increase from the $8.5 million reported in the same quarter of the previous year and a 42% jump from the first quarter of 2019. The company's reported revenue was also higher than the average analyst's revenue estimate of $27.9 million.

The company reported a net loss in the second quarter of $3.9 million, or $0.08 per share, based on generally accepted accounting principles (GAAP). This represented deterioration from Cresco Lab's net income of $1.6 million in the prior-year period. Analysts expected an adjusted net loss of $0.01 per share.

Cresco reported adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $14.5 million, compared to $4.8 million in the same period in 2018. The company ended the second quarter with cash and cash equivalents of $61.1 million and zero debt.

Behind the numbers

Top-line growth of 42% from the previous quarter is pretty impressive for any company. Cresco attributed its strong performance primarily to gaining market share in Illinois and Pennsylvania. The company also stated that its expanded presence and distribution in California helped fuel revenue growth.

With such tremendous sales momentum, why did Cresco's bottom line worsen? There were three main factors. First, the company's operating expenses soared from $3.2 million in the prior-year period to $20.6 million in the second quarter of 2019. Second, Cresco paid over $2 million in interest in Q2, compared to only a minimal amount in the prior-year period. Third, the company recorded a $5.6 million income tax expense in the second quarter but didn't pay any income taxes in the same period last year.

But Cresco's adjusted EBITDA looked much better. Those interest and income tax expenses didn't negatively impact this figure -- neither did the company's $3.2 million in acquisition costs and another $3.2 million in share-based compensation expenses.

Looking ahead

The biggie for investors to look forward to is Cresco's acquisition of Origin House. Cresco said that it anticipates the transaction to close in the fourth quarter of 2019. This deal will greatly expand the company's operations in California.

Cresco also continues to roll out its Sunnyside retail cannabis dispensaries across the U.S. The company is launching its WellBeings line of cannabidiol (CBD) products. It's also expanding its cultivation and retail operations in Illinois in anticipation of the adult-use recreational marijuana market opening in the state in 2020. CEO Charles Bachtell stated that Cresco Labs expects "to deliver continued improvement in revenue and profitability" in the future as these initiatives bear fruit. 

Keith Speights has no position in any of the stocks mentioned. The Motley Fool recommends Origin House. The Motley Fool has a disclosure policy.

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