Many pot stocks are currently trading at the lowest prices they've ever seen. And while some may be destined for even more losses, others could be solid choices for investors willing to take on some risk while waiting for the industry to bounce back. Cresco Labs (CRLBF -6.81%) and Green Thumb Industries (GTBIF -4.76%) are two of the larger multistate operators in the country, and they're both down about 40% year-to-date, which is worse than the 32% decline the Horizons Marijuana Life Sciences ETF (HMLSF 1.29%) has seen during this time. Let's take a closer look at which of these Chicago-based pot stocks deserves more bullishness from investors.
Green Thumb has the edge in market share, but it may not stay that way
On April 15, Green Thumb released its year-end results for 2019. Revenue totaled $216.4 million for the full year. That's more than triple the $62.5 million the company recorded in 2018.
A big part of Green Thumb's success: a strong retail rollout. On April 13, amid the coronavirus pandemic, the company announced it was opening its 43rd retail store, located in Ohio. But there's even more potential growth ahead as Green Thumb has licenses for 96 retail locations. Currently, Green Thumb's presence spans 12 U.S. markets.
According to Cresco Labs's website, the company currently owns 22 dispensaries, with 31 retail licenses in total. Earlier this year, the company closed its acquisition of cannabis distributor Origin House, which gives Cresco Labs access to a very lucrative California market -- something Green Thumb currently lacks.
In Cresco Labs's most recent financial results, released back in November, the company's sales totaled $87.2 million over the trailing nine months, for a year-over-year increase of 231%. During the same period, Origin House generated $55.3 million in revenue, and its sales were up 413% from the prior year. That gives the companies combined sales of $142.5 million over a nine-month period. If we extrapolate that to 12 months, then the two companies should bring in about $190 million in sales for a full year. And with additional growth in the fourth quarter not factored into this calculation, the gap between Cresco Labs and Green Thumb could be even narrower. Either way, it could be a tight battle for market share between Cresco Labs and Green Thumb this year.
Which company is in a better cash position?
Cash and liquidity are unavoidable topics in the cannabis industry these days as many companies are struggling. Sales growth alone isn't enough to make a stock a winner these days, as is clear by the decline both of these stocks have seen in 2020 despite achieving significant sales numbers. And with the coronavirus pandemic threatening to put the economy into a recession, cash flow has to enter into the equation when assessing the long-term health of a pot stock.
As of Dec. 31, Green Thumb had $46.7 million of cash and cash equivalents on its books. During the year, it posted a loss of $59.1 million, and it burned through more than $18 million in cash to fund its day-to-day operating activities, which is in line with its cash burn in the previous year as well. The company also spent nearly $200 million on acquisitions, as well as property and equipment purchases. The good news is that it can scale back on those things if necessary amid the pandemic. From a cash perspective, Green Thumb doesn't look to be in imminent danger; its cash balance should be strong enough to absorb its rate of operating cash burn.
By comparison, Cresco Labs generated a loss of $15.2 million during its most recent nine-month period, and it used up $18.6 million to fund its operations during that time. However, it spent a bit less on investing activities, which totaled just $85.9 million. But Cresco Labs was in a bit better shape on Sept. 30, with cash and cash equivalents totaling $73.7 million. The problem, however, is that Origin House spent $46.2 million in cash on its operating activities over the same period, plus another $23.3 million toward its investing activities. And with just $22.4 million worth of cash and cash equivalents on its books as of Sept. 30, it was in the worst position of all three companies from a cash-flow perspective.
While the acquisition of Origin House will help Cresco Labs's growth, the concern for investors is whether it will hamper the business overall because of the significant cash bleed that will come into the picture.
Investors are better off with Green Thumb
Green Thumb's stock has suffered slightly lower losses this year compared to Cresco Labs's -- 43% vs 49% -- and that trend is likely to continue. At this point, there are too many moving parts involved with Cresco Labs and its acquisition of Origin House that should make investors hold off on buying shares of the company. The integration of Origin House and its high rate of cash burn could cause big problems for Cresco Labs at a very inopportune time, as it's getting more difficult to raise money amid falling valuations. Green Thumb already has, at worst, comparable market share to Cresco Labs and Origin House, and its cash position looks to be much better, that stock looks like the better buy.
This year may not be a great one for pot stocks, but odds are that Green Thumb will continue to outperform Cresco Labs.