The past 12 months have been an amazing ride for Cresco Labs (CRLBF 6.83%). The Chicago-based cannabis company went from trading below $2 a share a year ago to just under $17.50 per share last month. The stock has slumped a bit since then, closing at $13.34 per share on Thursday.
What might seem like a bad omen is actually marvelous news for investors. At its current price, I think Cresco Labs is worth picking up.
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A stellar quarter
The company posted great third-quarter numbers through Sept. 30, 2020. Cresco reported $153.3 million in revenue, up 63% sequentially and 323% year over year. It also had a record $46.4 million in adjusted EBITDA, a rise of 182% over the prior quarter. The company is scheduled to report fourth-quarter numbers on March 25.
Cresco cited two factors for the record third quarter. It said its wholesale revenue, aided by bigger harvests at its cultivation centers in Illinois, Pennsylvania, and California, was $90.5 million, up 64.6% sequentially. On top of that, the company's retail revenue surged 60% to $62.8 million, thanks to two new Illinois stores and improved same-store sales.
A flurry of good deals
In the first two months of this year, Cresco Labs made two big acquisitions that should help it considerably in the long term.
Cresco announced in January that it was buying Bluma Wellness for $213 million in stock, giving it an entry into Florida with seven operating dispensaries and eight more in the works. Last month, the company added four retail dispensaries in Ohio, giving it five total in the state, with its purchase of Verdant Creations.
With its two latest deals, the company is thinking like a good chess player -- several moves ahead. Cresco now has 15 production facilities, 29 retail licenses, and 24 operating dispensaries throughout nine states, including all seven of the 10 most populous states where marijuana is legal in some form, whether it be for medical or recreational use.
The company's home base is in Illinois, where it just opened its 10th retail location and the company's brands are sold in all of its competitors' dispensaries in the state. Ohio and Florida are medical-marijuana-only states, with no guarantee that adult-use sales will be legalized any time soon. However, by enhancing its presence in both states now, before every other company comes calling, Cresco has an opportunity to be prepared when Florida, the third-largest state by population, and Ohio, the seventh-largest, open up.
DATA SOURCE: CRESCO. CHART BY AUTHOR.
Growing at a steady pace
I think Cresco Labs is a classic case of moving slow to go fast. By that I mean it has been conservative while building its business, allowing it to be prepared when the right opportunity presents itself. The company has relatively low debt and has focused growing its brands as well as its dispensaries and cultivation sites.
CRLBF Financial Debt to Equity (Quarterly) data by YCharts
Over the past four quarters, the cannabis company has increased revenue by 370%, improved adjusted EBITDA by 1,600%, and has gone from losing $45.2 million per quarter in the fourth quarter of 2019 to reporting positive income of $4.9 million last quarter.
The company's dispensaries operate under the Sunnyside brand, while each of its stores has 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 a higher profile. Its brands are offered in more than 700 dispensaries across the country. Meanwhile, the company's wholesale business helps it win revenue growth separate from its retail stores, prepares the company for expansion by building distribution, and increases awareness of Cresco.
The company posted positive net income of $4.9 million in the third quarter and has wasted little time in putting that to work. Last month, it received approval from the Arizona Department of Health Services to have adult-use sales at its Sunnyside dispensary in Phoenix. Though it only has the one dispensary in the state, it already has two cultivation sites in Arizona.
Cresco is ready for the next step
It's clear there's plenty of growth ahead for cannabis stocks. There are 15 states that allow adult-use sales and 35 states and the District of Columbia allow medical-use sales. New Jersey, Virginia, Montana, and South Dakota recently passed laws allowing adult-use sales.
Cresco, as a thriving vertically integrated company, is in a great position to take advantage as the number of states allowing marijuana sales increases. Looking at the company's improving financials over the past four quarters, it looks like there's still plenty of upside left for investors interested in Cresco.
