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Is Cresco Labs a Buy?

By Zhiyuan Sun - Mar 21, 2021 at 5:32AM

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Looking for marijuana stocks? Here's a pot grower that's been making several exciting acquisitions this year.

Founded in 2013, Cresco Labs (CRLBF 1.10%) has quickly become one of the biggest marijuana companies in the U.S. It now operates 19 dispensaries across nine states, has 16 cultivation and production facilities, and has close to 30 cannabis store licenses. Most lucratively, the company sells the top marijuana brand in California. 

Despite its humble beginnings, the company is already breaking even in terms of net income. It also has a distinct edge that sets it apart from other marijuana companies in the sector. Let's look at why Cresco Labs is a top pot grower to add to your portfolio. 

Man harvesting marijuana plants in a growth field.

Image source: Getty Images.

The secret sauce behind Cresco Labs

What makes Cresco Labs distinct from traditional dispensary chains is its wholesale segments. The company cross-sells its branded dried cannabis, edibles, and wellness products in more than 830 dispensaries across the country. Wholesale accounts for close to 60% of Cresco Labs' overall sales. Back in Q3 2020, its revenue increased by more than fourfold year over year, to $153 million. At the same time, the company's operating income less non-cash expenses (EBITDA) increased almost 15-fold, to $46.4 million. The company also managed to break even during the quarter.

What's more, Cresco Labs is also making a notable entry into the Massachusetts and Florida markets. In January, it acquired pot grower Bluma Wellness for $213 million. Bluma has the second-highest per-store sales of smokable flower in Florida, lagging only behind Trulieve Cannabis (TCNNF -1.96%), which commands a 50% market share in the medical marijuana market in the state. In addition, over 15% of Bluma's revenue is from home deliveries. The company's fleet of vehicles delivers its cannabis right to customers' doorsteps within 24 to 48 hours.

This March, Cresco Labs also announced the acquisition of cannabis grower and retailer Cultivate. The acquisition target ranks No. 1 in terms of recreational cannabis sales in Massachusetts. After both deals, the new Cresco Labs will have a combined 33 stores, 47 licenses, and 20 production facilities at its disposal.

Before the deals, the company already has a stunning $741.6 million in net assets, so it's unlikely to face any liquidity issues in future operations. Plus, Cresco is already operating at a profit and has established a firm foothold in the U.S. cannabis market. The company's operations could serve up to 160 million consumers, representing 60% of the country's adult population.

What's the verdict?

My favorite aspect of Cresco Labs' stock is its valuation. Right now, the pot grower is only trading for 7 times revenue. That is very cheap, considering U.S. marijuana companies such as Curaleaf (CURLF -1.21%)Jushi Holdings (JUSHF 4.67%), Trulieve, and Green Thumb Industries (GTBIF -2.29%) are typically selling for between 12 to 15 times sales. Even better, Cresco Labs has substantial distribution revenue and is growing faster than the companies above. For these reasons, I would highly recommend that marijuana investors who are looking for growth stocks at a reasonable price add Cresco Labs to their portfolios.

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Stocks Mentioned

Cresco Labs Inc. Stock Quote
Cresco Labs Inc.
CRLBF
$3.94 (1.10%) $0.04
Green Thumb Industries Stock Quote
Green Thumb Industries
GTBIF
$12.82 (-2.29%) $0.30
Curaleaf Holdings, Inc. Stock Quote
Curaleaf Holdings, Inc.
CURLF
$5.84 (-1.21%) $0.07
Trulieve Cannabis Stock Quote
Trulieve Cannabis
TCNNF
$14.48 (-1.96%) $0.29
Jushi Holdings Inc. Stock Quote
Jushi Holdings Inc.
JUSHF
$1.91 (4.67%) $0.09

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

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