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What's Behind Cresco Labs' Better-Than-Expected Q1 Results

By Keith Speights - May 27, 2021 at 12:00PM

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The multistate cannabis operator turned in a solid performance in its first quarter to report under GAAP.

Some investors could be disappointed by Cresco Labs' (CRLBF -2.37%) stock performance so far this year. Sure, Cresco's share price is up 14%. However, that's a far cry from the 71% year-to-date gain it achieved in early February.

Such volatility is par for the course with marijuana stocks, though. The main thing to watch with Cresco is its underlying business performance. And the company had more good news on that front with its announcement of first-quarter results before the market opened on Thursday. Here are the highlights from Cresco's Q1 update.

Marijuana leaf over an American dollar bill.

Image source: Getty Images.

By the numbers

Cresco announced revenue in the first quarter of $178.4 million. This result reflected a huge 169% year-over-year jump. It also beat the consensus revenue estimate of $170.8 million.

This was Cresco's first quarter of reporting its results using generally accepted accounting principles (GAAP). The company posted a GAAP net loss of $24.1 million, an improvement from the GAAP net loss of $35.5 million in the prior-year period.

Cresco recorded adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $35 million. This amount was more than six times higher than its adjusted EBITDA in the same quarter of 2020 and reflected a 16.5% increase from the previous quarter.

Behind the numbers

Charles Bachtell, co-founder and CEO of Cresco Labs, noted that the company maintained No. 1 market positions in two of the U.S. cannabis industry's top five states during the first quarter. Cresco also outperformed its past results in two key areas.

The company achieved record net wholesale revenue of $96.5 million. This represented a 150.8% year-over-year jump and was 5.7% higher than wholesale revenue in the previous quarter.

Cresco also generated record retail revenue of $82.8 million. These sales were made from 24 stores open during the first quarter. The retail revenue total was 193.2% higher than in the prior-year period and 15.2% higher than in the fourth quarter of 2020.

Looking ahead

The multistate cannabis operator expects to have an annualized revenue run rate of more than $1 billion by the end of this year. It projects gross profit margins of more than 50% throughout the rest of 2021. Cresco also anticipates an adjusted EBITDA margin run rate of at least 30% by year end.

Acquisitions should help the company achieve this guidance. Cresco closed its buyout of Florida medical cannabis company Bluma Wellness in April. It also awaits the finalization of the acquisition of Massachusetts-based cannabis operator Cultivate.

My Motley Fool colleague Sean Williams recently referred to Cresco Labs as "unstoppable." That doesn't seem to be too much of a stretch. Bachtell believes that Cresco is "on the path to accelerate revenue, profitability, and shareholder value in 2021 and beyond." Based on the company's Q1 results, his optimism seems well founded.

Keith Speights has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Cresco Labs Inc. The Motley Fool has a disclosure policy.

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