Cresco Labs (OTC:CRLBF) is the fifth-largest public cannabis company by revenue, but there's plenty of potential for more growth in its business (and its share price). The company's stock is just over $12, still down from its 52-week high of $17.49.

The company's stock rose 5.67% on Thursday, May 27, after the company announced better-than-expected first-quarter earnings. Cresco's stock has risen more than 145% over the past 12 months and more than 20% this year. Here are a few reasons why I think it's about to go even higher. 

Marijuana leaf on a stack of $100 bills.

Image source: Getty Images.

The numbers don't lie

Cresco used generally accepted accounting principles (GAAP) reporting for the first time this quarter, and the company's financials were overwhelmingly positive.

The company reported revenue of $178.4 million, up 9.9% sequentially and 168.8% year over year. Cresco maintained its edge as the nation's largest wholesale cannabis distributor with record revenue of $95.6 million, up 5.7% sequentially and 150.8% year over year. The company also had record retail revenue of $82.8 million from 24 stores, up 15.2% over the fourth quarter of 2020 and 193.2% year over year.

Cresco still lags some competitors in gross profit margin. It has improved its position significantly to a reported 48.8% of revenue, an increase of 16.8% quarter over quarter and 268.9% year over year. In its guidance, the company said it expects to be at 50% by the end of the year. That's still behind cannabis companies such as Trulieve Cannabis, which had 69.9% gross margin last quarter, Curaleaf Holdings, which is at 54.49%, and HEXO, which was at 56.52% last quarter.

Cresco isn't yet profitable. It lost $24.1 million in the quarter, but that's down from a loss of $41.1 million in the prior quarter. Still, looking at the company's EBITDA growth, it is on the path to profitability with adjusted EBITDA of $35 million, up 507.2% year over year.

Taking care of business in core markets

Cresco has become the dominant cannabis company in Illinois and in Pennsylvania, and will likely benefit as those markets mature. Illinois legalized adult-use marijuana in 2020 and in March, the most recent month for when figures are available, the state set a record with $109 million in state sales. Chicago-based Cresco has 10 retail locations in Illinois, the most of any operator in the state. In Pennsylvania, the company increased its grow space at its Brookville facility fourfold this month, giving the company 88,000 square feet of cultivation space to supply its four retail outlets in the state, which allows only medical-use marijuana for now.

Cresco CEO Charlie Bachtell, in his company's first-quarter earnings call, said the company is focusing on dominating one big market at a time, and is working to be the No. 1 multistate operator in Massachusetts and Ohio this year. The company already operates in seven of the 10 most populous states and has expanded this year in Florida, Massachusetts, and Ohio -- and those expansions aren't yet reflected in the company's first-quarter numbers.

Its focus on edibles should pay off

Chicago is a town of foodies -- fittingly, Cresco has focused on edibles. There's a good business reason for that. According to a report by Arcview Market Research and BDS Analytics, consumer spending on cannabis concentrates and edibles in the United States is projected to reach more than $3 billion in 2022. In April, Cresco launched Wonder Wellness Gummies. The gummies are low dose (5 milligrams of THC) and designed for consumers who want to avoid the potential side effects of smoking marijuana. They add to the company's line of edibles, which includes the artisanal Mindy's Edibles, which the company launched in 2015.

Cresco's focus on edibles helps explain why it is the top wholesale cannabis seller in the U.S. with $96 million of net wholesale revenue in the quarter, Bachtell said, adding the company's brands are in 957 retail stores around the country.

There seems to be plenty of growth in cannabis-infused edibles. Seattle cannabis analytics firm Headset data shows that cannabis edible sales grew last year by 60% in California, Colorado, Massachusetts, Michigan, Nevada, Oregon, and Washington -- more than the 54% the total cannabis market grew in those states.

CRLBF EBITDA Margin (TTM) Chart

CRLBF EBITDA Margin (TTM) data by YCharts

You have to like the company's direction

Cresco Labs has improved its EBITDA margin dramatically, far outstripping in growth four of the five companies that rank above it in revenue. The company is definitely moving toward being profitable, even though, for now, it is focused on growth, particularly in the largest markets.

The company's focus on its brands shows in its wholesale sales and will help it in name recognition with each new state that it moves into. Investors know there's opportunity in marijuana stocks in general, but finding the right stocks in the expanding industry is key -- and Cresco appears to be one on the rise.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.