Pot producer Cresco Labs (CRLBF 2.50%) made headlines last month when it announced plans to acquire multi-state operator Columbia Care in a deal worth $2 billion. The transaction promises to create a "new leader in cannabis" and will undoubtedly put rivals Curaleaf Holdings (CURLF 3.31%) and Trulieve Cannabis (TCNNF -2.99%) on alert.
But just how does the new Cresco-Columbia Care entity match up with those two companies? The three charts below help to illustrate the differences between the three marijuana stocks based on their revenue, margins, and overall presence in the U.S. market.
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Sales of $1.4 billion would leapfrog both Curaleaf and Trulieve
Curaleaf had a great year in 2021, with sales topping $1.2 billion. Trulieve's revenue came in at $938.4 million, but that's with the recently acquired Harvest Health only contributing for one quarter. At $305 million in revenue for the last three months of 2021, Trulieve's run rate would also put it in the neighborhood of $1.2 billion in annual sales. By adding Columbia Care to its operations, however, Cresco Labs estimates it will be at $1.4 billion in pro forma revenue. In 2021, Cresco's actual sales totaled $822 million.
Here's how they compare with respect to their current run rates:
Source: Company filings. Chart by author.
Cresco's margins could lag further behind its peers'
Sales numbers are great, but a company also needs to be efficient and generate strong margins. Two of the key ones investors should pay attention to are gross margin and adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA). On both of these metrics, Cresco has been reporting less impressive margins than both Trulieve and Curaleaf. And Columbia Care has even lower margins, suggesting that Cresco could see its numbers dragged down after the acquisition.
Source: Company filings. Chart by author.
Trulieve remains on top in terms of locations
The deal to acquire Columbia Care will put Cresco in a total of 17 states. That's more than the 11 that Trulieve is in but still fewer than Curaleaf, which is operating in 23 states. Here's how they compare in terms of total number of locations:
Source: Company filings. Chart by author.
Cresco is more competitive, but is it a better buy?
If the deal ends up going through (the transaction isn't expected to close until the fourth quarter of 2022), Cresco will strengthen its position in the industry by grabbing more market share. Although its margins may decline a bit, the business will still likely be much better off in the long run.
In the end, any of these three stocks are excellent buys if you're bullish on the cannabis sector, as these are all industry leaders. While Cresco does have the edge today in terms of sales, all it would take is another acquisition to shake things up yet again.
