Cresco Labs (CRLBF) is one of the largest vertically integrated multi-state cannabis operators in the United States. The company recently reported record revenues and expects to reach $1 billion in revenues for the 2021 Fiscal Year.
The significant growth is due to the company’s retail and wholesale business strategy, as well as retail store expansion. I rate the company as neutral because its stock price has been on a year-to-date downtrend, but I highly recommend that investors watch its business developments. (See Analysts’ Top Stocks on TipRanks)
Cresco Labs’ Business Operations
Cresco Labs operates 40 dispensaries across 10 states and has 20 cannabis production facilities. The company has recreational and medical retail outlets in Illinois, Pennsylvania, Ohio, California, Maryland, Arizona, New York, Massachusetts, Michigan, and Florida. The company grows, processes, packages, and distributes cannabis products, in addition to running cannabis retail outlets.
Cresco Labs credits its success to its large and diverse packaged cannabis brands, which it sells in its own retail outlets and at third-party cannabis outlets.
The company also profits from both retail and wholesale cannabis sales, which sets it above the other MSOs. Since Cresco Labs can generate high profits from all aspects of the cannabis market, it has serious potential for future growth when cannabis becomes nationally legalized.
Cresco Labs’ Second Quarter Results and Third Quarter Outlook
The company reported record Q2 results last August. Its revenues of $210 million showed a 17.7% increase from last quarter and a 122.8% increase from last year’s quarter. The company made $107 million in gross profit, which amounts to 51% of its total revenue. Half of its revenues are from retail, while the other half are from wholesale.
The estimated revenue for the company’s next report in November is $217.74 million. The company stated in its Q2 report that it is on track to generate $1 billion in revenues for Fiscal Year 2021.
Cresco Labs produced net income of $2.7 million and adjusted EBITDA of $45.5 million. Cash on hand at the time of the report was $131 million. The company’s financial performance is impressive and has historically increased quarter-over-quarter.
Revenue Synergies
Since the company reported its Q2 2021 results, it has opened additional cannabis retail outlets. It announced new store openings in Florida and Pennsylvania. Further, it has made retail outlet acquisitions in Massachusetts and Maryland while increasing its wholesale distribution in California. With the expansion of retail outlets and wholesale distribution, the company is set to reach its revenue targets and continue its growth trajectory.
Valuation and Strategy
The company trades at an impressive price compared to its recent all-time high. At about 3x EV/sales, I believe it is currently undervalued. Last February, its stock price hit a record high near $17 per share. Since then, the stock has been on a downtrend.
The overall stock market has been bearish on cannabis over the last several months. However, Cresco Labs’ business performance has been improving and it’s possible that the stock price may follow suit if the company continues to improve. Nonetheless, I rate its stock as neutral for now.
Wall Street’s Take
According to Wall Street, Cresco Labs has a Strong Buy consensus rating, based on seven Buys and one Hold assigned in the past three months. At $17.31, the average Cresco Labs price target implies 121.9% upside potential.
Conclusion
Cresco Labs reported record revenues for Q2 2021 and expects its 2021 Fiscal Year revenues to reach $1 billion. The company has an advantage over other U.S. multi-state cannabis operators. It makes revenue from retail and wholesale sales, while also running its own cannabis retail outlets.
The company is considered one of the largest U.S. cannabis operators and its financial performance is impressive. Cresco Labs is well-positioned for success once cannabis is legalized nationally.
Although I rate the company as neutral, I recommend that investors watch the company’s next earnings release in November.
Disclosure: At the time of publication, Alan Sumler had a position in Cresco Labs.
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