I am bullish on Cresco Labs, Inc. (CRLBF) for retail investors.
The company is well-managed, and fully integrated to control product quality, inventory, and distribution. (See CRLBF stock charts on TipRanks)
Low in Price but Worth More
The promise of U.S. federal decriminalization keeps marijuana stock prices poised to sprout like weeds.
Cresco Labs is a marijuana flower grower, producer, toll manufacturer, owner of name brands, and a wholesale-retail distributor of marijuana flower and oil products for recreational and medical use.
The stock is at a fire-sale share price currently, at around $10 per share as of early Wednesday trading. Shares might soar if the pending Schumer-Booker Senate legislation passes, removing pot from the list of controlled substances.
Schumer-Booker passing would give gravitas to recreational and medical marijuana use. Cresco’s customer base would grow exponentially, and have access to all the services of banks, other financial institutions, and public exchanges for the easier sale of its stocks.
Potential Downsides to CRLBF Stock
There are some risks to consider before investing in CRLBF stock.
For instance, federal legislation may not pass in Congress this year, leaving marijuana stocks lurching.
Investor sentiment is also very negative regarding the stock, as the company currently earns a mere 5 out of 10 TipRanks Smart Score.
As well, insiders sold a lot of shares in May, June, and July without explaining why.
Lastly, selling, general, and administrative expenses are likely to jump. Cresco will have to comply with costly new federal regulations and taxes. Opportunities to advertise will open, but rules and regulations will make it costly, akin to advertising tobacco and vaping.
A Start-Up in a Nascent Industry
Cresco Lab owns and operates 18 production facilities, and 32 dispensaries, in 10 states.
Q2 Fiscal Year 2021 financial highlights included revenues of $210 million (a 17.7% increase quarter-over-quarter, and 122.8% increase year-over-year). Net income for Q2 was $2.7 million, an increase of $44.4 million year-over-year.
The company also set a new record, with net wholesale revenue of $108.7 million, an increase of 13.7% quarter-over-quarter, and 97.9% year-over-year.
As well, Cresco’s retail revenue of $101.3 million was an increase of 22.3% quarter-over-quarter, and 157.6% year-over-year.
Management attributes this stellar performance to organic growth, which is likely to continue, as more states legalize the sale of recreational and medical marijuana.
According to Flow Hub, nationwide sales of marijuana are increasing by over 65% annually, in an industry projected to be worth $100 billion by 2030. That’s just in the U.S.
Wall Street’s Take
Based on six analysts giving stock ratings in the past three months, Cresco Labs is considered a Strong Buy. The average CRLBF price target of $17.55 per share implies 74.8% upside to current levels.
Hitting the target price may take more time than expected, but Cresco Labs should continue growing revenue and earnings. It will probably be profitable in the next few years. Federal legislation that decriminalizes marijuana use, and possession, will spark higher share prices.
Management has three overriding tasks: build its wholesale business, continue expanding its organic growth from grower to retailer, and successfully integrate the businesses and markets it gains through its aggressive M&As.
All in all, this is a weed stock that’s ready to sprout.
Disclosure: On the date of publication, Harold Goldmeier did have a position in the companies discussed in this article.
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