Shares of Cresco Labs Inc. (CRLBF) gained 9.3% in pre-market trading but tanked 7.5% on Wednesday, after the cannabis retailer reported disappointing quarterly results. Alongside this news, the company disclosed plans to become one of the largest pot companies in the U.S. by acquiring Columbia Care Inc. (CCHWF).
Results in Detail
Cresco Labs’ Q4 revenue increased 34% year-over-year to $218 million. However, revenue lagged analysts’ estimates of $234.5 million. Retail revenue came in at $117 million, reflecting an average of $2.8 million per store, while Wholesale revenue was $101 million. Same-store-sales increased 28% year-over-year.
Furthermore, the company reported net loss of $11.9 million compared with net loss of $263.5 million in the year-ago quarter.
Co-Founder and CEO of Cresco Labs, Charles Bachtell, said, “We remain focused on driving growth for our shareholders through optimizing operations to drive margins and market share and by opening up new markets in which to sell our leading brands.”
Columbia Care Acquisition
Cresco Labs has agreed to acquire Columbia Care for about $2 billion. The deal is expected to close in the fourth quarter of 2022.
As per the agreed terms, shareholders of Columbia Care will receive 0.5579 of a subordinate voting share of Cresco Labs for each share held. Post completion, Columbia Care shareholders will hold nearly 35% of the pro forma Cresco Labs shares.
With this deal, Cresco Labs will have largest pro-forma revenue in cannabis of over $1.4 billion and will become one of the largest cannabis producers and retailers in the U.S. with over 100 dispensaries across 18 states.
Investors Remain Cautious
Following the news, Michael Lavery of Piper Sandler maintained a Buy rating on Cresco Labs, although he lowered his price target to $9 from $14. The new target implies 49% upside potential from the current price.
Meanwhile, Needham & Co. analyst Matt McGinley assigned a Hold rating to the stock. In his report, McGinley noted, “… this deal will likely enable Cresco to leap ahead of MSO peers and emerge as the largest multi-state operators by revenue.”
He went on to say that “The strategic rationale of merging Cresco’s more narrow, but scaled 10 state footprint, with Columbia Care’s less scaled, but wider 17 state footprint is strong, in our view, and fills in key geographic gaps for Cresco.”
The rest of the Street is cautiously optimistic about the stock with a Moderate Buy consensus rating based on two Buys and one Hold. The average Cresco Labs price target of $9 implies about a 49% upside potential to current levels.
Positive News Sentiment
News Sentiment for Cresco Labs is Positive, based on 22 articles over the past seven days. All the articles have Bullish sentiment, compared to a sector average of 63%, and none have Bearish Sentiment, compared to a sector average of 38%.
Takeaway
CRLBF stock has grabbed investors’ attention with its promising deal. More upside to the stock is expected if the deal continues to move forward smoothly.
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