Cresco Labs Is A New Leader In U.S. Cannabis
Cresco Labs Inc (OTC:CRLBF)is a Chicago, Illinois-based cannabis company and one that has long been on my radar. The company is fast-emerging as a leader in the U.S. as a multi-state, vertically integrated company. Over the course of the last year, it has worked hard to strengthen the balance sheet, increase sales, control costs, and continue growing and by all measures, it is getting the job done. What I want to bring to your attention today is that this cannabis company is turning a profit. The combined effects of organic growth, expanding production, and cost-controls produce a net profit for this company, unlike its Canadian peers, and this is only the beginning. Charles Bachtell, Co-founder and CEO of Cresco Labs said:
“Cresco Labs entered the third quarter firing on all cylinders achieving record levels of revenue, profitability, and cash flow. We remain the number one operator in the industry focused on, and delivering results in, the wholesale distribution of branded products. Our retail is outperforming, and we are generating substantial operating leverage”
Cresco Labs Is Growing, Growing, Growing
Cresco Labs reported the kind of Q3 results the cannabis market has waited years to see. Starting at the top-line, revenue came in at $153.3 million or up 323% over the last year. Revenue growth is due to organic gains in all markets but one amplified by the addition of two new stores. On a QoQ basis, revenue grew 63% and is accelerating. On a wholesale basis, revenue is up 64.9% over the prior quarter while retail trails at a mere 60%. Wholesale revenue gains are driven by increased capacity, larger harvests, and the expansion into California. Retail sales gains are driven by strong sequential and YOY comps and new stores.
Moving down to the bottom line, the company reported positive EBITDA in the amount of $46.4 million. This is up 182% over the last quarter and driven by the combined effects of higher revenue and wider operating profit margins across the company’s footprint. The company was also able to leverage its expenses. SG&A costs held steady over the course of the quarter and fell as a percentage of revenue. More importantly, the net earnings came in at $4.9 million (more than zero) versus the -$4.7 million loss posted in the second quarter of the year.
Looking forward, the company is generating positive cash flow so should be able to sustain growth over the next year. The operating cash flow increased by 80% over the last quarter to top $17.5 million and is not expected to slow. The total cash is sitting near $57.7 million or up by $8.8 million versus the end of fiscal 2019. Cash flow is expected to increase as the company scales. Bachtell continued:
“The investments we made to support growth are paying off, and as a result our profitability has grown dollar for dollar with gross profit. Because of the decisions we’ve made, the changes we’ve managed through and the hard work devoted by our team over the last 12 months, Cresco Labs has substantiated itself within the very top tier of the industry and confirmed the value that is driven by our differentiated strategy.”
There Are Triple-Digit Gains In Store For Cresco Labs
The analysts are very bullish on this stock and I can understand why. There have been 7 notes issued this year, 2 recently, and they all see this stock trading well above its current levels. The consensus target is about 26% above the recent price action but that’s just the beginning. If the more recent calls are right this stock could easily double in price.
Looking at the chart, the trend is bullish and strong. There is a risk of some nearer-term weakness in price action because of a possible divergence in the MACD but that’s one of those signals that shouldn’t be relied on too heavily. The MACD is still on the rise and could set a new high in the coming weeks. If the price were to fall it would present a buying opportunity. The first targets for support are near $9.00, $8.50, and $8.00.
