Tuesday , 11 August 2020

Cresco Labs Favorable Q2 Financial Results Have Not Stemmed Decline Of Its Stock Price

By Lorimer Wilson

Cresco Labs Inc. (CSE: CL; OTCQX: CRLBF), one of the largest vertically integrated MSOs (Multi-State Operators) in the U.S., released its unaudited Q2 financial results last week.

Q2 2019 Highlights

(All financial information presented in this release is in U.S. dollars, unless otherwise noted.)

  • Revenue increased by 253% year-over-year & 42% quarter-over-quarter
    • The Y-o-Y increase was driven by
      • expansion into new markets and
      • continued growth in the states where the Company operates.
    • The Q2 revenue was driven by higher revenue generated in Pennsylvania, Illinois and California.
  • Gross Profit increased by 420%
  • Gross Profit Margin increased from 56.6% to 83.4%
  • EBITDA increased by 202% year-over-year due to:
    • significant investments in the expansion of cultivation, processing and retail facilities in the Company’s existing markets,
    • payments for the legal close of the MedMar Inc. and PDI Medical acquisitions, and
    • funding provided to pending acquisitions to drive the continued development of facilities.
  • Net Income loss of $3.9 million, compared to net income of $1.6 million in the prior-year period primarily driven by:
    •  tax items related to the legal close of the acquisitions of MedMar Inc. and PDI Medical.
  • Operational Net Profit Margin increased by 53.2% quarter-over-quarter driven by:
    • greater scale in the Company’s established markets,
    • increased efficiencies in cultivation, processing and packaging, partially offset by the impact of initial costs associated with expansion into newer markets like California, Ohio and Arizona.
  • Total Expenses increased by 546% year-over-year due to expenses related to:
    • share-based incentive compensation,
    • acquisition and other non-recurring costs,
    • depreciation and amortization and
    • investments made in talent and operational infrastructure to support the Company’s continued revenue growth.

Operations Highlights

  • currently is operational in 7 U.S. states with approved expansion into Michigan and expansion plans pending in New York, Massachusetts and Florida for a total of 12 states,
  • expects acquisition of Origin House to close during the fourth quarter of 2019 which will greatly expand its distribution network in California,
  • received regulatory approval for its acquisition of Valley Agriceuticals, LLC. which will provide it with one of 10 vertically integrated licenses granted in New York state,
  • continued expanding staff which now numbers about 1,400,
  • launched Sunnyside*, a chain of retail outlets (i.e.dispensaries) that will market its full house of cannabis brands,
  • expanded into the CBD market with the launch of their WellBeings product line,
  • expanded cultivation and retail operations in Illinois to capitalize on adult-use legalization beginning there in 2020.

Cresco Labs stock peaked at $17.75 back on April 26th and has been declining since. Its very favorable Q2 financial report, however, did not stem the decline and it closed out last Friday down 5.3% from the previous Wednesday when the financial report was made public and currently is down 41.7% from its April 26th price.

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