eResearch | Cresco Labs Inc. (CNSX:CL), a US based multi-state cannabis operator with a market cap of $1.5 billion, is expected to report its Q1/2020 results on Thursday, May 28, 2020, after market close. Analysts are expecting revenue of $91 million, EBITDA of $3.2 million and EPS of ($0.06).
Despite COVID-19 making retail stores struggle in most industries, cannabis dispensaries have had strong sales year-to-date. In spite of a few supply chain issues, the cannabis retailing industry has performed well in Q1/20. For example, the state of Illinois reported sales of $59.6 million in February and $68.4 million in April. This 15% increase illustrates that cannabis retailers have continued to experience growth despite a difficult operating environment.
FIGURE 1: Change in Spending Before and After U.S. Outbreak. Bubbles are sized by Total Sales
The consensus estimate for Cresco’s Q1/20 revenue is $91 million. This implies a 63% quarter over quarter increase from Q4/19 and a year over year increase of 224%. Several key factors fuel this high growth rate:
- First, Cresco’s Sunnyside dispensaries have experienced robust organic growth as its Illinois locations grew same-store-sales at 55% year over year in Q4/19.
- Another value driver has been Cresco’s continued expansion of its wholesaling presence. The Company’s acquisition of Origin House on January 8, 2020 exemplifies this mandate.
- Of note, Origin House is an established wholesaler in the key California market, and currently supplies approximately 65% of California dispensaries.
- Acquisitions are a crucial driver of Cresco’s growth strategy; of its reported pro-forma revenue of $56 million in Q4/19, 26% was derived from acquisitions.
FIGURE 2: Retail vs. Wholesale Revenue Mix
Key Takeaways:
Cresco has shown to be resilient in a difficult economic environment and has numerous levers for growth including the expansion of its wholesaling base, future acquisitions, and further expansion of their Sunnyside retailing dispensaries.
Valuation:
Cresco trades at a premium/discount to peers. As of yesterday’s close, Cresco trades at 1.8x 2021 sales and 6.5x 2021 EBITDA compared to peers that trade at 3.0x and 9.7x, respectively.
Of note, Cresco is down 21% YTD compared to peers which are up 5%. Cresco will report after market on May 28, 2020.
//
NOTE: Financials below were added on May 28, 2020 after the Company reported:
Cresco announced Q1/2020 financial results:
- Record revenue of $66.4 million in Q1/2020, 60% growth over Q4/2019 revenue but well below the Analysts’ consensus estimate of $91 million.
- Revenue growth was attributed to an increase in cultivation and retail efficiency in Illinois and Pennsylvania, and operational improvements in California.
- Same store sales grew 144% year-over-year over Q1/2019
- Gross Profit was 48% in the quarter, compared to 51% the prior quarter, primarily due to the revenue mix.
- Net Loss of $13.4 million but Adjusted EBITDA of $3.2 million.
- As of March 31, 2020, Cash and Cash Equivalents of $68.6 million
//
