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Cresco Labs Lands New York Deal before Earnings

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Cresco Labs is due to report its Q2 of 2019 earnings results on August 21 after the market closes. A week ahead, Cresco—the largest multistate cannabis player—received regulatory approval for a New York deal. On Thursday, Cresco announced that it received approval to acquire one of only ten vertically integrated licenses in New York State.

Cresco receives regulatory approval for New York deal

Cresco Labs has regulatory approval for its acquisition of 100% of the membership interests of Gloucester Street Capital. Gloucester is a parent entity of Valley Agriceuticals. It holds one of the ten vertically integrated cannabis business licenses granted by the New York State Department of Health. Each license allows an operator one cultivation facility and four dispensaries in New York. The acquisition will close by the end of August.

Charles Bachtell, CEO and co-founder of Cresco Labs, said, “As the holder of one of only 10 vertically integrated businesses licenses in New York, we believe that Cresco Labs will make a significant impact in this large and influential market that is projected to grow to $500 million by 2022, according to Arcview/BDS Analytics.”

We’ve discussed in a few of our recent articles how medical cannabis has tremendous growth potential. This potential has led to optimism about easing regulation. To learn more, read Joe Biden Wants to Reform Cannabis Laws. Also check out Will Kevin O’Leary Reconsider Investing in Cannabis? for Shark Tank host Kevin O’Leary’s opinion on cannabis stocks.

Cresco’s peer Innovative Industrial Properties’ (IIPR) management recently discussed on their Q2 earnings call the benefits of a regulated cannabis industry. IIPR said a regulated cannabis industry would help boost US jobs as well as tax revenues.

With the US 2020 presidential elections looming, we’re seeing promises to pass bills in favor of cannabis regulation.

Analysts’ estimate for Cresco Labs’ Q2 2019 earnings

Analysts expect Cresco’s revenue to come in around $28.8 billion for Q2 of 2019. Consensus estimates also suggest Cresco will report a loss of $0.01 per share in Q2 2019.

Price coverage for Cresco Labs

Currently, only seven analysts cover Cresco Labs stock. Three analysts recommend a “strong buy” for the stock for the next 12 months and four rate it a “buy.” The target price is 21.25 Canadian dollars, which represents 109% upside potential for the stock compared to its current trading price. The stock closed at 10.15 on Friday.

Cresco’s performance in Q1 2019

Cresco reported tremendous growth of 313% year-over-year in revenue to $21.1 million in Q1 2019. However, it reported a net loss of $7.6 million in Q2 2019, compared to a net profit of $0.6 million in Q2 2018. Adjusted EBITDA for Q1 stood at $0.8 million, compared to $1.0 million in Q1 2018. Cresco said its expansion into new markets—and its gains in market share in existing markets—drove this revenue increase.

Cresco Labs and peer stocks’ performance

Unlike other cannabis players in the industry, Cresco Labs’ stock hasn’t gained much year-to-date. However, since its inception in December 2018, it’s up 54.9%. The stock has gained 9.7% year-to-date. It trades under the ticker symbol CL on the Canadian Securities Exchange. Innovative Industrial Properties (IIPR), a marijuana REIT stock, has gained a whopping 125.8% year-to-date. Meanwhile, peers Aurora Cannabis’s (ACB), Cronos (CRON), CannTrust (CTST), and Aphria (APHA) have gained 30.9%, 22.9%, 17.0%, and 11.4%.

To learn more about IIPR’s strong Q2 earnings, see IIPR’s Q2 Earnings Call: Key Takeaways for Investors and Why IIPR’s Q2 Earnings Came in Strong.

Many cannabis stocks were affected on Friday by news from CannTrust. KPMG withdrew its audit report for CannTrust in light of recent violations. See Why Is CannTrust Falling on Friday? While CannTrust fell 0.83% on Friday, Cresco closed with a loss of 3.2%. Aurora Cannabis’s (ACB), Cronos (CRON), and Aphria (APHA) closed with losses of 2.5%, 3.9%, and 5.3%. To learn more about Canopy and Cronos, take a look at Why Jim Cramer Favors CRON and CGC.

Upcoming earnings in the cannabis industry

Aurora Cannabis’s (ACB report its Q4 2019 results next month. Tilray (TLRY) reports on August 13 after the market closes. Canopy Growth (CGC)(WEED) is slated to report earnings results on August 14.

Stay tuned for Cresco Labs’ earnings call at 5:00 PM EST on August 21.

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