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What to Expect from Cresco Labs’ Q2 Results

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Cresco Labs (CRLBF) (CL.CN) is set to declare its second-quarter results after markets close tomorrow. As of yesterday, Cresco stock had risen 29.6% YTD (year-to-date), but fallen 25% since the company’s first-quarter release in May.

On August 8, the vertically integrated cannabis and medical marijuana company announced it had received approval for a New York marijuana license deal. It was approved to acquire 100% of Gloucester Street Capital’s membership interests. The acquisition makes Cresco a holder of one of the ten vertically integrated cannabis licenses approved by the New York State Department of Health.

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First-quarter performance

In the first quarter, Cresco’s revenue surged 313% YoY (year-over-year) to $21.1 million, driven by gains in existing markets and expansion into new markets. However, it missed analysts’ forecast of $22.8 million. Meanwhile, the company’s adjusted EBITDA fell YoY to $0.8 million from $1.0 million.

Including one-time items, the company’s net income fell YoY to -$7.6 million from $0.6 million. Share-based compensation of $3.2 million and acquisition and other one-time costs of $2.5 million dragged down the company’s bottom line. Significant investments to support growth initiatives also hurt its earnings.

Second-quarter expectations

In the second quarter, analysts expect Cresco to generate revenue of about $28.9 million, and an adjusted loss per share of $0.01. Cannabis companies Cronos Group (CRON) and Canopy Growth (WEED) (CGC) have also reported their earnings this month. In the second quarter, Cronos’s revenue grew about 202% YoY to 10.24 million Canadian dollars. However, its loss widened YoY to adjusted EBITDA of -17.8 million Canadian dollars from -2.4 million Canadian dollars. To learn more, read Why Cronos Group’s Q2 Earnings Failed to Impress.

Canopy’s fiscal 2020 first-quarter results disappointed investors. Its net revenue rose 249% YoY to 90.5 million Canadian dollars, but missed analysts’ forecast of 107 million Canadian dollars. Canopy’s adjusted EBITDA were -92 million Canadian dollars in the quarter.

Analysts’ ratings for Cresco Labs stock

On August 13, Cresco stock rose 17% as Piper Jaffray analyst Michael Lavery initiated coverage with an “overweight” rating. Of the nine analysts covering Cresco, three recommend “strong buy,” and six recommend “buy.” Their 12-month price target of 19.41 Canadian dollars for Cresco stock implies an upside of about 62%. With a 29.6% YTD return, Cresco stock is ahead of Cronos and Canopy, which have returned 10.4% and -2.6% this year, respectively.

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