Cresco Labs Missed Analysts’ Q3 Estimates

Cresco Labs (CRLBF) (CL) reported its third-quarter earnings on Tuesday after the market closed. The third quarter ended on September 30. For the third quarter, the company missed analysts’ top-line and bottom-line estimates. Cresco Labs’ revenues were $36.2 million lower than analysts’ estimate of $37.78 million. The net losses were $8.6 million—significantly higher than analysts’ expectation of $4.36 million.

Cresco Labs’ YoY revenue growth

Cresco Labs’ third-quarter revenues grew 184.4% YoY (year-over-year) from $12.73 million in the third quarter of 2018. The revenues from new markets and increased sales from existing markets drove the company’s revenues. By the end of the quarter, the company operated in six states. Sequentially, Cresco Labs’ revenues increased 21.1% from $29.89 million in the second quarter of fiscal 2018. Higher sales in California, Pennsylvania, and Illinois drove the company’s revenues. During the quarter, Cresco Labs generated 65% of its revenues from the wholesale business and 35% from retail sales. In the last quarter, the wholesale business contributed 62% of the total revenues. Also, Cresco Labs’ third-quarter pro forma revenues, which include revenues from the pending acquisition, stood at $73.6 million—a sequential increase of 48%.

During the comparable quarter, Curaleaf Holdings (CURLF) (CL), Cronos Group (CRON), and Aurora Cannabis (ACB) reported sequential revenue growth of 27%, 24%, and -24%, respectively.

Cresco Labs’ loss in Q4

Cresco Labs reported a net loss of $8.6 million compared to a net income of $1.2 million in the same quarter the previous year. The company’s total expenses increased 128.8% YoY to $26.47 million, which brought its net profits down. During the quarter, the company incurred $4.0 million of stock-based incentives, $4.7 million of acquisition and other expenses, and $1.0 million D&A expenses, which increased its total expenditure. However, higher gross profits offset some of the declines. Compared to the third quarter of 2018, the company’s gross profits improved 113.8% to $12.84 million due to higher revenues.

YoY, Cresco Labs’ adjusted EBITDA improved from $9.7 million in the third quarter of 2018 to $11.09 million. However, the adjusted EBITDA fell 23.3% sequentially from $14.46 million in the second quarter. The company’s gross margin fell from 48.1% to 47.1%. The adjusted EBITDA fell due to an increase in SG&A expenses from $14 million to $16.8 million.

Subsequent events

  • Last month, Cresco Labs completed the acquisition of Gloucester Street Capital, the parent of Valley Agriceuticals, which owns a vertically integrated license in New York.
  • The waiting period ended for the acquisition of Origin House. Cresco Labs expects to close the deal in early 2020. The company hopes that the acquisition will expand its distribution network in California.
  • On Tuesday, the company terminated its previously announced agreement to acquire VidaCann.

YTD stock performance

This year, Cresco Labs has lost 17.2% of its stock value as of Tuesday. Despite the fall, the company has outperformed Cronos Group and Aurora Cannabis, which have fallen 37.4% and 52.7%, YTD, respectively. Earlier this month, Cronos Growth and Aurora Cannabis reported lower-than-expected revenues. However, Curaleaf, which reported an impressive third-quarter performance last week, has returned 21.7% during the same period. For Curaleaf’s third-quarter performance, read Curaleaf Impressed with Strong Q3 2019 Earnings.

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