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Is Cresco Labs a Good Bet in January?

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As of Wednesday, Cresco Labs (OTCMKTS:CRLBF) trades at 8.30 Canadian dollars, which implies a fall of 7.1% since the beginning of this year. The company has underperformed its peers and cannabis ETFs. During the same period, the ETFMG Alternative Harvest ETF and the Horizons Marijuana Life Sciences Index ETF (TSE:HMMJ) have returned 6.7% and 10.3%, respectively. Meanwhile, Charlotte’s Web Holdings (NYSEARCA:CWEB), OrganiGram Holdings (NASDAQ:OGI), and Curaleaf Holdings (OTCMKTS:CURLF) have returned 14.7%, 21.0%, and 10.9%, respectively. However, the company outperformed its peers and cannabis ETFs last year. So, will Cresco Labs be a good buy now? First, we’ll discuss analysts’ estimates.

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Analysts’ revenue estimates for Cresco Labs

Analysts expect Cresco Labs to report revenues of $45.3 million in the fourth quarter to take the total revenue for 2019 to $131.9 million. The estimate represents growth of 204.9% from $43.3 million in 2018. Analysts also expect the company’s revenue to rise by 299.7% in 2020 to $527.0 million.

Since January 1, 2020, Illinois has allowed recreational cannabis sales. Cresco Labs has five Sunnyside dispensaries that serve recreational customers. The company also closed the acquisition of Valley Agriceuticals in October 2019 and Origin House in January 2020. Through the Valley Agriceuticals acquisition, Cresco Labs owns one vertically integrated cannabis business license, which allows operating one production facility and four dispensaries in New York.

Origin House operates six licensed facilities in California. The company also delivers more than 50 brands of cannabis products to 400 retailers in the state. So, Origin House’s acquisition gave Cresco Labs an entry to the largest cannabis market in the world. To learn more, read Why Origin House’s Acquisition Is Vital for Cresco Labs. Also, the company is in the process of acquiring Tryke Companies and Hope Heal Health. We expect these initiates to drive the company’s revenue.

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Analysts expect the EBITDA to improve

Analysts expect Cresco Labs to report a positive EBITDA of $4.89 million in 2019, which represents a fall of 32.7% from $7.1 million in 2018. Increased operating expenses could offset the effects of revenue growth and the improved gross margin, which could lower the company’s EBITDA. For 2020, analysts expect the company to report an EBITDA of $122.7 million, which represents a significant improvement from 2019. The revenue growth, improved gross margin, and lower operating expenses as a percentage of total revenue could drive the company’s EBITDA.

Analysts’ recommendations

Analysts are bullish on Cresco Labs. Among the 11 analysts, three recommend a “strong-buy,” while eight recommend a “buy” rating. None of the analysts recommend a “hold” or “sell” rating. As of Wednesday, analysts’ consensus target price was 15.70 Canadian dollars, which represents a return potential of 90.8%. Beacon Securities is bullish on the stock. To learn more, read Why Beacon Securities Thinks Cresco Labs Is Cheap.

Our take on Cresco Labs

On December 31, 2019, Marijuana Business Daily reported that Illinois’ recreational cannabis market could reach $2.5 billion per year. Citing the state’s wholesale monthly sales figures, the company said that it had acquired an approximately 25% market share in the state. The recent acquisitions and the pending acquisitions could give the company a significant opportunity to expand its business. Also, with the company’s profitability expected to improve in 2020, Cresco Labs could have a significant upside from its current levels.

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