Cresco Labs’ Q4 Earnings: Pleasant Surprise amid COVID-19

Cresco Labs (OTCMKTS:CRLBF) reported its results for the fourth quarter of fiscal 2019 on April 27. Analysts were hopeful about the company’s fourth-quarter earnings. The company missed analysts’ revenue estimates. However, the EBITDA was higher than the estimates. Overall, the company reported strong fourth-quarter results. The stock closed 1.1% higher on the Canadian stock exchanges on Monday at 6.15 Canadian dollars. Cresco Labs stock also rose 0.93% at $4.36 on the OTC markets. Let’s take a look at how the company performed amid these difficult times.

Cresco Labs’ strong Q4 earnings

Cresco Labs reported a 144% YoY (year-over-year) revenue growth to $41.4 million. However, the company missed analysts’ revenue expectations of $43.7 million in the fourth quarter. Expanding into new markets and stronger growth in existing markets drove Cresco’s revenue in the quarter. For the fiscal year, the company reported a YoY increase of 197% to $128.5 million. Sequentially, Cresco Labs saw an increase of 14% driven by growing revenues from Pennsylvania, Illinois, and Arizona. Illinois legalized recreational marijuana in January. Since then, the sales have been soaring in the state. The company’s Valley Ag and HHH acquisitions also contributed to its revenue growth.

Cresco reported an adjusted EBITDA of $2.9 million in the fourth quarter, which was higher than analysts’ estimate of $2.71 million and better than a loss of $0.3 million in the same quarter last year. The company’s gross margin of 47% also grew sequentially due to higher sales and operational efficiencies in its existing markets. Cresco ended the quarter with cash and cash equivalents of $49.1 million.

The company has also kept all of its dispensaries open to meet the demand amid COVID-19 lockdowns. As stated in the update in March, Cresco Labs has opted for curbside pickup, online ordering, and delivery to ensure social distancing.

For 2020, Cresco Labs wants to expand its position in its strongest markets—Illinois, California, and Pennsylvania. The company also wants to mark its footprint in other states. The company expects the Illinois market to mature to $2 billion–$4 billion. Cresco Labs wants to grab every opportunity and grow its market share in the state. Currently, the company holds three of 21 cultivation licenses in Illinois.

The company stated that it has already generated $66.5 million in revenue in the first quarter of fiscal 2020—higher than the fourth quarter.

Analysts are bullish on US cannabis stocks

Analysts have been bullish on US cannabis stocks this year. Canadian cannabis stocks haven’t had impressive performances in 2020, besides a few like Aphria (NYSE:APHA) and Canopy Growth (NYSE:CGC). In contrast, US cannabis companies have performed well. After Cresco Labs’ fourth-quarter results, most analysts are positive about the stock. Among the 12 analysts that cover the stock, ten recommend a “buy,” while two recommend a “strong-buy.” There weren’t any “strong-buy” ratings before the company’s earnings. However, the average target price on the stock fell to 13.3 Canadian dollars from 14.04 Canadian dollars before the earnings. The stock has a 116% upside potential in the next 12 months.

Curaleaf (OTCMKTS:CURLF) also has a majority “buy” rating for its stock. The company reported impressive fourth-quarter results last month. Charlotte’s Web Holdings also has a consensus “buy” rating. The company reported strong fourth-quarter results in March. 

Meanwhile, MedMen has been suffering for a while now. Recently, the company withdrew its guidance due to COVID-19. MedMen has a consensus “hold” rating.

Cresco Labs’ stock performance

As of April 27, Cresco Labs stock has increased by 46.3%. Curaleaf has gained 21.6%, while MedMen has fallen 10% in April. Aurora Cannabis (NYSE:ACB) has fallen by 15.5%, while Canopy Growth has increased by 21.5%, respectively. Higher demand for cannabis amid the coronavirus outbreak could have contributed to the stock gains.

The demand for cannabis has grown in the US. As a result, many states want to legalize marijuana. US cannabis companies have captured the stronger markets and want to expand more. Some smaller cannabis companies have struggled in the US due to a lack of financial support. Canadian cannabis companies plan to expand in the US following full-scale legalization. However, investors are skeptical due to COVID-19. After the pandemic ends, marijuana stocks could have a good year.