Cresco Labs (OTCMKTS:CRLBF) will likely report its financial results for the first quarter of fiscal 2020 on May 28 after the market closes. The fourth-quarter results were positive, which wasn’t a surprise. Most US cannabis companies have been doing well amid the COVID-19 pandemic. So far, Cresco Labs stock has gained 33.1% in May, while the Horizons Marijuana Life Sciences ETF has gained 28.3%. Let’s take a look at what analysts expect from the company’s first-quarter results.
Cresco Labs’ strategic expansion in Ohio
Prior to the first-quarter earnings, Cresco Labs announced expansion plans to strengthen its position in key US markets. The company said that it entered into an agreement with Verdant Creations to buy four additional Ohio dispensaries. The transaction could be complete by the fourth quarter of 2020. However, the firm needs approval from the Ohio Board of Pharmacy. After the deal is finalized, Cresco Labs will hold five dispensaries in the state. The deal costs $375,000 in cash and $500,000 of Cresco subordinate voting shares.
Talking about the deal, Charlie Bachtell, Cresco Labs’ CEO and co-founder, said, “Ohio is the seventh most populated state in the country, now has over 100,000 registered patients and experienced over 30% growth in average weekly sales from February to April. With our experience in Illinois and Pennsylvania, we think Ohio is on its way to joining these states as one of the strongest performing regulated cannabis programs in the country.” Ohio is also pushing to get recreational marijuana legalized in 2020.
The sudden surge in cannabis sales pushed many US cannabis companies to ramp up their expansion. In my opinion, it might be a harsh move given the uncertainty amid the pandemic. Marijuana is illegal at the federal level in the US. As a result, many smaller cannabis companies have struggled to stay afloat. I think that the priority for companies with enough cash should be to maintain stability. With the surge in sales and ongoing marijuana legalization efforts, US cannabis companies might see opportunities after the pandemic retreats.
Analysts expect a good Q1
Since cannabis is an essential item in many US states, the sales and revenue numbers have risen for most US cannabis companies. Cresco Labs’ results for the fourth quarter of fiscal 2019 were better than expected. Analysts are bullish about the company’s first-quarter results as well.
Analysts expect a drastic YoY (year-over-year) increase of 217.8% in the revenue to $67 million in the first quarter. Sequentially, the revenue could also grow from $41.3 million in the fourth quarter of fiscal 2020. Analysts expect the revenue numbers to keep rising through all of the quarters in fiscal 2020. The revenue could be around $75.2 million in the second quarter, $98.1 million in the third quarter, and $124.6 million in the fourth quarter. For fiscal 2020, the revenue could grow 186.5% YoY to $368.3 million.
Analysts expect Cresco Labs to report a positive EBITDA of $1.3 million in the first quarter compared to a loss of $6.1 million a year ago. However, the EBITDA could be lower compared to $2.8 million in the fourth quarter of fiscal 2019. Analysts expect the profitability to rise over fiscal 2020. The profitability could be around $4.7 million in the second quarter, $13.6 million in the third quarter, and $26.9 million in the fourth quarter. For fiscal 2020, the EBITDA could grow to $50.1 million compared to $7.9 million in fiscal 2019.
Analysts are bullish on Cresco Labs
Analysts’ recommendations on Cresco Labs stock haven’t changed since its fourth-quarter earnings. Among the 12 analysts that cover the stock, ten recommend a “buy,” while two recommend a “strong-buy.” However, the average target price on the stock fell to 11.05 Canadian dollars from 13.3 Canadian dollars after the earnings. The stock has a 65% upside potential in the next 12 months. After the earnings, Eight Capital cut the target price for the stock to 11 Canadian dollars from 14 Canadian dollars.
MedMen has a consensus “hold” rating with a target price of 0.81 Canadian dollars. MedMen will report its results for the third quarter of fiscal 2020 on May 27 after the market closes. Read Will MedMen’s Q3 2020 Earnings Be a Relief? to learn more. Curaleaf (OTCMKTS:CURLF) reported mixed first-quarter results but showed good revenue growth. The company has continued its expansion plans. Overall, Curaleaf has a consensus “buy” rating. Charlotte’s Web (OTCMKTS:CWBHF) also has a consensus “buy” rating after its strong results. Canopy Growth (NYSE:CGC)(TSE:WEED) will likely report its fourth-quarter earnings on May 29 before the market opens.
On Tuesday, Cresco Labs stock closed 2.5% higher, while MedMen gained 15.5%. Canopy Growth, Curaleaf, and Charlotte’s Web’s stock gained 3.0%, 2.3%, and 5.0% on Tuesday.