1. Cresco Labs

“We believe the outlook for the U.S. cannabis sector has never been brighter than it is today.” — Charles Bachtell

a. demand

Analysts were expecting Cresco Labs to generate $194.6 million in quarterly sales. It posted $210 million outpacing estimates by 7.9%.

Revenue growth was 86% organic & 14% inorganic from purchases like Bluma — a vertically integrated operator in Florida — which closed April 14th. Bluma is off to a strong start for Cresco Labs seeing 33% sequential growth. Cresco has already realized incremental operational efficiencies and yield increases from this purchase. The company plans to double its current store count in Florida in the future as well as debuting edibles and more brands. Next quarter will be the first full quarter of Bluma results integrated into Cresco’s.

“In Illinois, the social equity license lotteries are underway. We are proud to report that multiple license winners were part of our 2020 seed program incubator.” — Bachtell

Cresco’s wholesale revenue business is the largest in the industry & sold to 1000 retail shops during the quarter.

“We are excited about what lies ahead as we begin recognizing contributions from growth initiatives from the last 18 months.” — Bachtell

The company has 33 stores open vs. 24 sequentially and 13 stores year over year. Same store sales grew 14% sequentially and 58% year over year.

b. Profitability

Gross profit margin was impacted by a fair value markup on acquired inventory via the Bluma acquisition. Without this temporary hit, gross profit margin would have been 51.0%.

SG&A as a percent of sales fell from 32.4% to 31.6% sequentially. The company expects this to decline further going forward as investments in growth are completed.

c. Cresco Labs reaffirmed the following 2021 guidance:

1. Annualized revenue run rate over $1 billion by the end of the year
2. GPM over 50% for the remaining 3 quarters of 2021
3. Adjusted EBITDA margin run-rate of 30%+ by the end of the year with “more upside here in the years to come”

d. Operational Highlights

1. Closed on an overnight offering of subordinate voting shares in January for $125 million.
2. Bought 4 Ohio dispensaries from Verdant Creations in February. These stores had been open for more than 2 years before Cresco purchased them yet saw 12% sequential growth following Cresco’s purchase. This outpaced the market by 30%.
3. Bought Cultivate Licensing LLC and BL Real Estate LLC — a vertically integrated Massachusetts cannabis operator.

The company has $131 million in cash on hand with $189.4 million in debt. This week, Cresco Labs also raised $400 million in debt to pay off existing debt and to add $200 million in cash to the balance sheet. This came with a cost of capital of 9.5% maturing in 2026 — this is among the lowest rates (not the lowest) in the industry.

e. Conference Call Commentary

1. CEO Charles Bachtell:

“We’ve demonstrated the ability to reach and sustain top market share positions in two of the industry’s top five states including Illinois. We are gearing up to repeat that success in more markets this year and are determined to achieve top 3 market share in every state in which we operate.” — Bachtell

The Cresco brand remained the top brand in Illinois. The company has the top 2 best-selling flower brands in the state, the top selling edibles portfolio and the top selling concentrates brand as well.

Cresco Labs’ first harvest in Michigan is on schedule for later in the year. This is a $1.8 billion annualized market.

At Hash Bash (a large cannabis convention in Michigan) this year, Cresco’s team won:

1. Top 2 vapes
2. Top 2 concentrates
3. Second place in edibles

Cresco Labs continues to grow its market share in California. Demand for Cresco’s brands in the state is rising precipitously with shelf penetration and repeat ordering activity both very positive. Cresco already has a top ten brand in California.

“Sunnyside (Cresco’s retail brand) remains the most productive per-store retail platform among scaled national retailers.” — Bachtell