Is Cresco Labs Stock a Strong Buy?
The coronavirus had a disastrous impact on the revenues of several global industries. Despite this, some players in the cannabis industry had excellent sales growth due to the rising demand for both medical and recreational marijuana. The cannabis industry now has more reasons to celebrate as the wave of cannabis legalization started to spread and the cannabis operators got to increase both their reach and revenues. Illinois-based Cresco Labs (OTC: CRLBF) is one such company that continues to see immense growth in its revenues. The cannabis wholesaler currently operates in nine states and is giving tough competition to even the biggest cannabis players in this space. Cresco Labs stock has risen from $9.86 on December 31, 2020, to $15.60 on January 28, 2021. That’s an uptick of 50% in less than one month but – is Cresco Labs stock a strong buy?
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Cresco’s Acquisition of Bluma Wellness Florida
Florida has the potential of becoming the largest marijuana market in the US with sales reaching $1 billion-$1.22 billion by this year. Although recreational marijuana is yet to get legalized there, about 2/3rd of its citizens are already supporting the cause thereby validating the future availability of a huge TAM opportunity.
Recently, Cresco Labs decided to acquire Florida-based Bluma Wellness for a $213 million deal to move into the fastest growing medical marijuana market. Bluma Wellness is a subsidiary of “One Plant Florida” and has about seven dispensaries in the southern region of the state along with another eight locations planned.
Bluma is known for its state-of-the-art cultivation facility and effective delivery operation and strong management. Florida is the USA’s seventh most populated state and One Plant Florida is positioned in fifth place in terms of store sales in Florida with Bluma owning 54,000 sq. feet of cultivation space.
With this acquisition, Cresco Labs can increase its presence in the growing Florida market. Also, the combined experience and expertise of both companies can leverage their operations to a large extent. But does this alone make Cresco Labs stock a strong buy?
Skyrocketing growth in revenues
Cresco Labs had an incredibly successful year as it continued expanding its presence in more states along with opening new dispensaries. Its last quarter results also showed staggering 63% revenue increase from last quarter. The company became the largest wholesaler of branded products with $90.5 million in wholesale revenues. Also, it recorded a 40% revenue growth for the third consecutive time in that quarter.
Higher revenues also helped Cresco Labs achieve another quarter of positive EBITDA. The EBITDA had increased by about 182% on a sequential basis. The consistent efforts of the management towards managing the costs also contributed to the increased EBITDA. This quarter the SG&A expenses accounted for 30% of the total revenues against 70% of last year.
Cresco management stated the increased wholesale revenues were a result of expanded capacity in Illinois and Pennsylvania along with increased growth in the California market. Retail sales also increased because of the increased same-store sales and as two new store openings in Illinois.
The increased liquidity and increased cash reserves with no debt will also leverage the company’s future expansion plans.
Cresco Labs implemented intelligent strategies that contributed to its massive growth. The company has about 21 retail stores across six states which makes its operations deep. Rather than focusing mostly on retail operations, the company concentrated its efforts on large scale production and processing and then wholesaling to other dispensaries.
Since wholesale operations are comparatively more profitable, Cresco is now a much bigger company. All the planned acquisitions made by the company have led to a 50% increase in its market share. With this increased cash flows now the company can also enter markets like Michigan, Massachusetts, and Ohio without needing to raise capital.
Bottom Line: Is Cresco Labs Stock a Strong Buy?
Cresco has huge growth opportunities ahead. As emerging cannabis markets start popping up companies like Cresco will have added advantage owing to their strong financials and excellent management strategies. Thus, we believe in the long-term prospects of Cresco Labs and would encourage investors to consider a position in this cannabis stock.
Is Cresco Labs Stock a Strong Buy?
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