Is Cresco Stock a Buy?
For the past two years, cannabis investors have been dealing with substantial market volatility. Several marijuana stocks were trading at record highs after Canada legalized recreational cannabis in October 2018. While the cannabis sector continues to experience volatility, we feel as though there are a few cannabis stocks worth investing in – like Cresco Labs. But is Cresco Stock a Buy?
Cannabis stock investors have waited patiently for a turnaround in pot stocks but they continue to trade at multi-year lows. A thriving black market, low-profit margins, and high inventory levels are just a few of the structural problems impacting companies in this space.
Here we take a look at one such stock that continues to outperform its peers since its IPO and might gain significant momentum as we inch closer to 2021. Let’s see if Cresco Stock is a buy:
Cresco is Trading Near All-Time Highs – But is this Cannabis Stock Still a Buy?
Shares of the multistate medical marijuana player Cresco Labs (OTC: CRLBF) are trading at $7.54 which is just below its record high of $7.82. The stock went public in September 2019 and has returned 28% since then, easily outperforming a significant portion of its struggling peers.
Cresco Labs is a vertically integrated multi-state cannabis operator in the U.S. It employs a consumer-packaged goods approach to cannabis and its brands are designed to meet the needs of consumer segments that include some of the most recognized and trusted national brands including Cresco, Remedi, and Mindy’s, a line of edibles created by James Beard award-winning chef Mindy Segal.
Sunnyside, Cresco’s national dispensary brand, is a wellness-focused retailer designed to build trust, education, and convenience for both existing and new cannabis consumers.
Cresco has one of the largest footprints in the U.S. and is operational in nine states, with 15 production facilities, 29 retail licenses, and 19 operational dispensaries. Cresco’s wholesale portfolio consists of 350 products and 5,000 SKUs (stock-keeping units) and the company’s products are sold in over 700 dispensaries across the country.
Cresco Triples Revenue Growth in Q2 of 2020
In the second quarter of 2020, Cresco reported revenue of $94.3 million, a sequential growth of 42%, and 200% over its sales in the prior-year period. Similar to most cannabis companies, Cresco remains unprofitable however its bottom-line is expanding at a stellar rate, allowing it to consistently grow EBITDA (earnings before interest, taxes, depreciation, and amortization) at a fast clip.
Another important metric for Cresco is that the company has achieved quarter-over-quarter revenue growth of at least 30% in Q2 in eight of the nine states with the exception of Massachusetts where the sales of recreational cannabis were stopped temporarily due to COVID-19.
The cannabis markets in the U.S. are expected to report robust growth rates in the upcoming decade which means the top-line growth drivers for Cresco are intact. Additionally, there is a chance that the U.S. will decriminalize marijuana at the federal level in case Joe Biden wins the Presidential race, and states such as Arizona will be voting on the legalization of recreational marijuana next month. Great – but Is Cresco Stock a Buy?
Cresco’s Strong Retail Footprint
There are multiple revenue drivers for Cresco that include the legalization prospects mentioned above. The company has nine of its 19 dispensaries in Illinois, a state that legalized recreational cannabis earlier this year. Illinois is on track to achieve $1 billion in annual marijuana sales by 2024 and it’s a limited-license state which means Cresco has the opportunity to be one of the largest companies due to its already established presence.
Another positive catalyst for Cresco is its wholesale business which is a low-margin one that majorly depends on sales volume. However, Cresco’s acquisition of Origin House provides the former a chance to enter high-growth markets such as California which is the largest cannabis market in the world. This is great but is Cresco Stock a Buy?
Bottom Line: Is Cresco Stock a Buy?
Analysts tracking Cresco expect sales to grow by 217% year-over-year to $407.3 million in 2020 and by 71% to $696 million in 2021. This will help the marijuana giant to improve its earnings from a loss of $0.37 per share in 2019 to a net income of $0.06 per share in 2021.
It indicates Cresco stock is trading at a forward price to sales multiple of 2.3x and a price to earnings multiple of 125 which does not seem too expensive considering its staggering growth potential and rapidly expanding addressable market.
Nasdaq analysts believe that Cresco’s annual sales will exceed $1 Billion by 2024. Do we believe that Cresco stock is a buy? Absolutely.
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