Markets continue to be volatile, with inflation and fears of a potential recession still making the rounds. Despite wild swings in the market, the S&P 500 was flat, while the cannabis sector (as measured by the AdvisorShares Pure US Cannabis ETF) moved slightly higher from a low of $10.08 to a recent high of $11.26 over the last week.
Sure, over the long term, the marijuana sector has been hammered. However, I still believe now is an excellent time for investors to increase their exposure with many marijuana stocks severely oversold and solid catalysts on the horizon.
Marijuana is finding more support throughout the U.S. Rhode Island, for example, recently legalized recreational use, with the market expected to launch by December 1. Mississippi legalized its medical use and is on track for sales to start later this year or early 2023.
In addition, according to The Baltimore Sun, “Legalization of recreational cannabis in Maryland is a done deal. The referendum scheduled on the issue this November will pass.”
Americans believe that marijuana should be legalized. In fact, according to Pew Research, 91% of U.S. adults say it should be legal for medical and recreational use. About 60% say it should be legalized for medical use. Around 8% disagree with legalization altogether.
With that in mind, I am taking a closer look at Cresco Labs (CRLBF).
Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators (MSOs) in the United States. With a consumer-packaged goods approach to cannabis, Cresco’s house of brands is designed to meet the needs of all consumer segments. The company boasts 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.
This post will discuss the company’s background, critical catalysts for growth, risks, and a quick takeaway on why investors may want to consider CRLBF as a long-term play.
Business Overview
Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators in the U.S. The company has been actively acquiring businesses to expand its market share across the U.S., including a deal with Columbia Care for $2B that could close by Q4 2022.
Cresco operates in 10 U.S. states, runs 21 production facilities, holds 51 retail licenses, and owns 50 dispensaries. Based on its strong revenue growth, shares of Cresco could see higher highs. First-quarter revenue of $214 million was up 20% year-over-year. Retail revenue also jumped 44%.
Moving forward, Cresco holds immense potential.
By 2025, the company could have access to 12 states, with more than $1 billion in sales potential. As noted in the company's investor deck, it could have access to 180 million U.S. adults or more than 70% of the addressable cannabis market.
Even better, the company carries some of the most popular cannabis brands in the U.S.
In addition, according to Cresco Labs:
“With a portfolio consisting of approximately 350 products and over 5,000 SKUs, Cresco Labs’ products are sold in over 1000 dispensaries across the country. The CPG and wholesale strategy enable us to maximize its points of distribution and drive revenue growth independent of the expansion of its retail presence. We prioritize wholesale in order to reach as many consumers as possible, accessing the scaled benefits of a national footprint.”
Growth Drivers
One of the top catalysts for Cresco Labs is its partnerships, especially its latest one with Columbia Care.
- The acquisition will give Cresco Labs one of the largest pro forma revenue in the cannabis industry at over $1.4 billion, says the company.
- Columbia Care now gives Cresco access to over 130 retail stores across 18 markets.
- The deal will increase Cresco’s market share in key states, “bringing the combined company to a material market position in seven of the top 10 markets by revenue in 2025,” added Cresco Labs.
“This acquisition brings together two of the leading operators in the industry, pairing a leading footprint with proven operational, brand, and competitive excellence. The combination is highly complementary and provides unmatched scale, depth, diversification, and long-term growth.
On a proforma basis, the combined company will be the largest cannabis company by revenue, the number one wholesaler of branded cannabis products, and the largest nationwide retail footprint outside of Florida,” added Charles Bachtell, CEO of Cresco Labs.
Key Risks
As with any industry, there are risks, especially in today’s volatile environment. For one, we must consider that the cannabis industry is highly regulated, fragmented state-by-state structures, and hiccups with federal legalization.
That makes the industry far more volatile, even with more states legalizing the use of cannabis and even with 91% of Americans saying it should be legal for recreational and medicinal use.
We also have to consider fears of recession, and inflation, which could lead to a potential increase in raw materials, supplies, and other equipment. However, don’t let these risks chase you from the cannabis sector or growing stocks like Cresco Labs.
Once more states legalize its use and the federal government gets around to legalization, stocks like Cresco Labs may never be this inexpensive again.
Key Takeaways
To review, Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators in the United States. The company has been actively acquiring businesses to expand its market share across the U.S. Cresco is also acquiring multi-state operator (MSO) Columbia Care for $2 billion in a deal that could close by the fourth quarter of the year.
That acquisition will give Cresco Labs one of the largest pro forma revenue in the cannabis industry at over $1.4 billion, says the company. In addition, Columbia Care now gives Cresco access to over 130 retail stores across 18 markets.
Finally, the deal will increase Cresco’s market share in key states, “bringing the combined company to a material market position in seven of the top 10 markets by revenue in 2025,” added Cresco Labs.
Even with potential risks, Cresco Labs (CRLBF) looks like an attractive buy opportunity.
Ian Cooper
INO.com Contributor
Disclosure: This contributor did not hold a position in any investment mentioned above at the time this blog post was published. This article is the opinion of the contributor themselves. The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. This contributor is not receiving compensation (other than from INO.com) for their opinion.
Recession
No federal legislation
Inflation
Yup seems like a great time to buy…