Cresco Labs' Favorable Q2 Financial Results Haven't Stemmed Decline In Its Stock Price

Cresco Labs Inc. (CSE:CL; OTCQX:CRLBF), one of the largest vertically integrated MSOs (Multi-State Operators) in the U.S., released its unaudited Q2 financial results last week and, as favorable as they were its stock price continues to weaken

Q2 2019 Highlights

(All financial information presented below is in U.S. dollars.)

• Revenue increased by 253% year-over-year & 42% quarter-over-quarter
  • The Y-o-Y increase was driven by
    • expansion into new markets and
    • continued growth in the states where the Company operates.
  • The Q2 revenue was driven by higher revenue generated in Pennsylvania, Illinois and California. 
• Gross Profit increased by 420%
• Gross Profit Margin increased from 56.6% to 83.4%
• EBITDA increased by 202% year-over-year due to:
  • significant investments in the expansion of cultivation, processing and retail facilities in the Company’s existing markets,
  • payments for the legal close of the MedMar Inc. and PDI Medical acquisitions, and
  • funding provided to pending acquisitions to drive the continued development of facilities.
• Net Income loss was $3.9 million, compared to net income of $1.6 million in the prior-year period primarily driven by:
  •  tax items related to the legal close of the acquisitions of MedMar Inc. and PDI Medical.
• Operational Net Profit Margin increased by 53.2% quarter-over-quarter driven by:
  • greater scale in the Company’s established markets,
  • increased efficiencies in cultivation, processing and packaging, partially offset by the impact of initial costs associated with expansion into newer markets like California, Ohio and Arizona.
• Total Expenses increased by 546% year-over-year due to expenses related to:
  • share-based incentive compensation,
  • acquisition and other non-recurring costs,
  • depreciation and amortization and
  • investments made in talent and operational infrastructure to support the Company’s continued revenue growth.

Operations Highlights

• currently is operational in 7 U.S. states with approved expansion into Michigan and expansion plans pending in New York, Massachusetts and Florida for a total of 12 states,
• expects acquisition of Origin House to close during the fourth quarter of 2019 which will greatly expand its distribution network in California,
• received regulatory approval for its acquisition of Valley Agriceuticals, LLC. which will provide it with one of 10 vertically integrated licenses granted in New York state,
• continued expanding staff which now numbers about 1,400,
• launched Sunnyside*, a chain of retail outlets (i.e.dispensaries) that will market its full house of cannabis brands,
• expanded into the CBD market with the launch of their WellBeings product line,
• expanded cultivation and retail operations in Illinois to capitalize on adult-use legalization beginning there in 2020. 

As can be seen in the chart above, Cresco Labs stock peaked at $17.75 back on April 26th and continues to decline despite the very favorable Q2 financial report of last Wednesday. It closed  last Friday down 5.3% from the previous Wednesday and currently is down 41.7% from its April 26th price.