Cresco Labs (CSE: CL) is the latest big American cannabis company to report major growth in the first full quarter of the pandemic.
Late Thursday, the Chicago-based firm said net revenues grew 42 per cent sequentially to US$94.3 million in the second quarter ending June 30.
Cresco, which operates pot shops and cultivation sites in nine states, says revenues increased by more than 30 per cent in every U.S. market, except in Massachusetts where recreational stores were forced to close for a number of weeks.
According to the company, being the country’s largest cannabis wholesaler helped drive growth with revenues of US$55 million recorded in the second quarter.
In the booming markets of Illinois and Pennsylvania, Cresco said it increased production capacity by six times and four times, respectively, to meet surging demand for legal products.
“We’re investing our resources in the most strategic markets,” CEO Charlie Bachtell said in Thursday evening’s call with analysts.
“In the two states where we have the leading market share, Illinois and Pennsylvania, both have reached a US$1 billion in run rate sales. Illinois is set to issue its next 75 retail licenses, a catalyst to more consumer demand and increase opportunities for our wholesale business.”
Bachtell noted California remains the biggest cannabis market in the world and a key driver of growth for Cresco, as its products sold well there during the quarter.
With improving regulations, California set a cannabis sales record of US$348 million in July and the market is projected to reach US$7 billion by 2025.
Cresco says integrating its acquired Origin House assets in the state during the quarter drove its adjusted earnings before interest, taxes, depreciation, and amortization to US$16.5 million, up from US$3.2 million in the prior quarter.
More stores equal more dollars, Cresco says
Across the country, the company reported US$39 million in retail sales from its 17 Sunnyside stores, with nine locations now up and running in Illinois, the most stores of any operator in the state.
Cresco said it’s focused on Ohio and Michigan markets since both are under-supplied and lack competition. Last May, the company struck a deal to purchase four dispensaries from private a weed retailer, bringing its store count up to five there — the maximum allowed in the state.
Cantor Fitzgerald analyst Pablo Zuanic asked if the company was concerned about increasing competition in retail markets like Pennsylvania where Cresco only operates three stores and the state is set to issue a total of 150 retail licences by later this year.
Chief executive Bachtell said his company’s wholesale strategy welcomes more stores.
“We’re big advocates for more retail doors. We think that’s the future of this industry,” he said. “That’s why we’ve laid out our sort of strategic plays focusing on the middle two verticals of that value chain. Brick and mortar owned retail is definitely important. But we think long-term value is driven by us distributing our products, our brands, into all of the other stores too.”
Bachtell says the company’s overall strategy of going deeper into fewer states is paying off with Cresco recording the first month of positive cash flow at the end of the quarter.
A reported gross profit of 47 per cent dropped by a single per cent from the previous quarter, driven by rising costs with the expansion of its cultivation sites.
Overall, selling, general and administrative expenses dropped by US$1.5 million sequentially to US$45.2 million. But without Covid-related expenses and non-cash items, the company said SG&A would have been US$32.5 million or 35 per cent of revenue.
Net loss in the quarter was a higher-than-expected US$4.7 million, which was primarily due to a fluctuation in share prices and changes in fair value of biological assets.
As of June 30, Cresco held almost US$71 million in cash and cash equivalents.
Shares of the company have dropped 2 per cent since its earnings report was issued Thursday, but the pot stock has more than tripled since March 18.
Top image via Cresco Labs