As an investor, I am always looking for some strange quirk that stands out in a company’s financials. Here is just one example: Cresco Labs (CSE:CL).
Before going any further, let me explain that I do not own this stock and nobody is paying me to write about the company. So if this idea strikes you as stupid, I have no one but myself to blame.
Cresco Labs (CSE:CL) claims to be one of the largest vertically integrated multi-state cannabis operators in the United States. Their claim is based on operations so far in seven states that are supported by 10 production facilities. Retail locations, at this time total just 16.
CL does not rank in any of the top stocks of the last year. That is because the stock has only been around since last November. That is when management affected a reverse merger that allowed access to public markets for the first time. In the past reverse mergers were looked down upon by serious investors. Times have changed.
Since it began trading on the Canadian Stock Exchange (CSE) last November, the stock has been on a tear gaining 86 percent at the time of this writing. So it is impossible to call Cresco “undiscovered.” Nevertheless, the CSE is hardly the NYSE or Nasdaq. So it is likely that most investors have never heard about Cresco.
What stands out: Rapid growth, profits for starters
CL happens to be one of the fastest growing companies in the cannabis sector. Keep in mind that Cresco is only in the US so there is no bump in demand from what is happening in Canada.
Nine months ending last September (most recently reported) show revenues of $25.1 million a 248 percent year over year gain. The third quarter business grew even faster at 335 percent to $12.2 million.
News Flash: Cresco has something most of its peers lack: profits. EBITA of $1.15 million for the nine-month, most of which was earned ($1.1 million) in Q3. This is no small accomplishment considering how much infrastructure building is taking place. Employee count has ballooned fourfold so far totaling 500.
Another thing that stands out is the CL balance sheet. At Q3 end, there was $94 million in cash and just $9.3 million in total debt. This gives management lots of options to finance future growth.
On a valuation basis, the numbers become really interesting. The market cap of CL is just about $1.3 billion. It’s EV or Enterprise Value is far higher at $1.69 billion. Without going into what EV is all about, here are some comparisons. Industry leaders like Tilray (TLRY), Canopy Growth (CGC ) and Cronos ( CRON ) are valued very close to 100 percent of EV. Even tiny MariMed (MRMD) is valued the same.
Branding and marketing stand out
Cresco has its sights on both the medical and recreational cannabis markets. Branding and marketing appear to be their forte. With 10 states already legal for recreational and 33 good with medical cannabis, CL has a lot of territories to go after. There is no lack of competition. But this is where CL’s branding strategies could prove valuable.
Cresco brand THC-forward products are available in flower, vape pens, and multiple forms of extracts. To make buying easy, all products sold by the company fall into one of three proprietary categories – Rise, Refresh, and Rest – named and color-coded (green-yellow-red) to help the consumer identify the desired effects of the relevant strain’s cannabinoid profile.
At the premium end is Reserve by Cresco. Remedi branded products are designed for the “medically-minded” that offers pain relief through tinctures, capsules, oils, and transdermal patches.
Finally comes Mindy’s Artisanal Edibles. The company claims is the first “culinary-backed, cannabis-infused edibles on the market.
The bottom line
There is a whole lot more to a company than a few impressive numbers and some yummy edibles. And yes, with the stock having gained 85 percent just since November, you are entitled to ask, where was I back around Thanksgiving time? But there is something about a company growing rapidly, making a profit and whose stock is selling less than its peers that stand out.