The U.S. cannabis sector is primed for investment.
Over two-thirds of Americans support legal cannabis. And most Americans live in a state where it is legal in some form.
State laws are flipping with the growing acceptance of cannabis:
- 13 states have legalized recreational cannabis.
- 34 states have medicinal cannabis.
- At least nine states are set to vote on new cannabis rules in November 2020.
- There are two bills in Congress to open the cannabis market.
But the U.S. cannabis sector is beaten down. The American Cannabis Operator Index tracks a basket of U.S.-based growers, processors and retailers. It is down 64% from its high in April 2019.
That’s because a domino effect in the sector spooked investors.
A vaping crisis swept America, killing over a dozen and injuring hundreds. But the Centers for Disease Control and Prevention found that most harmed were using black-market vapes.
While this is a tragic story, it is not going to shut down the booming cannabis sector. Rather, it is even more reason to legalize and regulate cannabis.
Controversies caused the easy money to dry up, and many fly-by-night cannabis companies had to shut their doors. Investors who were blindly investing in the cannabis sector made a rush for the door.
But that gives us a great opportunity today. That’s because we can buy into the best companies for a fraction of what they were trading for a year ago. And these businesses have proved that they have staying power.
Below is a transcript of the video detailing the Cresco Labs report.
This week, I’m going to dive into Cresco Labs Inc. (CSE: CN; OTC: CRLBF), which is one of your requested stocks to review. It just finished its deal to buy out Origin House, which is a major operator in California.
Cresco Labs’ Business Model Is Exciting
Cresco’s business model is a little bit different from some of the other major players, and that’s because Cresco Labs and Origin House are both more focused on developing brands and getting onto store shelves than they are on the actual retail market.
A lot of other companies in the cannabis market are fully vertically integrated. They’re basically trying to supply their own shops as well as having some wholesale brands that go onto other store shelves.
Cresco Labs and Origin House have noticed how competitive the retail and dispensary side of the business is, opting instead to focus on creating brands that can be sold at any store. They want to get on more store shelves and basically move volume that way to really grow the business.
Of course, that means less overhead than running an operation that includes many shops as well. The merged companies do run retail locations in limited-licensed states such as Illinois, where marijuana was just legalized recreationally.
And by all accounts, these five dispensaries did well. It seems like all the dispensaries in Chicago did really well on opening because there’s just so much pent-up demand and excitement over the product.
Cresco Labs now has access to over 5,000 dispensaries.
Origin House adds access to 575 dispensaries in California, which is a really tough market to get into.
The fact that Cresco’s more focused on growing these products and developing these brands is really exciting.
One of the other things that you always have to remember when it comes to the United States’ cannabis market is that you can’t actually transfer product from state to state, but you can transfer brands.
Within each state, Cresco can actually set up an operation and have the same brands running between state to state, so it can really start to home in on what’s going on and start to bring these products to larger markets that are really popular.
I think this new strategy separates it from so many other big-name cannabis companies.
Cresco Labs’ Revenue
Its revenue has grown a lot over the past year.
Its pro forma revenue for last quarter was $73.6 million. What does “pro forma” mean? It basically means that if you add all of the acquisitions Cresco is doing to its balance sheet, that’s what its revenue would actually look like.
So it wasn’t just Cresco Labs’ revenue — it was the revenue with all of the acquisitions still pending. Now, all the acquisitions have closed. On the next earnings report, we’re going to see revenue numbers more in line with the stated pro forma revenue.
As I’ve said, cash and debt are super important. I like Cresco’s cash position. It has $81 million in the bank, and its debt liabilities are at about $50 million. Overall, that’s a good position for it to be in because it can continue to pay off its debt and have cash to continue expanding.
So, I’m not so worried about a cash crunch. Cresco’s been spending big to expand, but it still has cash in the bank and is driving higher revenue. That is a great sign. I’m really excited for Cresco Labs.
I like this company. It’s under $6 a share for the OTC. So, if you’re paying U.S. dollars, that’s under $6 a share. I think that is a pretty good price to pick up Cresco Labs at right now.
Managing Editorial Analyst, Winning Investor Daily