Cresco Earnings + Call Notes
U.S. cannabis leader shares Q325 results.
$173M Revs; est. $166.2M
$40M AEBITDA; est. $35.4M
$87M GP; est. $81.2M
50.3% GM; est. 48.9%
$13.4M OI; est. $16.5M
$15M NI; est. ($9.6M)
Management Commentary
“Q2 delivered growth ahead of expectations, with revenue up 15% sequentially to $173 million and Adjusted EBITDA up 20% sequentially. In Pennsylvania, we completed our first quarter operating nine acquired dispensaries and improved their gross profit dollars by 11% before rebranding a single store, demonstrating that our integration model creates measurable value.
In Ohio, our newest Sunnyside locations are among the highest-performing new openings statewide, and in Kentucky, our first branded products reached patients in June as we transition from build-out into revenue generation. I want to thank the Cresco team. Quarters like this don’t happen by accident.
Rescheduling is the first true federal reform this industry has achieved, and it directly improves the underlying economics of our business. Removing 280E strengthens net income and balance sheets, and opens a path to U.S. exchange listings and broader capital markets access. We are executing on everything within our control to prepare for the opportunity. Cresco is ready.”
Charlie Bachtell, Cresco Labs CEO
Call Notes
$173M revenue, up 15% QoQ.
$89m AdjGP @ 52% margin.
$40m aEBITDA @ 23% margin. +7% QoQ. grew faster than revenue growth due to operating leverage.
$15m OPCF.
Growth strategy runs along 2 planes, go deeper where already leading, or entering new markets.
Consolidator of choice in PA; 9 dispensaries under an MSA, transaction immediately accretive.
Increased PA acquired dispensary gross profit dollars by 11%.
#1 branded share in PA IL MA.
Sunnyside stores generate over 30% more revenue than state averages.
Assets are worth more inside the CRLBF platform.
Kentucky ops shifted to revenue generation, wholesale sales begun, dispensary on-track to open Q4.
Winning in leading product quality.
Winning in 4 markets, PA (record setting lead w/ #1 branded share @ 16%; Sunnyside will also be the leading retail banner in PA).
#2 retail share position in OH, dispensaries perform better than peers.
IL competition intensified this quarter, increasing shift to vertical sales across operators
IL #1 position in flower, concentrates, edibles ; held revenue per gram of flower even.
IL #1 retailer in the state, performing well above state average.
MA improvements now reflecting, revenue up 22% YoY ; #1 portfolio position, led by flower.
Rescheduling the first true federal reform that the industry has ever achieved, directly improves underlying economics.
Rescheduling = Net income improves, balance sheets strengthen, can reinvest more dollars earned.
In convos w leading banks and capital partners.
Uplisting, improving CoC, funding growth through M&A – prepared for all scenarios.
Sharon stepping down as CFO.
Started search for new CFO.
Growth initiatives showing in Q2 financials.
Growth driven by contribution of 9 PA dispensaries under MSA, new Sunnyside locations in OH, seasonal recovery, and post-MI tax market normalization.
Wholesale revs of $52m, up 7% QoQ.
Excl CA, able to grow wholesale revenue YoY by 4%.
GM improvement driven by improved product margin, and where improved yields are translating to improved economics.
Mix-shift towards lower margin products in MI, and retail rate in PA reflecting increased promo sales of previous inventory.
$55m SG&A, 32% margin ; vs. 34% margin in Q1.
Productivity gains across the business, including improved deployment of AI and automation.
$9m CAPEX.
$6m FCF.
$67m cash.
Expect Q3 revs in-line w/ Q2 ; KY + new stores offset by competition.
Gross margins in high 48-50% in Q3 ; impacted by work through inventory in 2H.
Expect SG&A flat in dollar terms into Q3.
Stronger cash generation strengthens the B/S, strengthened B/S allows improved CoC, improved CoC allows more capital to spend for growth.
Q2 was a good quarter, pulled through higher margin products, especially in OH and some other states.
^ Some 1-time margin benefits in Q2 that wont be repeated.
^ Have higher cost inventory to work through in 2H.
Hemp is definitely helping the industry, but hard to quantify.
Seeing first phase of PA operating model, excited for P2 as stores are converted into CRLBF brand and full operating model.
Encouraged by initial strategy overseas.
Always said INTL was a light touch, exploratory, test-and-learn.
Taking appropriate actions to recover TX license, optimistic that will happen.
TX hemp experiment has showed the demand / TAM of that state.
Cresco is acquisitive, can create growth organically and through M&A.
^ See greater access to greater investor bases / capital through US capital markets.
Have high torque potential, not large in a lot of markets that could still drive growth (NJ CT FL).
A lot of ways to drive growth through capital spending.
In PA since the beginning, always had leading market share, continue to see PA as a growth driver.
Seeing development on both sides of the aisles at state + federal operator.
Greater enforcement will lead to eradication of illicit / irresponsible business practices.
^ Will see benefit to sophisticated companies with scale that can compete in a regulated environment.
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CB1 has a position and nothing herein should be considered advice.