Cresco Labs Earnings + Call Notes
U.S. cannabis leader shares Q224 results
$184.4M Revs; est. $184.7M
$53.9M AEBITDA; est. $48.9M
$94.8M GP; est. $93.6M
$32.4M OI; est. $31.1M
51.4% GM; est. 50.7%
“Our Q2 results demonstrate the sustainability of the improvements we’ve made to the business over the past year with $184m in revenue at a 29% AEBITDA margin. It’s clear our strategy is working; we are creating brands consumers love and delivering best-in-class retail operations through Sunnyside. So far this year we’ve generated over twice as much operating cash flow than the first half of last year and we are putting it to work strengthening our balance sheet, investing in our core growth states with adult-use optionality, and exploring accretive, incremental M&A and other business opportunities.
We are seeing growing momentum in the industry. The DEA’s comment period on rescheduling recently closed, with 92% of over 40,000 comments submitted in overwhelming support for reclassifying cannabis as a Schedule III substance or declassifying cannabis entirely. Recent polls also show energy swelling around Florida’s Amendment 3 initiative to legalize adult-use.
As the pace of reform challenges even the most patient of us, it’s important for all stakeholders to remember that cannabis reform consistently polls higher than any candidate in any election, and the public has made it clear that it’s time for change. Reform is imminent and we are ready,” Charles Bachtell, CEO of Cresco Labs.
Call Notes
Cannabis reform consistently polled higher than any candidate, in any election.
Reform is imminent, Cresco is ready. 👀
Strengthening core + focused on FCF.
Generated $184m revenue at 52% aGM and 29% aEBITDA margin.
YoY saw 565bps improvement on aGM, removed $34m of annualized SG&A expenses.
Consistent focus on margin expansion.
Delivered $54m aEBITDA, up $13m YoY.
Generated $54m CFFO YTD, $32m increase in YoY period.
Will continue to strengthen balance sheet + deploy capital for future growth.
Consistently outperforming markets.
Leading share in IL PA MA.
Gaining share in competitive markets like FL.
Ensuring strategic footprint.
Strengthening OH PA FL, significant A/U catalysts.
Recent cultivation expansion in OH.
Increased 26% yield per sq ft and 20% increase in average potency.
Reaching full utilization of canopy.
Next project is to expand OH w/ 3 additional dispensary locations.
Already scouted sites.
In PA, momentum behind A/U legislation.
^ deepening #1 position through smart capital allocation.
^ upgraded cultivation.
^ expanded retail by acquiring 2 locations / ability to open additional 1 location.
In FL, more than 2x’d revenue YoY.
^ flexing every muscle; throughput, potency, yields.
^ additional plans to turn on in FL if A/U is legalized in November.
Over last few Qs, capital efficient approach to add dispensaries / increase capacity.
Leader in branded wholesale products.
#1 overall share position in IL PA MA.
Top portfolio positions nationally in flower, vape, concentrates, and edibles.
Testing new processes for pre-rolls.
Early results are promising, 10x increase in throughput.
Testing processes in 1 state before rolling across the footprint.
Wholesale plans to adapt to continued retail fragmentation.
In markets like MA, finding the right retail partners.
^ deeper w/ highest value retail accounts.
In IL, getting products in every new shelf.
Keeping menu depth, expanding innovation.
Building highly productive retail portfolio in the most strategic states.
Increased index to fair share during the quarter, outperforming average by 36%.
Outperforming fair share in almost all markets, w/ fair share in FL making gains + growing more productive QoQ.
More than 2x productive in strongest states.
Increased non-cannabis revenue by 9% in stores over the last year.
Leveraging Sunnyside.Shop platform, customer segmentation, purchase history, to target customers w/ a high ROI campaign.
Customers are making more repeat purchases and increasing average monthly spending by 20%.
Changes made in the last year towards increased profitability are showing results.
Incremental progress to lower COGS, even during deflationary cost period.
Strong cost controls. aSG&A at 29% margin, 229bps improvement YoY.
$54m EBITDA, 29% margin.
^ up 33% YoY.
^ 3rd consecutive quarter generating over $50m aEBITDA.
OH AU + PA / FL conversions should generate significant leverage on cost structure.
$18m OPCF; $11m FCF. Paid semi-annual interest payments.
$54m OPCF in first6mo, almost 2x YoY period.
Pursuing strategic growth opportunities.
$6m capex in Q2. $40-60m for the full year projected.
Spent on OH A/U and in preparation of FL + PA A/U.
Maintaining expectations for ’24.
Expect Q3 revenue to be relatively flat to Q2, based on late start of OH sales.
Expect to begin contributing further growth in Q4.
OH PA FL A/U conversion should generate significant growth in ’25 + ’26.
Keeping GM around 50%, believe an appropriate structure.
Can be quarterly variability.
Expect to maintain SG&A as a % of revenue, consistent w/ Q2 levels.
OPCF will be significantly higher in ’24 vs. ’23.
Q4 will have lower CF due to semi-annual interest payments.
Intend to file as a normal business tax payer for ’23 / beyond.
$65m tax savings in ’24.
Corresponding uncertain tax position will sit on B/S.
Reached a tipping point, more than half of all states, representing more than 50% of the population, have adopted A/U.
Designed for sustainable success, no matter what happens legislatively.
Maintaining / gaining share in countries most competitive markets.
Making smart, high ROI investments in core markets, reinforcing infrastructure, and exploring accretive M&A / business opportunities.
Pleased w execution.
Active management of business has improved GM, will improve ahead.
Margin profile driven by state mix, product mix, etc.
OH A/U launch will drive profitability mix.
A/U launch in OH will see an increase of pricing for a period of time.
Saw variability in Q2 mix that saw a favorable impact on margins.
Price pressures seeing in marketplace.
Some pressure on margins overall, offsetting w/ efficiencies.
In 2H, seeing some growth in OH w/ Q4 A/U, will see slight negative impact on margins (closer to 50% GM) as exit the year.
Until OH facilities improve to average margin performance.
Optimistic in NY being a large market going forward.
Currently challenging.
Diligent w/ capital, other opportunities in the business vs. NY opportunity today.
Driving highest ROI, it’s a challenge.
Encouraged by what seen in NY, will be a robust program, but in the immediate term, better ROI opportunities pushing forward with.
At a macro level, seeing shoppers look for value across all categories, not just canna.
Seeing growth in value format as consumers look to save money.
Doesn’t mean value segments are only growing.
Seeing higher priced, more premium, differentiated product drive excitement as well.
For value shopper, as segments become available at lower prices, becomes a competitive offering for them.
Will look at protective tax claims for ’20-’22 in the coming quarters.
Expectations around rescheduling, don’t have crystal ball, but know relevant parties are actively reviewing the next steps they want to take (hearing or no hearing).
Will know as soon as theyre ready to communicate it publicly.
OH A/U launch in medium term, everything is done according to medical rule-sets, but allowing non-medical patients in dispensaries too.
For awareness / marketing, same rule-set as previously restrictive OH rule-set.
Expectations on A/U rules should be released this fall.
Entering phased approach for FL, whether market ends up at medical or adult-use.
If A/U gets approved, will have a phase 2 approach for further A/U expansion.
Prioritizing states where Cresco believes they can take share.
Actively engaged in FL efforts.
Encouraged by what seeing.
Believe in likelihood for November [passage].
Believe phased approach most appropriate.
^ successful regardless of A/U outcome there.
For store assortment, looking at highest velocity products.
Typically tends to be CRLBF brands.
If other brands have strong velocity + accretive to menu assortment, will carry.
/end
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