Cantor's Zuanic Below FactSet Consensus For TerrAscend And Above For Cresco Labs Ahead Of Earnings

Cannabis companies TerrAscend TRSSF and Cresco Labs CRLBF are scheduled to release their quarterly earnings on May 19^th and 27^th, respectively.

Over the last six months, TerrAscend’s shares gained 45.62%, while Cresco’s shares jumped 35.08% over the same period.

The Analyst

Cantor Fitzgerald’s analyst Pablo Zuanic updated their numbers on these two cannabis operators ahead of their earnings reports.

Zuanic reaffirmed their “Overweight” rating on TerrAscend’s stock and kept their price target of $16.

On Cresco’s stock, Zuanic lowered their price target to $21.50 from $22.50, and placed an “Overweight” rating on it.

TerrAscend Thesis: Cantor Posts Slightly Lower Sales Estimates Than FactSet Consensus

Starting with the first quarter of 2021, TerrAscend is supposed to begin reporting in U.S. dollars, which is why Zuanic presented their U.S. estimates and cut their numbers.

The analyst noted they are lowering projections based on the “softer trends in Pennsylvania,” estimating only 4% sequential growth in sales reaching $52.1 million, compared to FactSet consensus of $54.2 million. FactSet consensus estimates were already lowered in March from CA$75 million to CA$67 million.

TerrAscend ran three stores in Pennsylvania during the first quarter and, according to the analyst, the state only had close to 70% of fourth-quarter sales in the period. Furthermore, New Jersey is still in “ramp-up mode”, while in California, the company can advance from its fifth store added during the fourth quarter, explained Zuanic.

The company’s sales guidance of more than CA$379 million for the current year hints at a huge increase in production in the second half of the year.  

“We doubt the company will cut guidance this early on, and it will most likely provide color on the path to get there. For 1Q21, we assume some minor sequential EBITDA margin dilution (2pts to 38%); full year guidance implies 42% margins,” Zuanic concluded.  

Cresco Labs Thesis: Cantor Projects Higher Quarterly Sales

Commencing with the first quarter of 2021, Cresco is supposed to report on a GAAP basis, which should impact the dealing of leases and discounts, possibly resulting in higher costs by around $4 million, noted Zuanic in a Sunday note.

Furthermore, Cresco will no longer include “back expansion/relaunch/COVID expenses to EBITDA,” which in the fourth quarter totaled $10 million, and this quarter would reach $8-9 million. Therefore, based on this new methodology, the fourth-quarter adjusted EBITDA of $50 million would be $36 million.

Zuanic estimates first-quarter sales of $173.5 million, compared to consensus’ $170.4 million, representing a 7% sequential growth. According to the analyst, this quarter Cresco should see significant benefit from its wholesale activities, which account for a larger percentage of sales than its retail operations.

Related content: Benzinga's Full Guidance Calendar

“The company’s wholesale business grew 44% sequentially in 2Q20 and 65% in 3Q20, but was flat in 4Q; we believe this was a result of the company allocating a greater percentage of cultivation output to its own stores, especially in Illinois. “

In Pennsylvania, “rev/store growth” is now restrained, given more store openings, which should, on the other hand, improve the company’s wholesale activities.

The analyst reduced their price target on Cresco’s shares “due to slight cuts to” their Pennsylvania figures.  

TerrAscend Price Action

TerrAscend’s shares were trading 1.34% higher at $11.33 per share at the time of writing.

Cresco Labs Price Action

Cresco’s shares were trading 3.68% higher at $11.82 per share at the time of writing.

Photo by Tim Foster on Unsplash