'One Of Best-In-Class' Cannabis MSOs Has 'Optionality' When States Go Recreational, Bullish Analyst Says After Results

Cresco Labs Inc. CL CRLBF reported its financial results on Wednesday for the second quarter of fiscal 2022, revealing a 4% year-over-year increase in revenue to $218 million.

The transaction with Columbia Care Inc. CCHWF CCHW CCHW 3LP is proceeding as expected,” Charles Bachtell, the company’s CEO and co-founder, said in a press release adding that “the divestiture and regulatory processes are on track and we continue to anticipate a closing around year-end.”

Cantor Fitzgerald’s analyst Pablo Zuanic addressed the company’s earnings in his recent note, highlighting that that sequential revenue growth of 2% was below his estimate.

The Analyst                           

Zuanic retained Overweight ratings on both Cresco’s and Columbia Care's stocks but lowered his 12-month price target for Cresco to $15 from $19 due to the reduced estimates, and disclosed a price target for Columbia of $8.37, up from $5.10.

The Thesis

The analyst said the slight quarter-over-quarter revenue increase is “understandable” if taking into account Cresco’s footprint and the fact that none of those states will go recreational in the second half of 2022.

However, he added that the ”stock has optionality from several states in the east potentially going rec in the coming years.”

Commenting on the deal to acquire its rival Columbia Care for $2.1 billion, which was announced in March, Zuanic said Cresco is now focused on closing the transaction, adding that “divestitures from the merger are seen raising gross proceeds north of $300 million.”

The company “runs one of the best-in-class operations in the MSO space,” the analyst said, referring to its revenue, store count as well as wholesale presence, and presence in key states.

CRLBF Price Action

Cresco’s shares traded $3.2% lower at $3.63 per share at the market close on Wednesday.

CCHWF Price Action

Columbia Care's shares traded 3.19% lower at $1.82 per share at the market close on Wednesday.

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Photo: Courtesy of gerald by Pixabay