80% Leverage, 5.5x EBITDA: Is Cresco The High-Risk, High-Reward Play Investors Need?

Despite flat earnings and challenging market conditions, Cresco Labs Inc. CRLBF remains an “Overweight” stock, according to analysis firm Zuanic & Associates. In his latest report, Zuanic underscores Cresco’s strong positioning in emerging adult-use markets such as Pennsylvania and Ohio while identifying valuation advantages that set the company apart.

Cresco trades at 5.5x forward EBITDA, below Green Thumb Industries Inc. GTBIF at 7x and Curaleaf Holdings Inc. CURLF at 10x. 

“This discount presents an appealing entry point for investors looking beyond short-term volatility,” Zuanic writes.

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Market Dynamics: Cresco In The Tier 1 Landscape

Zuanic's report benchmarks Cresco against other Tier 1 multi-state operators (MSOs), including Green Thumb, Trulieve Cannabis Corp. TCNNF, Verano Holdings Corp. VRNOF, and Curaleaf. 

While Cresco’s third-quarter revenue of $180 million fell 2% sequentially, the decline aligns with broader industry trends, with peers like Curaleaf and Verano posting declines of 3% and 5%, respectively. By contrast, Green Thumb achieved a 2% increase, reaching $287 million.

Adjusted EBITDA margins further illustrate Cresco's position: the company held steady at 29% in Q3, compared to Green Thumb at 31% (-200 basis points) and Trulieve at 34% (-100 basis points). However, Cresco lags in adjusted cash flow. 

Its negative $3 million adjusted figure for the first nine months of 2024, factoring in tax liabilities, contrasts sharply with Green Thumb's $139 million (17% of sales) and Trulieve's $37 million (4% of sales). Zuanic highlights cash flow conversion as a critical area where Cresco ‘lags’ its competitors.” 

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Valuation Analysis: Digging Into The Numbers

Cresco's valuation metrics reveal potential upside. Its enterprise value (EV) to current sales ratio stands at 1.6x, lower than Curaleaf and Green Thumb, both at 2.2x. This discount extends to EV-to-EBITDA multiples, with Cresco trading at 5.5x compared to Green Thumb at 7x and Curaleaf at 10x. 

These figures include tax liabilities, financial net debt, and other obligations. "Cresco's lower EV multiples, alongside its gross cash holdings of $157 million, make it a compelling value play among Tier 1 operators," Zuanic explains.

Strategic Hurdles And Growth Catalysts

Despite these advantages, Zuanic identifies several hurdles. Cresco’s total leverage, including financial and tax liabilities, amounts to 80% of trailing sales, the highest among Tier 1 MSOs. In contrast, Green Thumb's leverage is just 9%. Moreover, while Cresco holds promising positions in Pennsylvania and Ohio, Zuanic emphasizes the need for a strategic partner to close the scale gap with peers like Green Thumb and Curaleaf. “A partnership would help Cresco achieve operational efficiencies and capitalize on upcoming recreational markets,” he notes.

Zuanic’s projections account for regulatory uncertainty, including delays in Pennsylvania's adult-use legalization timeline to mid-2026 and the potential impact of federal rescheduling challenges. Nonetheless, he remains optimistic about Cresco's long-term prospects. “We see Cresco as a buy for investors with a one-to-two-year horizon, particularly given its discounted valuation,” he concludes.

For a deeper dive into his methodology and projections, visit Zuanic & Associates' research portal.

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