Cresco Labs Inc. (CSE: CL) one of the largest vertically integrated multistate cannabis operators in the United States, today released its unaudited financial results for the fourth quarter ending December 31, 2019. All financial information presented in this release is in U.S. dollars, unless otherwise noted.
What Management Has to Say
Charlie Bachtell, Co-founder and CEO of Cresco Labs stated, 2019 was a pivotal year for Cresco, as we achieved several major milestones that will have a profound impact on the future success of both our organization and the industry.
Throughout the year, we diligently executed the plan laid out for shareholders, delivering strong financial and operational performance and setting the foundation for profitable growth in 2020.
We have continued to act as stewards of this industry, successfully leading efforts that resulted in the passage of adult-use legislation in Illinois, and worked side by side with our state administrations to help cannabis achieve ‘essential’ status amid the COVID-19 pandemic.
Backed by a strong balance sheet and a world-class leadership team, I am confident in our ability to manage through the current COVID-19 crisis and know that we will emerge from it as a stronger, more profitable company.
Mr. Bachtell continued, “Our vision is to be the most important company in this industry, while generating sustainable, industry-leading returns on invested capital.
Based on evidence from other mature consumer product industries, the highest long-term returns will go to companies that: have a strategic geographic footprint; are dominant players in their chosen markets; own a durable and differentiated brand portfolio; and have the distribution expertise and infrastructure to get those brands onto third-party shelves efficiently.
This is Cresco’s strategy. The success we have had in Illinois and Pennsylvania already has proven that we are following the right plan – going deep and focusing on getting our brand portfolio onto third-party shelves.
Building on our success last year, in 2020 we are focused on: expanding our market-leading position in Illinois and Pennsylvania; integrating our newest assets and turning California into a center of profitable growth; and building a scalable foundation in other important states.
By achieving success in these focus areas, we expect to transition the Company from Adjusted EBITDA positive to cashflow positive progressively through the year.”
Financial Highlights and Subsequent Events
- Fourth quarter 2019, revenue of $41.4 million, up 144% year-over-year and 14% quarter-over-quarter.
- Total 2019, revenue of $128.5 million, up 197% year-over-year.
- Fourth quarter 2019, pro forma revenue1 of $56.0 million, which includes CannaRoyalty Corp. d.b.a. Origin House and minority investments.
- First quarter 2020, estimated revenue of $66.5 million, up 216% year-over-year and 61% quarter-over-quarter.
- Fourth quarter 2019, Adjusted EBITDA2, excluding the impact of biological assets, of $2.9 million compared to $(0.3) million in the prior-year period.
Net (Loss) Income
- Fourth quarter net loss3 of $45.2 million compared to net loss of $4.4 million in the prior-year period.
- Fourth quarter 2019 financial results included acquisition and other non-core costs of $7.2 million, $4.1 million related to share-based incentive compensation, $3.4 million in expansion, relaunch and rebranding costs and $1.3 million fair value mark-up on acquired inventory.
- As of December 31, 2019, the Company had total assets of $616.6 million, including cash and cash equivalents of $49.1 million.
- On December 12, 2019, the Company announced the closing of a sale-and-leaseback agreement for its Lincoln, Illinois cultivation facility to GreenAcreage Real Estate Corp. for $50 million.
- On January 8, 2020, the Company announced the closing of its acquisition of Origin House, which provides Cresco with substantial California wholesale distribution and a premium indoor cultivation footprint. Prior to the closing of the transaction, Origin House completed a non-brokered financing for aggregate gross proceeds of C$39.7 million (approximately US$30 million) to strengthen the balance sheet of the combined company.
- On January 28, 2020, the Company announced the closing of a sale-and-leaseback agreement for its Yellow Springs, Ohio property for total non-dilutive funding of $12 million.
- On February 2, 2020, the Company announced the closing of a non-brokered credit agreement for a senior secured term loan in an initial aggregate principal amount of $100 million, with a mutual option to increase the size of the facility to a maximum of $200 million.
- On February 7, 2020, the Company announced the legal close and cash funding for its acquisition of Hope Heal Health, Inc. (“HHH”) after receiving regulatory approval for change in ownership. The legal close of Cresco’s acquisition coincided with the launch of recreational cannabis sales at the HHH dispensary.
- On April 23, 2020, the Company announced the closing of a sale-and-leaseback agreement for its Marshall, Michigan property for total non-dilutive funding of $16 million.
- On April 27, 2020, the Company announced the termination of the purchase agreement to purchase all outstanding equity of Tryke Companies, LLC as its capital allocation strategy has adapted given several recent changing dynamics.
- On November 6, 2019, the Company announced the launch of its industry-defining Community Impact Incubator Program, part of its SEED initiative.
- On December 17, 2019, the Company announced that it won the U.S. Cannabis Company Game Changer Award at the inaugural MJBizDaily Awards in Las Vegas, which recognized the organization that displayed excellence and the greatest impact in the U.S. cannabis industry.
- On December 30, 2019, the Company announced the opening of its first five Sunnyside branded dispensaries in Lakeview, Elmwood Park, Champaign, Buffalo Grove and Rockford, IL.
- On January 1, 2020, the Company announced the first sale under Illinois new adult-use cannabis legislation at its Sunnyside Lakeview dispensary. Among the first customers were two participants of Cresco’s SEED initiative and Illinois Lt. Gov. Juliana Stratton.
- On February 27, 2020, the Company announced the conversion of four dispensaries to Cresco’s nationwide retail brand, Sunnyside, in the Williamsburg neighborhood in Brooklyn, Huntington Station, New Hartford and Bardonia, NY. In addition, it launched a home delivery service for medical cannabis patients in the New Hartford area of New York.
- On April 6, 2020, the Company announced that it had been granted final approval to open the first adult-use dispensary in downtown Chicago.
- On April 8, 2020, the Company announced additions to its senior leadership teams, Cresco continues to build on its industry-leading management team with additions that have deep financial industry roots from both top CPG companies and from traditional industries that have experienced rapid growth.
COVID – 19
- On March 19, 2020, the Company provided an update on its response to COVID-19. The Company continues to operate all of its dispensaries with expanded hours using curbside pickup, online ordering, and delivery to ensure social distancing.
- On April 13, 2020, the Company announced an initiative to expand local hiring of workers displaced by COVID-19. In addition, the Company announced it is providing free meals to employees to ensure employee wellness and safety, as well as to support local restaurants.
Financial Results for the Fourth Quarter Ended December 31, 2019 (Unaudited)
Revenue for the fourth quarter of 2019 was $41.4 million, an increase of 144% compared to revenue of $17.0 million for the fourth quarter of 2018. The increase in revenue was driven by expansion into new markets and continued growth in the states where the Company operates. Fourth quarter 2019 revenue increased 14% compared to $36.2 million for the third quarter of 2019, primarily driven by higher revenue generated in Pennsylvania, Illinois and Arizona as well as the additional revenue from its Valley Ag and HHH acquisitions which are included in the Company’s results starting in October 2019. On a pro forma basis, revenue for the fourth quarter of 2019 increased incrementally from the third quarter of 2019 to $56.0 million, which includes the impact of pending acquisitions and minority investments.
Operational gross profit, before the impact of biological assets accounting was $21.2 million, or 51% of revenues, an increase of 176% compared to operational gross profit of $7.7 million, or 45% of revenues, for the fourth quarter of 2018. Fourth quarter 2019 operational gross profit increased 24% compared to $17.1 million, or 47% of revenues, for the third quarter of 2019. The change in operational gross profit margin was driven by increased sales and operational efficiencies in the Company’s established markets offset by the impact of emerging and recently acquired businesses where the Company is focused on footprint expansion and relaunching of Cresco-branded products. The Company expects to see higher margins in these developing markets as operations continue to scale.
Total expenses for the fourth quarter of 2019 were $33.5 million, compared to $18.6 million for the prior-year period. Total expenses in the fourth quarter of 2019 included $7.2 million in acquisition and other non-core costs, $4.2 million in expenses related to share-based incentive compensation and $1.4 million of depreciation and amortization. The balance of the increase represents investments made in talent and operational infrastructure to support the Company’s continued revenue growth.
Net loss for the fourth quarter for 2019 was $45.2 million, compared to net loss of $4.4 million for the prior-year period. Current period net loss included income tax expense of $4.3 million.
Adjusted EBITDA, excluding the net impact of the fair value of biological assets, for the fourth quarter of 2019 was $2.9 million compared with $(0.3) million for the prior-year period.
Balance Sheet and Liquidity
As of December 31, 2019, the Company had total assets of $616.6 million, including cash and cash equivalents of $49.1 million. Use of cash in the fourth quarter of 2019 included significant investments in the expansion of cultivation, processing and retail facilities in the Company’s existing markets as well as funding provided for our current and pending acquisitions.
Total shares on a fully converted and diluted basis were 307,729,000 as of December 31, 2019.
About Cresco Labs Inc.
Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators in the United States. Cresco is built to become the most important company in the cannabis industry by combining the most strategic geographic footprint with one of the leading distribution platforms in North America. Employing a consumer-packaged goods (“CPG”) approach to cannabis, Cresco’s house of brands is designed to meet the needs of all consumer segments and includes some of the most recognized and trusted national brands including Cresco, Remedi and Mindy’s, a line of edibles created by James Beard Award-winning chef Mindy Segal. Sunnyside, Cresco’s national dispensary brand, is a wellness-focused retailer designed to build trust, education and convenience for both existing and new cannabis consumers. Recognizing that the cannabis industry is poised to become one of the leading job creators in the country, Cresco has launched the industry’s first national comprehensive Social Equity and Educational Development (SEED) initiative designed to ensure that all members of society have the skills, knowledge and opportunity to work in and own businesses in the cannabis industry. Learn more about Cresco Labs at www.crescolabs.com.
Information obtained by Conference call 4-27-2020