Cresco Labs has a huge upside, Beacon Securities says

US cannabis play Cresco Labs (Cresco Labs Stock Quote, Chart, News CSE:CL) gets the thumbs up from Beacon Securities analyst Russell Stanley over its acquisition of New York-based Valley Agriceuticals. In a client update last Thursday, Stanley reiterated his “Buy” rating and C$24.00 target price for Cresco, representing a projected 12-month return of 147 per cent at the time of publication.

Chicago-based Cresco on Thursday announced it had received regulatory approval for its acquisition of Valley Agriceuticals, a deal that was first announced in October 2018 but has been delayed by the need to obtain approval for the license transfer. The $94.8-million purchase includes $43.4 million in cash, 4.3 million shares and 4.0 million warrants with a C$6.10 per share exercise price. stuff on the regulatory aspects

The purchase gives Cresco an existing license to operate four dispensary locations as well as a cultivation and processing facility. Cresco effectively becomes one of just ten companies licensed to operate in New York State, which with a population of 19.9 million is the fourth largest in the US. So far, Valley Agriceuticals has two dispensaries open, one in Bardonia and another in New Hartford, and expects to have two more (Brooklyn and Long Island) within the next two weeks.

“In virtually all consumer-related sectors and industries, New York is viewed as the most important market in the world, which made it a critical component of our strategic geographic expansion plan. Having the opportunity to establish Cresco Labs in New York will significantly advance our goal to build the first national brand in the cannabis industry,” wrote CEO Charles Bachtell in the accompanying press release.

Stanley noted that while New York failed to legalized adult-use cannabis during the last legislative session, he thinks Cresco will go ahead with its material expansion of its medical program, which should support significant growth. New York’s medical program has to date 105,000 patients but, Stanley says, could hit five times that number if it reached Arizona-like levels of patient penetration (2.9 per cent of the population).

Lots of upside in Cresco Labs stock, analyst says

“Cresco is now trading at approximately 6x our F2021 EBITDA estimate, which is in line with other US operating companies, but represents a 43 per cent discount to the 10x average at which the broad peer group trades,” writes Stanley. “Potential catalysts include progress on the Origin House transaction, closing of the Florida, Massachusetts and New York acquisitions, the Q2/19 results on August 21st and additional M&A and buildout news.”

For the upcoming second quarter results, Stanley is expecting revenue of $25 million with an attributable EBITDA loss of $5 million (a forecast which he says looks conservative compared to the current consensus of $29 million and $2 million, respectively).

For the fiscal year, Stanley is calling for revenue and EBITDA of $145 million and negative $1 million, respectively. For fiscal 2020, he is calling for revenue and EBITDA of $732 million and $209 million, respectively.

On July 29, Cresco Labs announced the renovation of its 56 dispensaries across the US which it plans to reopen under the single brand name, Sunnyside. “Many of today’s dispensaries service the needs of traditional cannabis consumers,” said Cresco president and co-founder Joe Caltabiano in a press release. “As the cultural landscape progresses, we’re building a modern, yet familiar store environment built on wellness, education and customer service to rapidly bring in new users and welcome them to cannabis.”