Is Cresco Labs the most undervalued cannabis stock?

Looking for a cannabis stock with loads and loads of upside? One analyst says Cresco Labs (Cresco Labs Stock Quote, Chart, News CSE:CL) fits the bill.

Beacon Securities analyst Russell Stanley likes the look of the US cannabis name which just scored an approval for a new adult-use dispensary in its hometown of Chicago.

In an update to clients on Monday, Stanley reiterated his “Buy” rating and C$24.00 target for Cresco, which at press time represented a projected 12-month return of 422 per cent.

Cresco, which has interests in 11 states including 21 dispensaries and licenses for an additional ten, announced on Monday receipt of a special-use approval for an adult-use store in the coveted River North neighbourhood of Chicago, one of two licenses the pot company won in Chicago’s Central District lottery on November 15, 2019.

The new store will make it six so far in the state of Illinois and Cresco has licenses for four more, with the company saying there will be stores going in Chicago’s Gold Coast neighbourhood, in Danville near the Indiana border and in South Beloit near the Wisconsin border.

“Cresco has a long history of being first to market in new jurisdictions,” said Charlie Bachtell, CEO, in a press release. “Earning the right to operate in this highly coveted location is both a privilege and a significant opportunity for Cresco. The Dispensary is minutes from the Magnificent Mile, one of the busiest shopping districts in the United States. On a personal note, it is also minutes from Cresco’s corporate headquarters, and I couldn’t be more excited about Sunnyside potentially having a flagship dispensary in this neighbourhood.”

Stanley said Cresco is looking like a leader in Illinois, a state that just opened its adult rec market in January.

“Cresco is unique for having three licensed facilities in Illinois, giving it the potential to expand to an aggregate footprint of 630,000 sq. ft. The company already has 100 per cent penetration of third party dispensaries in Illinois and given the strong product demand in this state, Cresco will be well positioned to continue leading this market,” Stanley said.

In his update, Stanley noted that Illinois saw a drop in adult-use sales in February, down to $35 million compared to $39 million in January, a decline that the analyst chalks up primarily to product shortages and excess demand and secondarily to novelty buying in January.

Stanley said CL is now trading at a 55 per cent discount to the average among its US cannabis peers and at a 66 per cent discount to the broader cannabis company peers.

Along with the company’s expected forth quarter 2019 results in April, the analyst sees potential catalysts in updates on Cresco’s buildouts in Illinois and Pennsylvania and progress on the acquisition of Tryke Companies.

Looking ahead, Stanley thinks CL will generate fiscal 2020 revenue and EBITDA Net NCI of $1.193 billion and $487 million, respectively. (All figures in US dollars unless where noted otherwise.)

Cresco’s other big news of late was the stepping down of co-founder and president Joe Caltabiano, announced last week. Currently, Cresco’s share price is down 50 per cent in 2020.