Is Cresco Labs the most undervalued pot stock?

One Canadian analyst thinks there is massive upside to Cresco Labs (Cresco Labs Stock Quote, Chart, News CSE:CL)

Cannabis supplies are dicey in Illinois’ fledgling adult-use market but that shouldn’t be an issue for Cresco Labs, says Beacon Securities analyst Russell Stanley, who updated clients in a Thursday report, saying the company’s retail footprint is set to double in the state.

Chicago-based Cresco is a vertically-integrated cannabis company with cultivation, manufacturing and retail operations in the United States, with interests in 11 states, including 21 dispensaries and licenses for an additional ten.

Cresco on Thursday announced the completion of its newly-expanded cultivation facility in Lincoln, Illinois, now the largest such facility in the state at 215,000 square feet, along with the completion of the first phase of its Kankakee facility. In total, Cresco is licensed to grow up to 630,000 sq ft of flowering canopy in the state.

“Illinois represents one of the largest opportunities in US cannabis, and at Cresco Labs we are committed to strengthening our share in this high growth market,” said Charlie Bachtell, CEO, in a press release.

“The expansion of our Illinois cultivation footprint at both our Lincoln and Kankakee facilities enables us to quickly bring additional capacity to such a growing, high-demand market, support supply to our statewide dispensary and wholesale network, and simultaneously cater to both medical and recreational consumers in our home state,” he said.

On the expansion, Stanley wrote, “This positions the company well to support its retail buildout and expand its wholesale activity in Illinois (pop. 12.7 million), where product shortages have persisted since the adult-use market opened in January.”

“Cresco is the only cannabis company in IL with licenses for three sites, allowing it to develop up to 630,000 SFT of flowering footprint (excluding vegetative and mother rooms), and the company already has 100 per cent wholesale penetration of third party dispensaries in this market,” he wrote.

Across the state, Cresco’s retail base is about to double with planned openings in five more locations including one in the trendy River North neighbourhood of Chicago.

Ahead of Cresco’s fiscal fourth quarter 2019 results due on April 27, Stanley is calling for revenue and adjusted EBITDA of $40 million and $4 million, respectively, versus the consensus forecasts at $44 million and $2 million. Stanley said he’ll be looking for an update on timelines for retail buildouts in Illinois and Pennsylvania along with word on the integration of the Origin House business, an acquisition closed in early January. (All figures in US dollars except where noted otherwise.)

Further afield, Stanley is calling for fiscal 2020 revenue and EBITDA net NCI of $562 million and $130 million, respectively, and for fiscal 2021 revenue and EBITDA net NCI of $1.193 billion and $487 million, respectively.

The analyst estimated that CL is currently trading at a 49-per-cent discount to the average among its US operating peers and at a 67-per-cent discount to the wider cannabis peer group.

Cresco’s share price is currently down 44 per cent year-to-date and down 69 per cent for the last 12 months.

With the update, Stanley has reiterated his “Buy” recommendation and C$24.00 target for Cresco, which at press time represented a projected 12-month return of 465 per cent.