A new pot shop in a trendy area of Chicago is just the ticket for US cannabis company Cresco Labs (Cresco Labs Stock Quote, Chart, News CSE:CL), says Beacon Securities analyst Russell Stanley who on Monday provided an update on the company.
Vertically-integrated multi-state operator Cresco, which has interests in 11 states including 21 dispensaries and licenses for ten more, announced on Monday that the Illinois Department of Financial and Professional Regulation (IDFPR) had issued the company an adult-use dispensary license for the company’s planned location in the River North neighbourhood in its home base of Chicago.
As part of the procedures relating to COVID-19, Cresco said the location will be starting online sales for pick-up through a pop-up retail experience, assigning patrons staggered times when they can pick up their purchases.
“We are thrilled to make history in our home city, opening Chicago’s first-ever recreational only dispensary in such a sought-after location,” said Charlie Bachtell, Cresco’s CEO and Co-founder, in a press release. “The state’s approval provides a significant opportunity for Cresco to grow its retail footprint and serve more consumers across the state through six Sunnyside dispensaries—two of which are in Chicago.”
In his commentary, Stanley noted that Cresco already operates five combined adult-use and medical dispensaries in Chicago, with authorization for up to five more “second site” locations. As well, Cresco has the advantage of have obtained two of just seven available licenses in the coveted Central zone of Chicago.
As for the state of Illinois, which legalized adult-use cannabis in January, the IDFPR announced March rec cannabis figures, saying state sales totalled $35.9 million, while the Illinois Department of Health separately reported March medical sales of $30.0 million, up 21 per cent from February. Stanley said Cresco is unique in Illinois with 25 per cent of the medical market share and owning three of just 21 cultivation and manufacturing licenses issued to date. (All figures in US dollars except where noted otherwise.)
Stanley said Cresco, which finished flat for 2019 and is currently down 54 per cent for 2020, is now trading at a marked discount to its cannabis peers.
“CL now trades at approximately 2.8x our 2021 EBITDA estimate. This represents a 45 per cent discount to the 5.0x average amongst US operating companies and a 67 per cent discount to the 8.4x average for the broad peer group. Potential catalysts include the release of the Q4/19 results later this month (details TBA), and further updates on the build-outs in Illinois and Pennsylvania,” Stanley wrote.
The analyst 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. Ahead of Cresco’s fourth quarter results due out soon, Stanley is forecasting revenue and adjusted EBITDA of $40 million and $4 million, respectively.
With his update, Stanley reiterated his “Buy” rating and C$24.00 target for Cresco, which at press time represented a projected 12-month return of 480 per cent.