Should you hang on to your Cresco Labs stock?

Cresco Labs (Cresco Labs Stock Quote, Chart, News, Analysts, Financials CSE:CL) has announced plans to withdraw from the California market, citing structural challenges as it continues its focus on margin improvement and financial health.

Following the announcement, Roth Capital Markets analyst Bill Kirk maintained a “Buy” rating and $2.00 target in a July 21 note, pointing to Cresco’s concerns about fragmentation, illicit sales, and price pressure in California. The move extends previous cost-saving measures. Cresco currently holds about $155 million in cash and $480-million in total debt and remains focused on balance sheet discipline ahead of upcoming industry-wide refinancing needs.

Cresco Labs is a U.S. cannabis company with operations in cultivation, manufacturing, distribution, and retail under the Sunnyside store brand. It has a presence in eight states, including California, Florida, Illinois, and Pennsylvania. Cresco follows a consumer packaged goods model, distributing its own brands.

“The acquisition of Origin House in 2019 was the largest public cannabis M&A transaction in the U.S. at the time, and was viewed favorably by the broader industry,” Kirk said. “The difficulties in the California market are clear and have become more onerous over the past six years, with illicit market product and gray market locations continuing to thrive under current regulations.”

Kirk noted that California’s cannabis market has fallen far short of early expectations. In 2019, projections for 2022 reached as high as $7.7-billion, but 2025 sales are now expected to come in under $5-billion. He cited pricing pressure and regulatory inaction as key barriers to growth. With Cresco’s exit, none of the top five MSOs maintain a significant presence in the state, as the industry shifts focus to balance sheet strength, collecting receivables, and margin gains over chasing size.

“We still believe CA will be an important cannabis market in terms of building brand affinity and offers the larger supply opportunities should interstate commerce arrive, but a presence in California currently does not hold the promise it once did,” Kirk said.

Kirk thinks that Cresco Labs will generate $139.8-million in Adjusted EBITDA on revenue of $660.1-million in fiscal 2025. He expects those numbers to improve to $147.8-million in EBITDA on $664.4-million in revenue in fiscal 2026.

Despite near-term margin challenges, Kirk noted Cresco’s strong market position, including leadership in three key markets with a combined 2025 value of $5.4-billion (BDS Analytics). The company also ranks among the top five in multiple product categories and is starting to act more aggressively in markets where conditions are improving.

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