Cresco Labs - The underdog becoming the topdog.

A comprehensive thread on why Cresco is best positioned both near and long term.

We begin our journey with a quick recap of last quarter and what to expect going into the end of the year.

$CRLBF $MSOS $CURLF $TCNNF $GTBIF
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Q2 blew past wall streets estimates and Cresco enjoyed 42% QoQ top line growth and hit $94M in sales (April/May impacted by covid). 30% revenue growth in all of the company’s US markets aside from MA. 47% gross margins and Adj EBITDA up 416% QoQ.

Per the call, improvments in cultivation processes will yield 50%+ margins Q3/Q4. The Origin House acquisition is yielding great results in California. Charlie states Cresco is TAKING market share in CA. Dennis (CFO) confirmed they were CASH FLOW POSITIVE in June.

Now before we go on, let’s take a look at where cultivation was in 2 key states throughout Q2 to achieve these strong numbers — Illinois (med and rec) 35k sqft and PA (med only) 22k sqft.

Now Sunnyside dispensary - Illinois 8 operational and 2 additional planned openings in 2020. PA 3 operational and 3 additional planned openings in 2020. NY 4 rebranded and operational and launched delivery.

Cresco prides itself on being vertically integrated and growing its wholesale business to become a top brand. In Q2, wholesale revenue grew 44% to $55M and retail revenue grew 39% with 17 locations generated $39 million in revenue, outpacing managements guidance.

Ok great now we are caught up — looking ahead...

Cultivation expansion as of beginning of Q3:
IL - 600% increase. 35k sqft to 215k. They can expand to 630k.
PA* - 400% increase. 22k sqft to 88k sqft.
*inclusion of pain and anxiety as conditions for PA medical card is driving huge patient increases. STILL SUPPLY CONSTRAINED.

5 new retail locations set to open before the end of 2020 running at approximately $7-8mln annualized rev per store.

Growing both cultivation and retail operations in OH, MI, MA, NY, AZ, MD.

Cresco for the last two years has been a growth cap ex story and now they have hit the inflection point to scale

Mgmt said that most of growth cap ex was incurred in first half 2020 with cultivation expansion and second half will bear the fruits of their labor.

In Illinois, 75 new adult use licenses have moved to a final “lottery round” including only 21 entries. With expanded cultivation in IL and potential to increase it another 3x, Cresco is the dominate wholesaler in this state that will do 3.5 bln annualized at maturity.

In PA, the medical program is exploding and dispensaries are extremely supply constrained. Pain and anxiety now get you a card. Cresco IR confirmed not all new rooms of expanded cultivation have been harvested as of mid August but expect to in Sep/Q4. Dispensaries need flower!!!

Staying with PA, last week governer wolf held a press conference to call for the legalizing of adult use. He did a road tour around the state and heard from the people — THEY WANT LEGAL CANNABIS. The explosive growth of medical is showing how much tax revenue potential exists.

So in the northeast, NJ has a vote for adult use in November that is a lock . This will force the hand of PA, NY, CT and MD legalize. Can’t have NJ reaping all the taxes from adjacent states! CRESCO HAS THE TOP MARKET SHARE IN PA .

So keeping politics aside, if the northeast goes rec we now have 80% of the population in rec states. Regardless of the next president, this will force the hand of the federal government move. CRESCO IS BUILDING A LEADING PRESENCE IN N.E. in anticipation.

Now the stock — Strong run from March lows to this high 7’s into earnings. Blowout Q2 numbers and we were rewarded with an over 25% decline! 42% revenue growth puts them in the top growth out of all the large MSOs.

The stock trades OTC or “over the counter/pink sheets” for US investors. Yes, the same crooked exchange that scam penny stocks trade! Market makers on this exchange can manipulate prices due to low liquidity and little to no institutional ownership.

Cresco and the other top MSOs are growing at a rate to do over $1bln in revenue and due to laws a regulations cannot be listed on the NYSE or NASDAQ. A potential catalyst is an uplist from OTC to NYSE. This needs to work through the political vines.

With an uplisting to NYSE, institutional $ will flow in and these MSOs will enjoy being added to indices and ETFs. Lots of capital flowing in

I use 335 million shares outstanding (exclude warrants) to calculate a market cap of just under $2bln as of Friday. Consensus revenue is for $113M in Q3 and $134 in Q4. My model puts them at $140 in Q3 and $175M Q4. We are on an 800M-1bln run rate 2021.

The stock is trading at less than 2x 2021 sales! A significant discount to the other MSOs and we have catalysts for an entire sector restating to 10x sales or 20x EBITDA on uplisting and broader institutional investor bases.

Add in the potential additive revenue from new adult use states coming online in 2021-2022 and you have yourself and undervalued gem ran by top tier management. I expect a run in the stock from the high $5’s to $8-9 before Q3 is released and should end the year over $12.

I have no worries about their debt as they will restructure as money starved for yield starts comings into the debt side of this sector and no worries with 70M in cash and 50M sale lease back opportunities.

Feed back welcome!