Despite record sales last year, Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) saw its revenues start to shrink at year-end as declining prices continue to eat at margins, new financial statements released on Thursday show.
The Chicago-based MSO released its earnings results for the quarter and year ending Dec. 31, 2022.
Cresco reported fourth-quarter revenue of $200 million, down 8% year-over-year due to industry-wide price compression offsetting growth from increased unit sales and retail transactions, the company said. This missed Yahoo’s average analyst estimate by $3 million.
The company incurred a net loss of nearly $180 million, including $141 million in impairment charges related to its plan to exit third-party distribution California, but it generated positive operating cash flow of $4 million. Removing the impairment charges, the company still assumed a nearly $40 million net loss versus $3.2 million net loss in the previous quarter.
CEO Charles Bachtell said in a statement that the company’s focus on “providing the highest perceived value” to consumers led to having the most sold branded product portfolio in the U.S. cannabis industry for two years in a row.
Bachtell acknowledged the disappointment of federal reform not passing but remains optimistic about the long play.
“The current estimated regulated-plus-illicit cannabis market in the U.S. is nearly the size of the U.S. beer industry,” Bachtell said. “From our front-line position, we were disappointed that federal reform did not pass late last year, but last year’s efforts have led to strong momentum for change with the new Congress. None of the challenges of 2022 change the long-term thesis and opportunity that is cannabis.”
The CEO said Cresco’s main priorities are centered around its profitable core capabilities, products, and brands, as well as optimizing its footprint, expanding its retail business, increasing free cash flow, and improving its financial position.
In the fourth quarter, branded unit volume increased by 24% over the year, while retail transactions increased by 4% over the same time period. Adjusted gross profit was $90 million, or 45% of revenue, and adjusted EBITDA was $31 million, or 15% of revenue.
Adjusted gross profit margin and adjusted EBITDA margin were affected by non-recurring items, resulting in a 500 bps drag on margins. Normalized for these adjustments, adjusted gross margin would have been 50% and adjusted EBITDA margin would have been 20%.
Full-Year 2022 Results
Cresco raked in record revenue of $843 million in 2022, which was a 3% uptick from the previous year. Sales were buoyed by record branded unit volume (61 million, up 37% year-over-year) and retail transactions (4.6 million, up 15%).
Adjusted gross profit was $418 million, or 50% of revenue, with adjusted EBITDA at $174 million, or 21% of revenue.
Despite a net loss of $215 million for the full year, including $141 million of one-time impairment charges, the company generated positive operating cash flow of $19 million and ended the year with $122 million of cash, cash equivalents, and restricted cash.
Cresco said that it retained its top market share position in Illinois and Pennsylvania and achieved the leading position in Massachusetts.
Cresco also extended the outside date to complete its previously announced acquisition of Columbia Care to the summer.
“The regulatory approval process is on-going, and the company is working toward final agreements to sell the remaining assets required to be divested,” it said.