Cresco Labs Slashes Losses Despite Significant Headwinds

Columbia Care transaction remains on track to close in Q1.

Sales for Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) (FSE: 6CQ), a vertically integrated, multistate operator, ticked down in the third quarter ended Sept. 30 to $210 million, in part due to the company’s exit from third-party distribution in California.

Excluding the California operations, sales for the quarter were up 2%, driven by growth in emerging markets. Revenue growth was also challenged by price compression and increased verticality by competitive retailers.

The quarterly revenue included $93 million from wholesale sale and $118 million from retail. Retail sales increased 11% year-over-year.

“In the quarter, we took actions to reduce costs to position ourselves for long-term improvement. This included the closing of underperforming facilities and the sell through of related inventory,” said Charles Bachtell, CEO and co-founder of Cresco Labs, said in a news release. “While this had a short-term negative impact on gross margin in Q3, it was the right thing to do to align our cost structure and optimize our operations ahead of closing the Columbia Care transaction and in furtherance of our commitment to improved margin growth in the coming quarters.”

Gross profit margin for the quarter was 47.1%, down from 50.3% a year ago and 51.7% in the second quarter.

The Chicago-based company recorded a net loss of $3.2 million for the period, a significant improvement over the loss of $263.5 million reported in third quarter 2021.

Cresco generated $26 million in operating cash flow and ended the quarter with $130 million of cash on hand.

Columbia Care acquisition

“We made significant progress toward closing the Columbia Care transaction with the signing of definitive agreements to divest assets in New York, Illinois, and Massachusetts for total consideration of up to $185 million,” Bachtell said. “The future is bright for our industry and Cresco Labs. We continue to see legislative and regulatory progress at the state level, and we’ve never been closer to achieving federal reform on cannabis than we are today.”

The company reached a definitive agreement to sell the assets to a new company created by entertainment icon Sean “Diddy” Combs. The deal is expected to close in the first quarter of 2023.

Cresco is working toward agreements to sell assets in Florida, Maryland, and Ohio, which also must be divested as part of the Columbia Care acquisition.

The company also completed another sale-leaseback arrangement, this time with Aventine Property Group for a facility in Pennsylvania, from which Cresco gained $45 million in cash.

 

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