Cresco Labs Stock Has High Potential & Volatility
Does Cresco Labs Inc (CNSX:CL, OTCMKTS:CRLBF) have what it takes to reach $1.0 billion in revenue in 2021? And will that be enough to send the relatively small upstart into the upper echelon of marijuana stocks?
The answer to both questions is yes.
CRLBF stock has been on a roll this year. It’s up by about 175% over the past 12 months, making Cresco Labs stock one of the better performers.
What’s more, the company has a relatively small market cap, under $6.0 billion, meaning it still has a lot of room to expand. That small size, coupled with its potential to reach $1.0 billion in revenue, is what has me so excited about Cresco Labs stock.
First, the hard numbers.
Cresco Labs reported revenue of $178.4 million in the first quarter of 2021. While that is impressive, it doesn’t quite put the company on track to reach $1.0 billion of revenue by year’s end. (Source: “Cresco Labs Announces First Quarter 2021 Financial Results Under U.S. GAAP,” Cresco Labs Inc, June 9, 2021.)
While the company’s revenue growth from the previous quarter wasn’t jaw-dropping (it only managed a 10% increase from Q4 2020), it did eke out a 168% increase from the year prior. So massive revenue growth isn’t unheard of for Cresco Labs.
And the company isn’t remaining flat-footed. It has expanded deeper into Pennsylvania with a fourth dispensary opening in late June (marking Cresco Labs’ 33rd operating U.S. store). (Source: “Cresco Labs Announces Opening of Sunnyside Philadelphia, Its Fourth Dispensary in Pennsylvania and 33rd Operating U.S. Store,” Cresco Labs Inc, June 21, 2021.)
The company has also completed several acquisitions that have helped it build momentum toward exceeding $1.0 billion in revenue by the end of 2021.
And while Cresco Labs Inc shouldn’t be focused on hitting its 10th digit of revenue to the exclusion of reason, cresting that hill would be a great boost to the marijuana stock.
Furthermore, Cresco Lab Inc’s expansion, combined with its release of new products such as edibles and vape products (available in California, Michigan, and Illinois), there’s a realistic chance that the company will be able to reach that $1.0-billion revenue peak. (Source: “Cresco Labs Diversifies Edibles & Vape Portfolio Through Good News Brand Expansion,” Cresco Labs Inc, June 9, 2021.)
Greg Butler, the company’s chief commercial officer, said the following:
Building on the successful launch of Good News [the brand under which the new products will be released], we’re continuing to differentiate the brand both in our wholesale portfolio and markets through exciting new edible and vape products that demonstrate cannabis’s many benefits and role in being a part of various social occasions.
Chart courtesy of StockCharts.com
Another solid attribute of Cresco Labs stock is that it has a price-to-sales multiple of less than five, which is a reasonable ratio in the marijuana market.
That puts the company in an enviable position of not only having great financials, but also maintaining a small-enough size to grow with rapidity and force.
Couple that with Cresco’s expansionist disposition and its presence in the U.S. marijuana market and you have a very strong pot stock.
The only issue is that, with the company’s smaller size and weaker name recognition, there’s more volatility. But that comes with the territory.
Marijuana stocks are already notoriously volatile. A smaller company with big expectations exposes investors to even more risk—but also the potential for much higher rewards.
Investors who are in the market for a marijuana stock that has the ability to provide huge gains in a small amount of time could do worse than Cresco Labs stock.
On the other hand, investors who want a safer pot stock are probably better off looking at one of the larger U.S. marijuana stocks.
No matter your personal proclivities, among the three pot stocks in the $1.0-billion-revenue club (Cresco Labs Inc, Curaleaf Holdings Inc (CNSX:CURA, OTCMKTS:CURLF), and Trulieve Cannabis Corp (CNSX:TRUL, OTCMKTS:TCNNF), I’d say CRBLF stock is a respectable choice, even if the other two stocks are likely safer, with lower ceilings for gains.
Cresco Labs stock has a lot of potential. Between the company’s aggressive moves to expand across the U.S. and its ability to drive up its revenues, there’s a lot to like.
That said, Cresco Labs Inc is still a relatively unproven upstart. As such, it probably shouldn’t be considered by the faint of heart or those who are investing their retirement money.
Having said that, for investors who don’t mind stress and want to maximize their potential for gains, CRLBF stock holds great promise. While I would rate it below its counterparts in the U.S., I believe Cresco Labs stock has the ability to soar in 2021 and beyond.