Looking to Profit From Pot Stocks? Read This
With the legal cannabis industry being relatively new to stock market investors, picking the right pot stock can be tricky. But if you pick the right one, the reward could be quite substantial.
Just ask investors who loaded up on shares of Cresco Labs Inc (OTCMKTS:CRLBF, CNSX:CL) recently. On December 9, Cresco Labs stock opened at $5.26 per share. On December 13, CRLBF stock closed at $6.49. So, in just one week, this stock returned a whopping 23.4%.
The big question, of course, is whether the rally will continue. So let’s take a look at Cresco’s business and see what could make it appealing to investors in 2020.
Cresco Labs Inc
Unless you follow the cannabis industry closely, Cresco Labs probably isn’t a familiar name.
In Canada, the company is listed on the Canadian Securities Exchange. In the U.S., it trades over the counter under the symbol “CRLBF.”
Still, while Cresco Labs stock is listed north of the border, it is an American company. Headquartered in Chicago, Cresco is a vertically integrated multi-state cannabis operator.
The company takes a consumer packaged goods approach to pot. It has built many popular brands across all consumer segments, including “Cresco,” “Remedi,” and “Mindy’s.”
On the retail front, Cresco Labs has more than 30 licenses in seven states, and plans to launch its first national retail brand, “Sunnyside*,” in the near future. (Source: “Retail,” Cresco Labs Inc, last accessed December 15, 2019.)
Now, given that there are plenty of bigger pot stocks trading on major U.S. stock exchanges, you might be wondering why investors should consider an over-the-counter ticker in 2020.
Well, the most obvious reason is that, despite being a lesser-known name, Cresco Labs actually churns out higher growth rates than many of its bigger competitors.
The company reported earnings last month. The report showed that, in the third quarter of 2019, Cresco Labs generated $36.2 million of revenue. (Source: “Cresco Labs Announces Increased Profitability in Third Quarter 2019 With Revenue Growth of 184% Year-Over-Year and 21% Quarter-Over-Quarter,” Cresco Labs Inc, November 26, 2019.)
To put that in perspective, the amount represented a 21% increase from the second quarter and a whopping 184% increase from a year ago.
Notably, in California, a market that has a strong influence on U.S. cannabis consumer behavior, the company’s wholesale revenue more than doubled in the quarter.
And that’s not all. In the third quarter, Cresco Labs Inc’s operational gross profit (before the impact of biological assets accounting) totaled $17.1 million, up from the $14.4 million generated in the second quarter.
Why CRLBF Stock Deserves Attention in 2020
Another reason to check out Cresco Labs stock is that the company is well positioned to capitalize on a major market opportunity in 2020: Illinois.
On May 31, lawmakers in Illinois passed the Illinois Cannabis Regulation and Tax Act, legalizing recreational pot in the state beginning January 1, 2020.
In September 2019, Cresco announced that the Illinois Department of Agriculture approved the growing of recreational pot at the company’s three cultivation facilities in the state. (Source: “Cresco Labs Receives First Adult-Use Cultivation Approvals Granted in Illinois,” Cresco Labs Inc, September 30, 2019.)
According to state regulations, the company’s three facilities can comprise a total combined cultivation space of 630,000 square feet.
Then, in October, the company announced that all five of its existing medical pot dispensaries in Illinois had received Early Approval Adult-Use Dispensing Organization Licenses. (Source: “Cresco Labs Receives Adult-Use Approval for All Five Existing Illinois Dispensaries,” Cresco Labs Inc, October 16, 2019.)
That made Cresco the only company approved for both recreational pot cultivation and dispensary operations in the state of Illinois.
More recently, Cresco announced the completion of the first harvest from its expanded cultivation facility in Lincoln, Illinois. (Source: “Cresco Labs Announces First Harvest from Illinois’ Largest Cultivation Facility,” Cresco Labs Inc, December 9, 2019.)
The company’s co-founder and chief executive officer Charlie Bachtell said: “With the scale of this expansion phase, additional incremental production from the expansion areas will gradually increase ramping up for market distribution starting now and accelerating late Q1 through Q2.”
Bachtell added, “The ability to restock shelves reliably to ensure customers always have access to product is key to both generating solid financial results and building long term customer loyalty with medical patients and adult-use consumers.” (Source: Ibid.)
The cannabis market in Illinois is estimated to be $2.0 to $4.0 billion at maturity. Given Cresco Labs’ current size, tapping into the recreational pot market in this state could give a substantial boost to the company’s financials.
Cresco Labs Inc (OTCMKTS:CRLBF) Stock Chart
Chart courtesy of Stockcharts.com
As is the case with all pot stocks, Cresco Labs Inc’s shares could see some volatility going forward.
But if the company successfully enters the new recreational pot market in Illinois—meaning it can keep churning out impressive growth rates—I wouldn’t be surprised to see the upward momentum continue for CRLBF stock.