UPDATE: BTIG Starts Cresco Labs Inc. (CL:CN) (CRLBF) at Buy
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BTIG analyst Camilo Lyon initiates coverage on Cresco Labs Inc. (CL:CN) (OTC: CRLBF) with a Buy rating and a price target of Cdn$23.00.
The analyst comments "We are initiating coverage of Cresco Labs (CL) with a BUY rating and C$23 price target. We see CL driving annual revenue growth of 65% and adj. EBITDA margins of ~31% over the next two years as it deepens its presence in its key states. As can be seen by its revenue mix in which we estimate that three states (IL, PA, and CA) drive ~80% of sales, CL's strategy is one that is narrow but deep, focusing its efforts (and capital) on expanding its portfolio of brands in the most populous states and cities in the U.S. To this end, the company takes a targeted approach to growth that centers on the development of its house of brands through wholesale door expansion, much like traditional CPG companies. This wholesale first strategy is complemented by a retail strategy comprised of 24 dispensaries in key limited license states. Over time, CL's wholesale weighted mix should drive adj. EBITDA margin expansion as it utilizes capital in the most efficient ways. Acquisitions are also a key accelerant to CL's strategic growth objectives, as seen with the Origin House acquisition (closed January 2020) which opened up the CA wholesale market to CL, a state that grew legal cannabis sales ~57% last year. Most recently, the company announced the acquisition of Bluma Wellness, which opens the state of Florida to CL, ahead of what could be a change in the legalization of adult-use and/or allowance of wholesale distribution, both of which would dramatically increase CL's (and the market's) growth trajectory, in our view. Taken together, we see Cresco benefiting from the combination of annual 27% industry growth tailwinds bolstered by prudent yet strategic steps to deepen its presence in key states while expanding its house of brands through growing wholesale distribution. Lastly, with a shored up balance sheet, projected cash of $300M+ this year, and a debt/adj. EBITDA ratio of 1.7x (which we estimate falls below 1x this year), we believe CL is primed to continue on its accelerated growth path."
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