With Cresco Labs (CRLBF) reporting, the top four MSOs all posted record revenues for Q2
For the second quarter, Cresco Labs posted record revenue of $94.3M vs FactSet Consensus $76.9M, a 215% YoY increase and a 42% QoQ increase. Adjusted EBITDA was a record $16.5M, a 13.8% YoY increase 419% QoQ increase. Despite the topline growth, gross margin expanded by 500 bps sequentially to 35.5% and SG&A sequentially declined 3.1%. However, the company did incur a $1.9 million expense related to COVID-19. Net loss was $4.7M vs FactSet Consensus estimating a net loss of $17.1.
Revenue increased sequentially by more than 30% in every U.S. market, except for Massachusetts which deemed recreational marijuana as nonessential. Wholesale growth was driven by product popularity in California and first harvests from expanded capacity in Illinois and Pennsylvania. Retail growth was driven by strong sequential same-store growth of 31% and two new store openings in Illinois. Wholesale revenue growth of 44% QoQ to $55M and retail revenue growth of 39% QoQ to $39M.
The four largest MSOs by market cap (CURLF, GTBIF, TCNNF, & CRLBF) had combined revenues exceeding $450M in Q2, and in 1H20, their combined revenues topped $820M – notably during federal prohibition and in the midst of an unprecedented pandemic and economic downturn.
Mexico’s president says marijuana legalization will advance through Congress next month
Earlier this week, President Andrés Manuel López Obrador (AMLO) said during a press conference that he will not stand in the way of marijuana legalization as it passes through Congress in September. Mexico’s Supreme Court issued a mandate in 2018 to end federal prohibition on marijuana due to it determining that a ban on personal use/possession was unconstitutional. Since then, the legalization bill has undergone revisions as it advances through various state committees and has most recently been delayed due to the coronavirus pandemic.
The legalization bill proposes allowing legal age adults to possess and cultivate for personal usage with personal possession capped at 28 grams. It also permits individuals to grow up to 20 registered plants, with yield caps, and medical marijuana patients would be eligible to grow more than 20 registered plants. The bill would establish a decentralized regulatory body responsible for managing the market and issuing licenses. Cannabis sales would be taxed at 12% and a substance misuse treatment fund would be set up.
While marijuana is de facto legal for personal use in Mexico, for both possession and cultivation, adult-use legalization at the federal level would open commercial opportunities for the industry. Legalization in Mexico could be a future headwind to Canadian cannabis companies which have been struggling with inventory oversupply. Federally licensed producers in Canada have made international contracts with countries that have legalized/decriminalized marijuana to varying extents, e.g. Aphria (APHA) shipping cannabis to Germany, and Mexican companies could produce significant competition and threaten the international revenue streams of Canadian LPs.
Poll finds Republican support for federal legalization
In a national poll conducted by Data for Progress, a progressive think-tank, Republicans appear to have softened towards supporting marijuana legalization. Notably, 62% of likely voters, including 60% of Republicans, support the Marijuana Opportunity Reinvestment and Expungement Act (MORE Act) – a bill sponsored by Democratic VP nominee Kamala Harris. The MORE Act, which is presently locked in committee in the Senate, would federally deschedule marijuana, impose a 5% tax on a federal level, and expunge the records of those with past marijuana convictions.
- 58% of likely voters, including 54% of Republicans, think that the federal government should legalize the use and sale of marijuana;
- 69% of likely voters, including 67% of Republican voters, believe the federal government should respect the rights of individual states that have already legalized marijuana sales and not pursue legal action against them;
- 63% of likely voters, including 59% of Republicans, believe that some tax funds from the sale of marijuana should go to community reinvestment funds to support the communities most harmed by punitive drug policy;
- 65% of likely voters, including 67% of Republicans, agree that marijuana tax dollars provide valuable revenue for states;
- Even in states where marijuana remains illegal, 60% of likely voters, including 58% of Republicans, believe that police should stop arresting people for the possession of marijuana intended for personal use; while 55% overall, and 50% of Republicans, believe police should stop arresting people for the sale of small quantities of marijuana;
- 62% of likely voters, including 60% of Republicans, support the MORE Act when asked about its specific provisions.
Polling methodology: conducted from 5/8/2020 to 5/9/2020 in the U.S., n=1235
