Cresco Labs Q3 Earning (CRLBF)
CRLBF is a Hedgeye Cannabis Best Idea LONG.
Cresco Labs had a record quarter and absolutely crushed consensus estimates for the top line, reporting $153.3 million versus FactSet Consensus $116.2 million, representing an increase of 64% QoQ and 323% YoY. Revenues were driven on the wholesale side by increased cultivation capacity in Illinois, Pennsylvania, and California. At the same time, retail benefitted from hitting the dispensary max in Illinois and strong sequential same-store growth. The company had a record adjusted EBITDA of $46.4 million, representing an increase of 181% QoQ and 318% YoY, driven by higher revenues and maintaining strict control over SG&A. Despite revenues increasing $59 million sequentially, SG&A as a percentage fell -1744bps QoQ, from 48% in Q2 to 31% in Q3. Cresco Labs achieved positive net income at $4.9 million versus FactSet Consensus -$20.5 million.
Ayr Strategies Q3 Earnings (AYRSF) & Adult-Use Milestone in MA
AYRSF is a Hedgeye Cannabis Best Idea LONG.
Ayr Strategies reported record revenues of $45.5 million versus FactSet Consensus $45.5 million, in line with consensus estimates and representing an increase of 61% QoQ and 42% YoY. Adjusted EBITDA more than doubled sequentially at $19.3 million versus FactSet Consensus $18.6 million, an increase of 112% QoQ and 123% YoY. Adjusted EBITDA margin improved to 42.4%, representing an increase of 1020bps QoQ and 1550bps YoY. Net Income was -$26.8 million compared to -$7.5 million in the last quarter and $26.2 million in the comparable period last year. Q3’s revenues don’t include a new dispensary in Las Vegas set to open in a few weeks, the transition to adult-use retail sales in Massachusetts, and recently announced acquisitions in Arizona, Pennsylvania, and Ohio, all of which, when completed, point to an even more robust 2021.
In a significant operational milestone, Ayr Strategies announced that Sira Naturals, its Massachusetts operation, has received three host community approvals to meaningfully expand its existing medical footprint and begin the final preparations for adult-use sales in Boston, Somerville, and Watertown, Massachusetts. The approvals for Host Community Agreements (HCAs) mark a significant first step toward the company’s entry into the adult-use market in the Greater Boston area, with a population of 4.9 million.
Ayr Strategies CEO Jon Sandelman commented, “Regarding the roll-out of our adult-use sales in Massachusetts, the team in Massachusetts has done an incredible job to get us closer to opening our adult-use stores in 2021, as we received Host Community Agreement approvals for three of our Greater Boston locations, which include our existing Somerville dispensary and new locations in Watertown and on Boylston Street in Boston, right next to the Apple Store. And while we are incredibly excited to be building out the best retail footprint in Massachusetts, we can’t forget about the strength of our wholesale business, which continues to benefit from expanded cultivation capacity and strong demand resulting from new adult-use dispensaries coming online every month.”
Currently, only two of its three licensed dispensaries in Massachusetts are operating. Their Cambridge location was closed In November 2019 due to city officials citing a zoning issue once Ayr assumed a controlling interest. The average unit volumes of their two open medical-only dispensaries in Massachusetts are close to $10 million. They are set to go significantly higher – once their dispensaries go recreational, the average unit volumes could double or triple. On the wholesale side, Sira is currently selling to 60 of the state’s 81 adult-use dispensary locations, representing a 74% market penetration. These incremental sales in the Massachusetts market will have significant implications for the potential for margin expansion in 2021.
There are several visible drivers of organic and acquisition-driven revenue growth over the next few years. The associated margins and cash flow should lead to years of compounding growth as the company grows in new markets. Ayr Strategies is one of the most compelling organic and acquisitive growth strategies in our covered universe.
Clever Leaves Update (SAMA)
SAMA is on the Hedgeye Cannabis LONG Bias List.
In a business update, Clever Leaves, a leading MNO operator and a licensed producer of pharmaceutical-grade cannabinoids, announced the successful exportation of cannabis products to 14 different countries and 5 continents as of Q4 2020. The products range from raw materials, including active pharmaceutical ingredients (APIs), and semi-finished products, including white label products. In compliance with all cannabis regulations in the countries served, the company’s portfolio of products has been exported to Australia, Brazil, Canada, Chile, the Czech Republic, Germany, Israel, Netherlands, Peru, Poland, Spain, South Africa, the United Kingdom, and the United States.
The company is expected to close its SPAC merger with Schultze Special Purpose Acquisition Corp. (NASDAQ: SAMA) in Q4 under the new ticker “CLVR.”
The company is on track towards becoming a formidable competitor to Canadian LPs in the European market. The company has one of the most extensive cultivation and extraction operations in Latin America and is among the world's largest, including Canada's licensed producers and top extractors. The company has the advantage of low-cost operations due to favorable climate conditions and cheaper labor than its Canadian peers. The average cost per gram by Clever Leaves' Colombian operation is USD 0.20 – Canadian operators run upwards of USD 1.71 (average of APHA, ACB, OGI, and TLRY). As a sign of its B2B market potential, Clever Leaves has already signed a regional supply agreement with Canopy Growth (CGC) – the Canadian company outsourced its LatAm operations to Clever Leaves in April 2020. Under the one-year deal, Clever Leaves will supply CGC with cannabis extract products with an option to renew for two additional years.
