Continued execution of Year-of-the-Core
strategy delivers strong margin and operating cash flow gains, with
elimination of over $40 million in annualized operating costs
Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) (FSE: 6CQ) (“Cresco
Labs” or the “Company”), the industry leader in branded
cannabis products with a portfolio of America’s most popular brands
and the operator of Sunnyside dispensaries, today released its
financial and operating results for the third quarter ended
September 30, 2023. All financial information presented in this
release is reported in accordance with U.S. GAAP and in U.S.
dollars, unless otherwise indicated, and is available on the
Company’s investor website, here.
Third Quarter 2023 Financial Highlights
- Third quarter revenue of $191 million, with retail growth and
strong performance in core markets helping to offset purposeful
attrition from divested assets.
- In comparison to Q1, when the Company initiated the
Year-of-the-Core strategy, adjusted gross margin1 increased by over
480 bps, adjusted SG&A1 decreased by $40 million on an
annualized basis and adjusted EBITDA margin1 rose by over 1000
bps.
- Generated $62 million in operating cash flow through the first
nine months of the year.
- Gross profit of $94 million, 49% of revenue.
- Adjusted gross profit1 of $96 million and adjusted gross
margin1 of 51%, up 373 bps from the second quarter.
- Adjusted SG&A1 of $57 million, a reduction of $4 million
sequentially to just under 30% of revenue.
- Adjusted EBITDA1 of $49 million, and 26% of revenue, up 21%
sequentially as adjusted EBITDA margin1 improved 528 bps.
- Generated positive operating cash flow of $41 million,
inclusive of $8 million of one-time cash charges related to
facility closures, divestiture activity and severance
payments.
- One-time, non-cash impairment charges totaled $129 million,
resulting in a third quarter net loss of $113 million.
Third Quarter 2023 Operating Highlights
- Retained the No. 1 share position in Illinois, Pennsylvania and
Massachusetts2.
- Maintained the industry’s No. 1 bestselling portfolio of
branded flower and branded concentrates and the No. 4 portfolio of
branded vapes and branded edibles2.
- Branded equivalized unit volume of 20 million, up 28%
year-over-year2.
- Retail transactions of 1.4 million, a 17% increase
year-over-year.
- Opened two Sunnyside stores in Florida, bringing the nationwide
store count to 70 as of September 30, 2023.
Management Commentary
“Our third quarter results demonstrate our ability to drive
solid performance, with strong gains to our margin and operating
cash flow, by continuing to execute on a strategy where we win in
our core markets and with our core stores, core brands and core
products.
Cresco Labs is leaner and more productive than ever. We
generated $191 million of revenue, with strong growth in retail and
good performance in our core helping to balance the impact of
strategic divestitures. Compared to the first quarter, when we
started executing the Year-of-the-Core strategy, we’ve held revenue
relatively flat while improving our adjusted gross margin1 by over
480 basis points and reduced our quarterly adjusted SG&A1 by
over $10 million. This tremendous progress in our margin and cost
profile led to adjusted EBITDA1 of $49 million in Q3, which is
almost $20 million more than Q1. Our operating cash flow was $41
million in Q3, almost double what we generated in Q1 and Q2
combined.
Our disciplined execution of the “Year-of-the-Core” strategy
positions us to effectively compete today, execute the upcoming
growth catalysts existing within our underlying business, and be
opportunistic as new market opportunities continue to present
themselves. This is essential to creating the strongest, most
valuable Cresco Labs possible.
With Ohio becoming the 24th state to legalize adult-use
cannabis, the industry has achieved a major milestone with over 50%
of the U.S. population now living in a state where adult-use
cannabis is legal. Support for the end of cannabis prohibition
nationally has also reached a record high. While the timing of
federal reform has been unpredictable, we have reached a tipping
point where change is inevitable. Until that change comes, we’re
improving every aspect of our business to best position ourselves
for both today’s environment and for the future,” said Charles
Bachtell, CEO of Cresco Labs.
Balance Sheet, Liquidity and Other Financial
Information
- As of September 30, 2023, current assets were $303 million,
including cash, cash equivalents and restricted cash of $113
million. The Company had senior secured term loan debt, net of
discount and issuance costs, of $385 million and a mortgage loan,
net of discount and issuance costs of $18 million.
- Total shares on a fully converted basis were 468,955,546 as of
September 30, 2023.
Capital Markets and Divestiture Activity
- On September 12, 2023, the Company signed a definitive
agreement with an entity to be operated by Mint Cannabis to divest
its remaining assets in the Encanto Green Cross Dispensary, LLC in
Arizona, and closed the transaction following required regulatory
approval on October 18, 2023, yielding cash proceeds of $7
million.
- On September 26, 2023, the Company closed on a mortgage loan to
borrow an undiscounted principal amount of $25 million. The loan is
secured by real estate in Ellenville, NY, and improvements thereto.
$18 million was funded at close, net of discount and issuance
costs, with the remaining principal held to fund future capital
expenditures. The 10-year mortgage carries an interest rate
calculated based on the FHLBank Boston 5-year rate plus 375 basis
points, resulting in an initial rate at close of 8.4%.
1 See “Non-GAAP Financial Measures” at the
end of this press release for more information regarding the
Company’s use of non-GAAP financial measures.
2 According to BDSA
Conference Call and Webcast
The Company will host a conference call and webcast to discuss
its financial results on Wednesday, November 15, 2023, at
8:30am Eastern Time (7:30am Central Time). The conference call may
be accessed via webcast or by dialing 1-833-470-1428 (US Toll Free)
or 1-646-904-5544 (US Local), providing access code 259018.
Archived access to the webcast will be available for one year on
Cresco Labs’ investor website.
Consolidated Financial Statements
The financial information reported in this press release is
based on unaudited management prepared financial statements for the
quarter ended September 30, 2023. These financial statements have
been prepared in accordance with U.S. GAAP. The Company expects to
file its unaudited condensed interim consolidated financial
statements for the quarter ended September 30, 2023, on SEDAR+ on
or about November 15, 2023. Accordingly, such financial information
may be subject to change. All financial information contained in
this press release is qualified in its entirety with reference to
such financial statements. While the Company does not expect there
to be any material changes between the information contained in
this press release and the consolidated financial statements it
files on SEDAR+, to the extent that the financial information
contained in this press release is inconsistent with the
information contained in the Company’s financial statements, the
financial information contained in this press release shall be
deemed to be modified or superseded by the Company’s filed
financial statements. The making of a modifying or superseding
statement shall not be deemed an admission for any purposes that
the modified or superseded statement, when made, constituted a
misrepresentation for purposes of applicable securities laws.
Further, the reader should refer to the additional disclosures in
the Company’s audited financial statements for the year ended
December 31, 2022, previously filed on SEDAR+.
Cresco Labs references certain non-GAAP financial measures
throughout this press release, which may not be comparable to
similar measures presented by other issuers. Please see the
“Non-GAAP Financial Measures” section below for more detailed
information.
Non-GAAP Financial Measures
Earnings before interest, taxes, depreciation and amortization
(“EBITDA”), Adjusted EBITDA, Adjusted EBITDA margin, Adjusted gross
profit, Adjusted gross margin and Adjusted Selling, general and
administrative (“Adjusted SG&A”) are non-GAAP financial
measures and do not have standardized definitions under U.S. GAAP.
The Company has provided the non-GAAP financial measures, which are
not calculated or presented in accordance with U.S. GAAP, as
supplemental information and in addition to the financial measures
that are calculated and presented in accordance with U.S. GAAP and
may not be comparable to similar measures presented by other
issuers. These supplemental non-GAAP financial measures are
presented because management has evaluated the financial results
both including and excluding the adjusted items and believe that
the supplemental non-GAAP financial measures presented provide
additional perspective and insights when analyzing the core
operating performance of the business. These supplemental non-GAAP
financial measures should not be considered superior to, as a
substitute for or as an alternative to, and should only be
considered in conjunction with, the U.S. GAAP financial measures
presented herein. Accordingly, the Company has included below
reconciliations of the supplemental non-GAAP financial measures to
the most directly comparable financial measures calculated and
presented in accordance with U.S. GAAP.
About Cresco Labs Inc.
Cresco Labs’ mission is to normalize and professionalize the
cannabis industry through a CPG approach to building national
brands and a customer focused retail experience. As a leader in
cultivation, production and branded product distribution, the
Company is leveraging its scale and agility to grow its portfolio
of brands, including Cresco, High Supply, FloraCal, Good News,
Wonder Wellness Co., Mindy’s and Remedi, on a national level. The
Company also operates highly productive dispensaries nationally
under the Sunnyside brand that focus on building patient and
consumer trust and delivering ongoing education and convenience.
Through year-round policy, community outreach and SEED initiative
efforts, Cresco Labs embraces the responsibility to support
communities through authentic engagement, economic opportunity,
investment, workforce development and legislative initiatives
designed to create the most responsible, respectable and robust
cannabis industry possible. Learn more about Cresco Labs’ journey
by visiting www.crescolabs.com or following the Company on
Facebook, X or LinkedIn.
Forward-Looking Statements
This press release contains “forward-looking information” within
the meaning of applicable Canadian securities legislation and may
also contain statements that may constitute “forward-looking
statements” within the meaning of the safe harbor provisions of the
United States Private Securities Litigation Reform Act of 1995
(collectively, “forward-looking statements”). Such forward-looking
statements are not representative of historical facts or
information or current condition, but instead represent only the
Company’s beliefs regarding future events, plans or objectives,
many of which, by their nature, are inherently uncertain and
outside of the Company’s control. Generally, such forward-looking
statements can be identified by the use of forward-looking
terminology such as, ‘may,’ ‘will,’ ‘should,’ ‘could,’ ‘would,’
‘expects,’ ‘plans,’ ‘anticipates,’ ‘believes,’ ‘estimates,’
‘projects,’ ‘predicts,’ ‘potential’ or ‘continue’ or the negative
of those forms or other comparable terms. The Company’s
forward-looking statements involve known and unknown risks,
uncertainties and other factors which may cause the Company’s
actual results, performance or achievements to be materially
different from any future results, performance or achievements
expressed or implied by the forward-looking statements, including
but not limited to those risks discussed under “Risk Factors” in
the Company’s Annual Information Form for the year ended December
31, 2022, filed on March 21, 2023, other documents filed by the
Company with Canadian securities regulatory authorities; and other
factors, many of which are beyond the control of the Company.
Readers are cautioned that the foregoing list of factors is not
exhaustive. Because of these uncertainties, you should not place
undue reliance on the Company’s forward-looking statements. No
assurances are given as to the future trading price or trading
volumes of Cresco Labs’ shares, nor as to the Company’s financial
performance in future financial periods. The Company does not
intend to update any of these factors or to publicly announce the
result of any revisions to any of the Company’s forward-looking
statements contained herein, whether as a result of new
information, any future event or otherwise. Except as otherwise
indicated, this press release speaks as of the date hereof. The
distribution of this press release does not imply that there has
been no change in the affairs of the Company after the date hereof
or create any duty or commitment to update or supplement any
information provided in this press release or otherwise.
Cresco Labs Inc.
Financial Information and
Non-GAAP Reconciliations
(All amounts expressed in
thousands of U.S. Dollars)
Unaudited Consolidated
Statements of Operations
For the Three Months Ended
September 30, 2023, June 30, 2023 and September 30, 2022
For the Three Months
Ended
($ in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
Revenues, net
$
190,559
$
197,887
$
210,484
Cost of goods sold
96,919
111,187
111,372
Gross profit
93,640
86,700
99,112
Gross profit %
49.1
%
43.8
%
47.1
%
Operating expenses:
Selling, general and administrative
62,484
70,562
76,200
Share-based compensation
3,479
1,043
2,256
Depreciation and amortization
5,942
4,345
4,416
Impairment loss
129,491
21,502
—
Total operating expenses
201,396
97,452
82,872
(Loss) income from operations
(107,756
)
(10,752
)
16,240
Other expense, net:
Interest expense, net
(11,764
)
(19,176
)
(15,554
)
Other income, net
329
402
14,797
Total other expense, net
(11,435
)
(18,774
)
(757
)
(Loss) income before income
taxes
(119,191
)
(29,526
)
15,483
Income tax recovery (expense)
5,746
(13,937
)
(18,732
)
Net loss1
$
(113,445
)
$
(43,463
)
$
(3,249
)
1 Net loss includes amounts attributable
to non-controlling interests.
Cresco Labs Inc.
Unaudited Reconciliation of
Gross Profit to Adjusted Gross Profit (Non-GAAP)
For the Three Months Ended
September 30, 2023, June 30, 2023 and September 30, 2022
For the Three Months
Ended
($ in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
Revenues, net
$
190,559
$
197,887
$
210,484
Cost of goods sold1
96,919
111,187
111,372
Gross profit
$
93,640
$
86,700
$
99,112
Fair value mark-up for acquired
inventory
—
—
21
Cost of goods sold adjustments for
acquisition and other non-core costs
2,602
5,870
593
Adjusted gross profit
(Non-GAAP)
$
96,242
$
92,570
$
99,726
Adjusted gross profit %
(Non-GAAP)
50.5
%
46.8
%
47.4
%
1 Production (cultivation, manufacturing
and processing) costs related to products sold during the
period.
Cresco Labs Inc.
Unaudited Reconciliation of
SG&A to Adjusted SG&A (Non-GAAP)
For the Three Months Ended
September 30, 2023, June 30, 2023 and September 30, 2022
For the Three Months
Ended
($ in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
Selling, general and administrative
$
62,484
$
70,562
$
76,200
Adjustments for acquisition and other
non-core costs
5,457
9,433
9,093
Adjusted SG&A (Non-GAAP)
$
57,027
$
61,129
$
67,107
Cresco Labs Inc.
Summarized Unaudited
Consolidated Statements of Financial Position
As of September 30, 2023 and
December 31, 2022
($ in thousands)
September 30, 2023
December 31, 2022
Cash, cash equivalents and restricted
cash
$
113,016
$
121,510
Other current assets
190,151
204,536
Property and equipment, net
382,783
379,722
Intangible assets, net
298,008
407,590
Goodwill
279,697
330,555
Other non-current assets
135,498
139,779
Total assets
$
1,399,153
$
1,583,692
Total current liabilities
$
260,882
$
280,866
Total non-current liabilities
712,409
715,143
Total shareholders’ equity
425,862
587,683
Total liabilities and shareholders’
equity
$
1,399,153
$
1,583,692
Cresco Labs Inc.
Unaudited Reconciliation of
Net Income to Adjusted EBITDA (Non-GAAP)
For the Three Months Ended
September 30, 2023, June 30, 2023 and September 30, 2022
For the Three Months
Ended
($ in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
Net loss1
$
(113,445
)
$
(43,463
)
$
(3,249
)
Depreciation and amortization
15,297
14,002
13,395
Interest expense, net
11,764
19,176
15,554
Income tax (recovery) expense
(5,746
)
13,937
18,732
EBITDA (Non-GAAP)
$
(92,130
)
$
3,652
$
44,432
Other income, net
(329
)
(402
)
(14,797
)
Fair value mark-up for acquired
inventory
—
—
21
Adjustments for acquisition and other
non-core costs
7,942
13,522
9,093
Impairment loss
129,491
21,502
—
Share-based compensation
4,072
2,204
2,995
Adjusted EBITDA (Non-GAAP)
$
49,046
$
40,478
$
41,744
1 Net loss includes amounts attributable
to non-controlling interests.
Cresco Labs Inc.
Unaudited Summarized
Consolidated Statements of Cash Flows
For the Three Months Ended
September 30, 2023, June 30, 2023 and September 30, 2022
For the Three Months
Ended
($ in thousands)
September 30, 2023
June 30, 2023
September 30, 2022
Net cash provided by operating
activities
$
40,622
$
17,973
$
25,604
Net cash (used in) provided by investing
activities
(12,476
)
(14,050
)
23,484
Net cash provided by (used in) financing
activities
10,052
(19,542
)
(9,112
)
Effect of foreign currency exchange rate
changes on cash and cash equivalents
7
(22
)
10
Net change in cash and cash equivalents
and restricted cash
$
38,205
$
(15,641
)
$
39,986
Cash and cash equivalents and restricted
cash, beginning of period
74,811
90,452
92,334
Cash and cash equivalents and
restricted cash, end of period
$
113,016
$
74,811
$
132,320
View source
version on businesswire.com: https://www.businesswire.com/news/home/20231115219215/en/
Media Jason Erkes, Cresco Labs Chief Communications
Officer press@crescolabs.com 312-953-2767 Investors Megan
Kulick, Cresco Labs SVP, Investor Relations
investors@crescolabs.com For general Cresco Labs inquiries:
312-929-0993 info@crescolabs.com
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