Cresco Labs Announces Third Quarter 2021 Financial Results

Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) (FSE: 6CQ) (“Cresco Labs” or the “Company”), a vertically integrated, multi-state operator and the number one U.S. wholesaler of branded cannabis products, today announced its financial results for the third quarter ended September 30, 2021. All financial information presented in this release is reported in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and U.S. dollars, unless otherwise noted, and all comparisons to prior quarter and prior year are made on an as-converted basis under U.S. GAAP.

Third Quarter 2021 Financial Highlights¹

Revenue of $215.5 million, an increase of 2.6% quarter-over-quarter and 40.6% year-over-year
Gross profit excluding fair value mark-up for acquired inventory of $116.7 million, or 54.2% of revenue, an increase of 9.0% quarter-over-quarter and 48.3% year-over-year
Adjusted EBITDA² of $56.4 million, or 26.2% of revenue, an increase of 24.0% quarter-over-quarter
Record net wholesale revenue of $109.3 million
Record retail revenue of $106.2 million from 37 stores

Financial Outlook

The Company reaffirms the previously provided guidance of:

Gross profit margins in excess of 50.0% in the remainder of 2021
Adjusted EBITDA² margin of at least 30.0% by the end of 2021
Revenue in the fourth quarter between $235 million and $245 million

Management Commentary

“Q3 was another outstanding quarter at Cresco Labs and a very strong start to the second half of the year. During the quarter, we replenished our balance sheet with non-dilutive capital, we closed a transformative acquisition in Massachusetts creating our third top three market share in a billion-dollar market, we announced several new deals to drive market depth, and we made massive improvements in bottom-line profitability as infrastructure investments began to bear fruit,” said Charles Bachtell, Co-Founder and CEO of Cresco Labs. “We are very proud of the record performance during a challenging quarter and continue to find that our differentiated strategy, localized for each individual state market, positions us to out-compete in both the current environment and long term. With many more growth initiatives up ahead, 2022 is set to be another record year, and we couldn’t be more excited for what’s to come as we continue driving strategic breadth, depth and execution.”

Capital Markets and M&A Activity

On August 13, 2021, the Company closed an agreement with lenders to upsize its senior secured term loan, increasing the principal amount by $200 million, and reducing the interest rate to 9.5% per annum, with a maturity date of August 12, 2026.
On August 17, 2021, the Company executed a definitive agreement to acquire 100% of the outstanding equity interests in Blair Wellness, LLC (“Blair Wellness”), a Baltimore, Maryland medical cannabis dispensary.
On September 3, 2021, the Company closed the previously announced acquisition of Cultivate Licensing LLC and BL Real Estate LLC (collectively, “Cultivate”), a vertically integrated Massachusetts operator.
On September 23, 2021, the Company executed a definitive agreement to acquire 100% of the outstanding equity interests in Bay, LLC d/b/a Cure Pennsylvania (“Cure Penn”), a Pennsylvania retail operator.
Subsequent to the quarter, on October 14, 2021, the Company executed a definitive agreement to acquire 100% of the outstanding equity interests in Laurel Harvest Labs, LLC (“Laurel Harvest”), a Pennsylvania Clinical Registrant and vertically integrated operator.

SEED – Social Equity and Education Development Program

The Company reported that its “Summer of Social Justice” initiative raised over $250,000 and supported the expungement process for over 1,000 people with cannabis related criminal records. Please click here for additional details.

Balance Sheet, Liquidity, and Other Financial Information¹

As of September 30, 2021, current assets were $449.0 million, including cash and cash equivalents of $252.8 million. The Company had working capital of $239.8 million and Senior Loan debt, net of discount and issuance costs, of $376.6 million.
Total shares outstanding on a fully converted basis were 421 million as of September 30, 2021.
Q3 results include a non-cash impairment charge of $291 million related to changes in intangible assets originally ascribed to the third-party distribution business, customers, and brands, as a result of the strategic shift in California operations.

¹Note that the quarterly review process is still underway until financial results have been filed on SEDAR and EDGAR, and accordingly final results could change. Please see “Consolidated Financial Statements” section below for more information.

²See “Non-GAAP Financial Measures” at the end of this press release for more information regarding the Company’s use of non-GAAP financial measures.

Conference Call and Webcast

The Company will host a conference call and webcast to discuss its financial results and provide investors with key business highlights on Thursday, November 11, 2021, at 8:30am Eastern Time (7:30am Central Time). The conference call may be accessed via webcast or by dialing 1-844-200-6205 (US Toll Free), 1-646-904-5544 (US Local), +1 929-526-1599 (Other) and providing access code 886856. Archived access to the webcast will be available for one year on the Cresco Labs’ investor relations website.

Consolidated Financial Statements

The financial information reported in this press release is based on unaudited management prepared financial statements for the three and nine months ended September 30, 2021. These financial statements have been prepared in accordance with U.S. GAAP. This release contains certain preliminary financial results for third quarter of 2021, including Cost of goods sold; Gross profit; Depreciation and amortization; Impairment loss; Interest expense, net; Other income (expense), net; Income tax recovery (expense); Net loss; Inventory, net; Property and equipment, net; Intangibles, net; Goodwill; and Deferred, contingent consideration and other payables, short-term. These preliminary results for the three months ended September 30, 2021 are provided prior to completion of all internal and external reviews and therefore are subject to adjustment until the filing of the Company’s quarterly financial statements, which the Company expects to file on SEDAR during the week of November 15, 2021. The review of the unaudited consolidated financial statements for the three and nine month periods ended September 30, 2021 by the Company’s auditors is currently in process. 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, 2020, prepared under International Financial Reporting Standards (“IFRS”) and 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 of this press release for more detailed information.

U.S. GAAP Financial Reporting

Beginning with the quarter ended March 31, 2021, the Company has prepared its financial statements, including all comparative figures, in compliance with U.S. GAAP instead of IFRS. Changes to comparative figures for prior periods reflect their presentation in accordance with U.S. GAAP and is not a change in the Company’s underlying performance as previously reported under IFRS.

Non-GAAP Financial Measures

EBITDA, Adjusted EBITDA, and Adjusted gross profit are non-GAAP measures and do not have standardized definitions under U.S. GAAP. The Company has provided these 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 believes 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. The Company has not quantitatively reconciled its guidance for forward-looking non-GAAP metrics to their most comparable U.S. GAAP measures because the Company does not provide specific guidance for the various reconciling items as certain items that impact these measures have not occurred, are out of the Company’s control, or cannot be reasonably predicted. Accordingly, a reconciliation to the most comparable U.S. GAAP financial metric is not available without unreasonable effort. Please note that the unavailable reconciling items could significantly impact the Company’s results.

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