Cresco Labs Announces Third Quarter 2022 Results

Company reports $210 million in revenue and continues industry leadership with branded product performance

Company took actions to improve long-term profitability and prepare for the integration of Columbia Care in 2023

CHICAGO–(BUSINESS WIRE)– Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) (FSE: 6CQ) (“Cresco Labs” or the “Company”), a vertically integrated, multi-state operator and the No. 1 producer of branded cannabis products in the industry, today released its financial results for the quarter ended September 30, 2022. All financial information presented in this release is reported in accordance with U.S. Generally Accepted Accounting Principles (“U.S. GAAP”) and in U.S. dollars, unless as otherwise indicated.

Third Quarter 2022 Financial Highlights

  • Third quarter revenue of $210 million, down 2% year-over-year. Growth in emerging markets was offset by price compression, increased verticality by retailers, and the Company’s strategic exit of 3rd party distribution in California in Q4 of 2021. Adjusted for change in the Company’s California business, non-GAAP third quarter revenue would have been up over 2% year-over-year.
  • Adjusted gross profit1 of $100 million or 47% of revenue. Third quarter adjusted EBITDA1 of $42 million, or 20% of revenue.
  • Adjusted gross margin1 and adjusted EBITDA margin1 were impacted by actions taken in the quarter to improve long-term profitability, including the closing of under-performing facilities and associated inventory adjustments, causing an approximate 340 bps drag on margins in the quarter. Normalized for these non-cash, non recurring adjustments, adjusted gross margin1 would have been 51% and adjusted EBITDA margin1 would have been 23%.
  • Wholesale revenue of $93 million, which maintained the Company’s position as the No. 1 U.S. seller of branded cannabis products in the industry with leading share positions in the flower, concentrates, and vapes categories2.
  • Maintained market leadership in Illinois, Pennsylvania, and Massachusetts2.
  • Retail revenue increased 11% year-over-year, to $118 million, or an average $2.35 million per store open for the entire quarter.
  • Generated $26 million in operating cash flow and ended the quarter with $130 million of cash on hand.
  • On November 4, 2022, Cresco Labs announced planned divestitures of Cresco and Columbia Care assets in New York, Illinois and Massachusetts to entities controlled by Sean Combs for a total purchase price of up to $185 million; closing is expected to occur concurrently with the closing of the Columbia Care acquisition around the end of the first quarter of 2023.

Management Commentary

“It’s an exciting time for the cannabis industry as we get closer to a clear inflection point. In the face of multiple industry headwinds and an unprecedented macro environment, our team did an incredible job of taking everything that the quarter had to give and maintained our industry position as the No. 1 wholesaler of branded cannabis2 and the No. 1 branded product portfolio chosen by consumers2. In the quarter, we took actions to reduce costs to position ourselves for long-term improvement. This included the closing of underperforming facilities and the sell through of related inventory. While this had a short-term negative impact on gross margin in Q3, it was the right thing to do to align our cost structure and optimize our operations ahead of closing the Columbia Care transaction and in furtherance of our commitment to improved margin growth in the coming quarters,” said Charles Bachtell, CEO and Co-Founder of Cresco Labs.

“We made significant progress toward closing the Columbia Care transaction with the signing of definitive agreements to divest assets in New York, Illinois and Massachusetts for total consideration of up to $185 million. The future is bright for our industry and Cresco Labs. We continue to see legislative and regulatory progress at the state level and we’ve never been closer to achieving federal reform on cannabis than we are today. We continue to lead these efforts in these areas as we understand the legislative process is the ultimate unlock of the potential and value for this industry and our stakeholders,” concluded Mr. Bachtell.

Balance Sheet, Liquidity, and Other Financial Information

  • As of September 30, 2022, current assets were $355 million, including cash and cash equivalents of $130 million. The Company had working capital of $85 million and senior secured term loan debt, net of discount and issuance costs, of $380 million.
  • Total shares on a fully converted basis were 437,484,245 as of September 30, 2022.

Social Equity and Education Development Program

  • Secured support of the National Black Chamber of Commerce, National Hispanic Cannabis Council, New York New Jersey Minority Development Council, NAACP of New Jersey, New York Urban League and other advocacy organizations urging for critical federal legislation that would enable banking and lending access for cannabis businesses.
  • The Sentence of Michael Thompson, a documentary produced by Cresco Labs, premiered on MSNBC and will be available on XTR’s Streaming Service DOCUMENTARY+. Through the MSNBC and DOCUMENTARY+ agreement, the film will reach over 3 million viewers nationwide.
  • This year’s “Summer of Social Justice” campaign has far surpassed last year’s impact, with the Company’s SEEDTM initiative supporting the record sealing, expungement process and restorative journey recently achieving a milestone of assisting 5,000 individuals nationwide.

Capital Markets and M&A Activity

  • On November 4, 2022, the Company announced a definitive agreement for the divestiture of Columbia Care and Cresco assets in New York, Illinois and Massachusetts for total proceeds of up to $185 million. Please click here for additional details.
  • The asset divestiture process is proceeding as planned in terms of gross proceeds and the Company is working toward final agreements on the remaining assets required to be divested in Florida, Ohio and Maryland. The Company targets closing the transaction around the end of the first quarter of 2023.
  • On September 6, 2022, the Company closed on a sale-and-leaseback transaction with Aventine Property group for its Brookville, PA facility for $45 million. Please click here for additional details.

Conference Call and Webcast

The Company will host a conference call and webcast to discuss its financial results on Tuesday, November 15, 2022, 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), 1-833-950-0062 (CDN Toll Free), 1-646-904-5544 (US Local), +1 929-526-1599 (Other) providing access code 334786. Archived access to the webcast will be available for one year on the Cresco Labs’ investor relations website.

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