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.
“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.