Last year wasn’t a good one for Cresco Labs (OTC:CRLBF), even though it started off on the right foot. After its shares surged 71% within the first six weeks, the multi-state operator’s (MSO) stock reversed course and ended 2021 off some 32% from where it began.
Although much of the marijuana stock’s gains early on were due to the meme stock trading frenzy that gripped the market, Cresco Labs’ subsequent sell-off seems to be just as unwarranted, after traders became disillusioned about the prospects for federal marijuana legalization.
Cresco is at least starting the new year on an upswing, with shares 3.6% higher as of this writing. Let’s take a closer look at whether Cresco will skyrocket once again in 2022 — or whether it will crash like it did last year.
Acquisitions are a budding opportunity
Cresco Labs certainly has a lot working for it in its favor. In November, it closed on its acquisition of Cure Pennsylvania, which added three dispensaries to its portfolio. They then followed that up in December by adding a fourth through its acquisition of Laurel Harvest Labs, a vertically integrated medical marijuana dispensary that is licensed to open five additional locations.
The transactions further cement Cresco’s position as one of the largest vertically integrated MSOs in the country, with 45 dispensaries operating in 10 states (it opened the 45th one just last month in Sarasota, Fla.).
It’s all part of Cresco’s two-pronged strategy to grow its retail presence at the same time it expands its production and processing business. In addition to the acquisition deals, the cannabis company recently launched a five-year, $40 million expansion project in Ohio that will see cannabis production capacity triple in size.
There is a land grab underway in the marijuana industry, as other MSOs are also making acquisitions, and Cresco is broadening its footprint through both acquisitions and organic growth. It’s smartly targeting states that are primarily limited license markets, such as Pennsylvania, Ohio, and Illinois.
By doing so, it limits its competition and prevents larger MSOs from swooping in and stealing market share. It also gives Cresco a measure of pricing power. Limited license states regulate how many dispensaries are allowed to open, as well as how many stores a single company can operate.
Multipronged growth strategy
What helps set Cresco apart from many of its rivals is its leading wholesale business. Although wholesale cannabis is lower margin than retail sales, it can make up for that with volume.
Cresco not only is able sell its branded cannabis in its retail outlets, but also places it in a network of over 1,000 dispensaries nationwide, including nearly 600 in the country’s largest marijuana market, California. That should help Cresco maintain a rapidly expanding growth rate.
Wall Street certainly thinks that’s what will happen. Analysts forecast revenue will grow at a compounded rate of 33% annually, reaching nearly $2 billion by 2025, while turning from losses to profits this year and then seeing them triple.
Rocket in flight?
Investors would do well to consider the business and not the stock price since if a company is successful, its share price will likely follow over time. Analysts have set a one-year price target on Cresco Labs that sees shares surging nearly 400% to over $26 per share, suggesting that whatever misgivings the market has about the potential for marijuana legalization, this cannabis company will overcome them and skyrocket to new heights.
This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.