Cresco Labs Inc. CRLBF confirmed last week that it had closed its previously announced acquisition of Cultivate for $90 million, maximizing its Massachusetts footprint.
Transaction highlights included:
- Approximately 42,000 square feet of active flowering canopy, bringing combined canopy in-state to approximately 64,000 square feet.
- Three operational dispensaries located in Leicester, Framingham and Worcester, bringing combined retail storefronts in-state to four.
- Greater operating platform to pursue market share growth in the largest adult-use cannabis market in the northeast.
The Analyst
Cantor Fitzgerald’s Pablo Zuanic kept an “Overweight” rating on Cresco’s stock but lowered the price target to $12.65 from $13.50.
The Thesis
The analyst lowered the price target on the stock based on “sectoral derating.”
Cresco should see small single-digit growth in its core business in the third quarter due to “softness” in three states that account for more than 85% of the company’s sales at the moment, Zuanic explained in a Thursday analyst note.
However, based on the recently completed Cultivate purchase, the analyst factored around $9 million in sales for September, making third-quarter sales estimates of $223 million, just below FactSet consensus of $225 million.
“On our numbers, Cresco now trades in line with the MSO peer average on CY22 EBITDA, compared to a premium before,” mostly because consensus does not appropriately factor in recent mergers and acquisition activities, explained the analyst.
Taking into account the company’s franchise in Illinois and Pennsylvania, recent expansion and/or entry into new markets, recreational optionality in New York and other states, the company should trade at a “premium to peers,” Zuanic highlighted.
“Conservatively, we only apply a 15% premium to the MSO peer average CY22 EV/EBITDA multiple in setting our $12.65 12-month price target.”
Price Action
Cresco Labs’ shares were trading 2.80% lower at $8.68 per share at the time of writing Thursday morning.
© 2024 Benzinga.com. Benzinga does not provide investment advice. All rights reserved.
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