Release Date: August 08, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cresco Labs Inc (CRLBF, Financial) reported $184 million in revenue for Q2 2024, with a 52% adjusted gross profit margin and a 29% adjusted EBITDA margin.
- The company achieved a 565 basis point improvement in adjusted gross profit margin year-over-year and reduced annualized adjusted SG&A spend by approximately $34 million.
- Cresco Labs Inc (CRLBF) generated $54 million in operating cash flow year-to-date, which is $32 million more than the first half of last year.
- The company maintains leading market share positions in key states like Illinois, Pennsylvania, and Massachusetts, and is gaining share in competitive markets like Florida.
- Cresco Labs Inc (CRLBF) is strategically expanding its footprint in Ohio, Pennsylvania, and Florida, with plans to open additional dispensaries and increase cultivation capacity.
Negative Points
- The cannabis industry faces ongoing pricing pressures, which could impact Cresco Labs Inc (CRLBF)'s margins.
- The start of the adult-use program in Ohio is described as a 'light start,' with rules not fully established, potentially delaying significant revenue contributions.
- The company faces challenges in the New York market due to a slow start to the legal program and competition from the illicit market.
- Cresco Labs Inc (CRLBF) anticipates a slight negative impact on margins in the second half of the year due to the initial stages of adult-use in Ohio.
- The company is cautious about capital allocation in New York, focusing on higher ROI opportunities elsewhere, which may limit growth potential in that state.
Q & A Highlights
Q: Can you provide more color on the 52% gross margin this quarter and how you think about it in the back half of the year?
A: Charles Bachtell, CEO, explained that the team actively manages the business to maintain strong gross profit margins, considering factors like state and product mix. Ohio's adult-use program is expected to drive business growth, and while there may be pricing pressure, the company anticipates maintaining around a 50% margin as they optimize their facilities.
Q: How are you viewing the New York market, particularly with the wholesale side and potential CapEx allocation?
A: Charles Bachtell, CEO, stated that while New York is expected to be a large market, the start of the legal program has been challenging. The company is focusing on other opportunities with higher ROI in the short term, but remains optimistic about New York's long-term potential.
Q: Can you give us a sense of consumer trends and product mix in the quarter?
A: Greg Butler, President, noted that consumers are looking for value across categories, including cannabis. While value formats are growing, premium products that are unique and interesting also attract consumer spending. The trend indicates a value-conscious shopper in the current economic environment.
Q: What are the key factors helping you gain market share in Florida, and how would your growth plans shift if adult-use is legalized?
A: Greg Butler, President, highlighted the success of the Sunnyside platform in attracting customers and delivering quality products. The company is prepared for both medical and potential adult-use markets, with a phased approach to increase production capacity if adult-use is legalized.
Q: What are your expectations for the rescheduling process, and do you anticipate it being completed by inauguration day?
A: Charles Bachtell, CEO, expressed optimism about the rescheduling process, noting that relevant parties are actively reviewing next steps. While the timeline is uncertain, the issue is popular and politically active, suggesting potential progress in the near future.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
