Cresco Labs Inc.'s (CSE:CL) Shift From Loss To Profit

With the business potentially at an important milestone, we thought we'd take a closer look at Cresco Labs Inc.'s (CSE:CL) future prospects. Cresco Labs Inc., together with its subsidiaries, cultivates, manufactures, and sells retail and medical cannabis products in the United States. The CA$905m market-cap company’s loss lessened since it announced a US$176m loss in the full financial year, compared to the latest trailing-twelve-month loss of US$155m, as it approaches breakeven. Many investors are wondering about the rate at which Cresco Labs will turn a profit, with the big question being “when will the company breakeven?” We've put together a brief outline of industry analyst expectations for the company, its year of breakeven and its implied growth rate.

Check out our latest analysis for Cresco Labs

According to the 11 industry analysts covering Cresco Labs, the consensus is that breakeven is near. They anticipate the company to incur a final loss in 2024, before generating positive profits of US$15m in 2025. So, the company is predicted to breakeven just over a year from now. What rate will the company have to grow year-on-year in order to breakeven on this date? Using a line of best fit, we calculated an average annual growth rate of 120%, which signals high confidence from analysts. If this rate turns out to be too aggressive, the company may become profitable much later than analysts predict.

Underlying developments driving Cresco Labs' growth isn’t the focus of this broad overview, though, take into account that generally a pharma company has lumpy cash flows which are contingent on the drug and stage of product development the business is in. So, a high growth rate is not out of the ordinary, particularly when a company is in a period of investment.

Before we wrap up, there’s one issue worth mentioning. Cresco Labs currently has a debt-to-equity ratio of 101%. Typically, debt shouldn’t exceed 40% of your equity, and the company has considerably exceeded this. Note that a higher debt obligation increases the risk in investing in the loss-making company.

Next Steps:

There are too many aspects of Cresco Labs to cover in one brief article, but the key fundamentals for the company can all be found in one place – Cresco Labs' company page on Simply Wall St. We've also put together a list of important factors you should further examine:

1. Valuation: What is Cresco Labs worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether Cresco Labs is currently mispriced by the market.
2. Management Team: An experienced management team on the helm increases our confidence in the business – take a look at who sits on Cresco Labs’s board and the CEO’s background.
3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.