Property Sale Should Make Cresco Stock A Buy…Eventually

Cresco Labs [stock_market_widget type="inline" template="generic" color="default" assets="CL.CN" markup="(CSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] [stock_market_widget type="inline" template="generic" color="default" assets="CRLBF" markup="(OTC: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] became the latest marijuana company to employ the sell and leaseback strategy to raise cash. The company says it will use the money to prepare for full legalization of cannabis in Illinois.

However, investors did not react well to the news. Cresco stock fell 5.6% to $5.60 per share following the announcement. This leaves many wondering how to invest in this equity. Although its prospects appear promising, investors should probably put CRLBF stock on a watch list rather than a buy list for now.

Cresco to Sell, Leaseback Two Properties

The company will sell properties in Joliet and Kankakee, Illinois to Innovative Industrial Properties [stock_market_widget type="inline" template="generic" color="default" assets="IIPR" markup="(NYSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"]. IIPR, a real estate investment trust (REIT) geared towards the marijuana industry, will purchase the properties from Cresco for $46.3 million. It will then lease the properties back to Cresco. Cresco will continue to operate the properties as a licensed facility for the cultivation and processing of cannabis. The deal will also finance improvements for the property in Kankakee.

This has become a common strategy among some American marijuana firms. Another U.S.-based cannabis company, MJardin Group [stock_market_widget type="inline" template="generic" color="default" assets="MJAR.CN" markup="(CSE: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] [stock_market_widget type="inline" template="generic" color="default" assets="MJARF" markup="(OTC: {symbol} {currency_symbol}{price} ({change_pct}))" api="yf"] employed this same strategy by selling property in Las Vegas back in July. Using this strategy has helped IIPR stock for the most part. The question is, can it ultimately help CRLBF stock as well?

Deal Prepares Cresco for Legalization

From a financial standpoint, the motivations behind the sale did not look clear. Cresco reported a net loss of $2.026 million in the previous quarter. However, the company held $61.125 million in cash at the same time. Moreover, consensus estimates for the next fiscal year forecast a profit.

In the press release, the company stated a desire to prepare for legalization in its home state of Illinois on Jan. 1. To meet the anticipated demand, they will use some of this cash to upgrade their cultivation facility and increase the number of dispensaries. The company predicts sales of marijuana products will eventually reach $2 billion to $4 billion in Illinois. They said they will carry out this expansion to build market share and increase revenue.

Despite the improved outlook, CRLBF stock remains on a roller coaster ride. The stock rose from just 81 cents per share last November to a high of $13.21 per share in April. However, since that time, Cresco stock has slid steadily. The downward trend continued after the company announced the property sale.

Watch Cresco Now, Buy It Later

Though investors may see the strategy of selling and leasing back property as a negative, it allows Cresco to raise money without a stock dilution or taking on further debt.

The continuing decline in Cresco stock makes it one investors should watch rather than buy for now. As I have stated recently, I see Cresco as a long-term winner in the American marijuana industry. However, it looks like my initial call to buy CRLBF stock may have come early as the decline continues.

Investors may see the strategy of selling and leasing back property as a negative. However, it allows Cresco to raise money without a stock dilution or taking on further debt. Moreover, analysts not only believe legalization will boost revenues by 303.6% in 2020, but they also think it will report an annual profit of 22 cents per share. Given these prospects, I believe a recovery in Cresco stock is not a question of if, but when.

0 0 votes
Article Rating

The opinions provided in this article are those of the author and do not constitute investment advice. Readers should assume that the author and/or employees of Capital 10X hold positions in the company or companies mentioned in the article. For more information, please see our Content Disclaimer.

Will Healy is a freelance business and financial writer based in the Dallas area. In addition to marijuana, energy, and mining stocks, he has also written about real estate, insurance, personal finance, and macroeconomics. In addition to Capital 10X, his articles have appeared on sites such as InvestorPlace, Yahoo! Finance, MSN Money, Kiplinger’s Personal Finance, GOBankingRates, and Seeking Alpha. Will holds a B.S. in Journalism from Texas A&M University, an M.S. in Geography from the University of North Texas, and an MBA from the University of Texas at Dallas. Phone: 416-721-8257. Address: 682 Indian Road Toronto, Ontario M6P 2C9.
Notify of
Inline Feedbacks
View all comments