For followers of the American cannabis industry, 2021 has proved to be a frustrating year. After President Biden took office and the Dems wrestled control of the Senate, it was widely expected that sweeping marijuana reform at the federal level was just around the corner. The process is taking longer than anticipated, however, on Friday, a bill to federally legalize marijuana and further advance social equity in the industry was reintroduced in the House, and could see legislation activity gather steam once again.

In the meantime, the ever-expanding U.S. cannabis industry is showing no signs of slowing down. This was evident in the latest quarterly financials of one of the country’s leading MSOs (multistate operators) Cresco Labs (CRLBF).

Cresco delivered revenue of $178 million, a 168% year-over-year increase and beating the estimates by $7.02 million. Adjusted EBITDA came in at $35 million, a more than sixfold improvement on the same period last year and amounting to a 16.5% uptick from the previous quarter.

Looking ahead, Cresco anticipates the growth will continue. By the end of the year, the company expects to have an annualized revenue run rate of more than $1 billion and forecasts gross profit margins of over 50% for the rest of 2021.

The quarter also marked the company’s conversion from IFRS to GAAP reporting, a development noted by Needham’s Matt McGinley.

“With conversion from IFRS to GAAP and elimination of aggressive EBITDA adjustments, we feel much more confident in the quality of CL's reporting,” the 5-star analyst said. “That said, this conversion highlights what should have been apparent all along, in that CL is among the top MSOs by revenue, but has gross margin and EBITDA that are considerably lower than peers like Green Thumb and Trulieve.”

The company’s previous financial reporting has been a sticking point for McGinley, but the analyst thinks that investors "focused on the fundamentals" are going to be much happier going forward, claiming there is an “overwhelming appreciation for not making aggressive adjustments.”

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With the anticipated margin inflection through 2021, the analyst also likens the latest developments to ones made during the same period last year but feels “a lot better about Cresco's financials after this quarter.”

“Cresco continues to execute on its strategy of going deep in the largest cannabis markets in the US, and we expect broad growth across its portfolio in '21,” McGinley summed up.

For now, however, McGinley remains on the sidelines with a Hold rating and no fixed price target in mind. (To watch McGinley’s track record, click here)

The Needham analyst’s colleagues beg to differ. McGinley is currently the lone Cresco skeptic, and all 4 other recent reviews say Buy. The stock’s Strong Buy consensus rating is backed by a $21.77 average price target, implying one-year gains of 78%. (See Cresco Labs stock analysis on TipRanks)

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Disclaimer: The opinions expressed in this article are solely those of the featured analyst. The content is intended to be used for informational purposes only. It is very important to do your own analysis before making any investment.

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