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Cresco Labs Bolsters Leadership Team With Three Senior Promotions

David Gacom, Melissa Wagamon and Sean McAlister, who move into Regional President roles, will lead the business across the platform while strengthening the company’s geographic footprint

CHICAGO–(BUSINESS WIRE)– Cresco Labs (CSE:CL) (OTCQX:CRLBF) (“Cresco” or “the Company”), one of the largest vertically integrated multistate cannabis operators in the United States, announced today it has expanded its leadership team with the promotions of David Gacom, Melissa Wagamon and Sean McAlister to regionally focused president positions. These dynamic individuals, who bring a depth of experience in operations, marketing and sales through previous leadership roles at top CPG companies like MillerCoors, PepsiCo and The Kraft Heinz Company, will be focused on accelerating growth across the Company’s geographic footprint. As the organization continues to scale, they will be accountable for driving the Company’s strategic agenda across its nine states, delivering top-line growth and finding new ways to drive cost synergies in regional operations. In addition, these individuals will serve as the face of Cresco Labs amongst key state and local community leaders to ensure the Company is investing in what matters most to its stakeholders.

This press release features multimedia. View the full release here: https://www.businesswire.com/news/home/20200917005307/en/Cresco Labs promotes David Gacom, Melissa Wagamon and Sean McAlister to Regional President positions. (Photo: Business Wire)

Cresco Labs promotes David Gacom, Melissa Wagamon and Sean McAlister to Regional President positions. (Photo: Business Wire)

“Coming off of a record-setting second quarter of growth and seeing the massive growth potential across all of our markets, we are excited to have these exceptionally talented individuals help lead our efforts at a regional level and identify opportunities to further accelerate and diversify our growth,” said Charlie Bachtell, CEO & Co-founder of Cresco Labs. “In continuation of our stated organizational redesign developed to drive growth and scalable operations across the platform, we continue to enhance and strengthen our leadership team and put the right people, with the right experience, in the right roles to drive results and long-term value for our stakeholders. David, Melissa and Sean have the knowledge, skills and expertise to be our leaders on the ground in markets, constantly focusing on operational execution, creating efficiencies, solving the needs of our customers and launching our brands in markets the right way.”

  • David Gacom has been appointed Regional President, West Region (California and Arizona). His leadership of the California market to date resulted in 41% sequential growth in Q2 and Cresco Labs taking market share in the largest, most competitive cannabis market in the world. Mr. Gacom brings more than 20 years of experience in leadership roles across B2B and B2C channels to the Company, serving most recently as the Chief Commercial & Optimization Officer of Grecian Delight Foods after 13 years in various management positions at The Kraft Heinz Company.
  • Melissa Wagamon has been promoted from VP of Brand Marketing to Regional President, Great Lakes (Illinois and Michigan). Mrs. Wagamon previously managed the development of Cresco Labs’ wholesale brands, including Cresco, Remedi, Mindy’s, High Supply, Reserve and Good News. She joined Cresco Labs from MillerCoors where she oversaw the retail and recruitment strategy for the Coors Light brand and communications strategy as Director for the Miller Lite brand. She also worked in various marketing roles at The Kraft Heinz Company and PepsiCo and started her career in territory sales with Pfizer Inc.
  • Sean McAlister has been promoted from EVP Sales to Regional President of Sales, Emerging Markets (Massachusetts, New York, Pennsylvania, Ohio and Maryland) and National Accounts. With the Company for over four years, Mr. McAlister has led the wholesale sales organization with a proven track record of success, getting Cresco Labs’ House of Brands into over 800 dispensaries across nine states and overseeing $55M in wholesale revenue in Q2—making Cresco Labs the largest wholesaler of branded products in the cannabis industry. Mr. McAlister previously led sales for global gaming technology producer and operator, Novomatic Americas.

Greg Butler, Chief Commercial Officer at Cresco Labs, added, “These individuals were added to our leadership team based on their knowledge of the cannabis industry, their ability to bring a best-in-class CPG experience to our P&L management and proven ability to develop and lead teams. Looking ahead at our industry, we see many opportunities emerging from both a wholesale and retail perspective. Having regional leaders will not only help us ensure that we create a scalable foundation from which to capture every opportunity within our markets, but also help us drive a superior capital agenda across our footprint. They all have a history of success—both in terms of building brands, developing strategic plans and providing leadership to our teams—and they are people you generally enjoy working with.”

Effective immediately, Mrs. Wagamon and Mr. McAlister will be based in Illinois and Mr. Gacom will reside in California.

About Cresco Labs:

Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators in the U.S. Cresco is built to become the most important company in the cannabis industry by combining the most strategic geographic footprint with one of the leading distribution platforms in North America. Employing a consumer-packaged goods (“CPG”) approach to cannabis, Cresco’s house of brands is designed to meet the needs of all consumer segments and includes some of the most recognized and trusted national brands including Cresco, Remedi, High Supply, Reserve, Good News and Mindy’s Chef Led Artisanal Edibles created by James Beard Award-winning chef Mindy Segal. Sunnyside, Cresco’s national dispensary brand, is a wellness-focused retailer designed to build trust, education and convenience for both existing and new cannabis consumers. Recognizing that the cannabis industry is poised to become one of the leading job creators in the country, Cresco provides the industry’s first national comprehensive Social Equity and Educational Development (SEED) program designed to ensure that all members of society have the skills, knowledge and opportunity to work in and own businesses in the cannabis industry. Learn more about Cresco Labs at www.crescolabs.com.

Forward Looking Statements

This press release contains “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as, ‘may,’ ‘will,’ ‘should,’ ‘could,’ ‘would,’ ‘expects,’ ‘plans,’ ‘anticipates,’ ‘believes,’ ‘estimates,’ ‘projects,’ ‘predicts,’ ‘potential’ or ‘continue’ or the negative of those forms or other comparable terms. The Company’s forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including but not limited to those risks discussed under “Risk Factors” in the company’s CSE Listing Statement filed with SEDAR; and other factors, many of which are beyond the control of the Company. Readers are cautioned that the foregoing list of factors is not exhaustive. Because of these uncertainties, you should not place undue reliance on the Company’s forward-looking statements. No assurances are given as to the future trading price or trading volumes of Cresco’s shares, nor as to the Company’s financial performance in future financial periods. The Company does not intend to update any of these factors or to publicly announce the result of any revisions to any of the Company’s forward-looking statements contained herein, whether as a result of new information, any future event or otherwise. Except as otherwise indicated, this press release speaks as of the date hereof. The distribution of this press release does not imply that there has been no change in the affairs of the Company after the date hereof or create any duty or commitment to update or supplement any information provided in this press release or otherwise.

Media: 
Jason Erkes, Cresco Labs 
Chief Communications Officer 
press@crescolabs.com

Investors: 
Aaron Miles 
Vice President, Investor Relations 
investors@crescolabs.com

For general Cresco Labs inquiries: 
312-929-0993 
info@crescolabs.com

Source: Cresco Labs

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How to choose a tracking system: Scaling your cannabis company beyond compliance

Many states with legalized medical or recreational cannabis require license holders to report product movement using a chosen reporting system. The most common include Metrc, BioTrackTHC and Leaf Data Systems.

Regardless of whether a state has a mandated reporting system, licensed operators are obligated to maintain detailed records of product tracking should the state initiate an audit.

Because of this, cannabis operators look to technology for help.

While companies do not have a choice in the reporting system a state requires, they do have a choice in the software system used internally to track, manage and account for cannabis products.

An internal tracking software system must be capable of not only helping operators achieve compliance, but also operate a healthy, profitable and scalable business.

How should cannabis companies go about choosing a tracking system?

There are at least three approaches to the challenge.

Ultimately your choice will depend on factors such as an organization’s size, budget and its plans for growth and expansion.

Start small with manual tracking

Many, if not most, cannabis startups begin operation with big visions and small budgets.

So, like small-business startups in any industry, cannabis startups often begin life with an entry-level accounting package such as QuickBooks and a series of spreadsheets to manage the data that doesn’t have a home in that package.

Operating this way requires companies to collate and hand-key the required data into their state’s reporting system.

While a manual tracking system such as this can help a company meet compliance mandates, it involves a tremendous amount of duplicate data entry to maintain and does not provide insight into valuable business data such as profitability by product, materials-requirement planning, customer profitability or inventory turns.

cannabis tracking software overview

Add in a seed-to-sale application

Another approach to managing compliance is to use a software system that is often referred to as seed-to-sale.

Seed-to-sale systems are narrowly designed with one goal in mind: to aid cannabis companies in achieving compliance in product tracking.

These applications typically do not offer broader accounting functionality so here, too, companies tack on an application such as QuickBooks.

One benefit of seed-to-sale applications is that most include a level of integration with a state’s reporting software that helps minimize the burden of duplicate data entry.

While seed-to-sale systems simplify compliance, their narrow focus can hamper the ability to adapt to the changing cannabis landscape, forcing companies to track parts of the business in separate systems, or even outside the software, which limits an organization’s ability to be innovative, efficient and nimble.

Moreover, with business data broken up in separate systems, the ability to gain deep insight into the overall operation is compromised.

Scale and grow with cannabis ERP

As companies grow and plan for expansion, acquisition or venture funding, they must critically evaluate their operations, looking for efficiencies in how they manage data.

While smaller companies can get by using multiple applications to hold data for various functional areas, larger and growth-minded companies will often turn to enterprise level systems, or ERP (enterprise resource planning).

While cannabis businesses are unique, in many ways they are no different than other regulated manufacturers that must track and trace their raw materials, lots and finished goods throughout the supply chain, making ERP applications a good fit.

However, “generic” ERP applications lack the cannabis-industry specific capabilities necessary to streamline a compliant and scalable operation.

In response, a new category of enterprise resource planning is emerging: cannabis ERP.

Cannabis ERP brings together all business data, including accounting functionality, products, lots, customers, vendors, raw materials and supplies in one application.

A single source of information enables cannabis operators to adhere to the rules, regulations, and statutes of your state, while also running a successful and compliant business (not simply a compliant one).

In addition, cannabis ERP applications are designed to integrate with state reporting applications.

With cannabis ERP, companies are able to automate manual tasks – freeing resources to focus on building their brand and maintaining quality standards.

Businesses gain access to decision-making data that helps to optimize inventory holdings and understand what and who is making the company money.

By delivering broad functionality, deep insight and traceable workflows, cannabis ERP applications provide a strong foundation that appeals to investors as well – if that’s part of a company’s game plan.

Scaling beyond compliance

Regardless of the state in which a company does business, compliance with product tracking rules is simply a baseline for legal operation.

Cannabis businesses must go beyond simple compliance, functioning both efficiently and effectively, or they will soon get left behind.

The choice of tracking technology will ultimately depend on a company’s goals and budget.

While there are multiple approaches to achieving compliance, a more comprehensive approach will ultimately yield the most flexibility and scalability, providing the agility so vital in this volatile industry.

Alex Glueckler is director of sales and strategy at Phoenix-based Silverware, where he is largely focused on their cannabis offering, Silver Leaf CBC. He can be reached at alex@silverw.com.

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The Future Of Dispensaries Means Contactless Marijuana Vending Machines For Colorado And Massachusetts

CANADA-HEALTH-DRUGS-MARIJUANA

TO GO WITH AFP STORY by Deborah Jones, Canada-health-drugs-marijuana Chuck Varabioff, Director of … [+] AFP VIA GETTY IMAGES

Move over potato chips and chocolate candy bars! The future of marijuana now offers Massachusetts and Colorado contactless marijuana vending machines.

The Boston based company, anna, first debuted at Strawberry Fields Dispensary in Pueblo, Colorado. CEO and Founder of anna, Matt Frost, describes the “tricked out vending machines” in an interview with the Knowoffering edibles, flowers, and vape all without much interaction.

“There are experienced cannabis customers who don’t necessarily need that one-on-one interaction with a budtender. They know what they want before they walk in, they’re ready to go in and out. By doing this, we’re giving more time back to the people who do need hand-holding and want that education from a live person,” Frost said. “With COVID and social distancing and contactless, definitely, we have an appeal there, as well.”

A background in data analytics, Frost created the system after recognizing the long wait times and some requirements of scheduled pick-ups at dispensaries and the fear of contracting Covid-19. “It’s about getting customers through faster with less contact,” Frost told Masslive.com.Recommended For You

Using anna is quite simple. The 8 square foot machine features over 2,000 products to cater to each customer’s requirement. Each customer can preorder on the anna app or check-in and select items; each machine takes cash or debit. After making selections, anna dispenses, and customers can choose, wholly contactless, and fast. The legal age and payment require approval from dispensary workers before processing.

The future of anna machines selling non-psychoactive cannabis products in a gas stations and retail stores will happen soon. Anna is not the first vending machine to help with seamless customer interaction, Zazz Machine was introduced in 2014 to check customer IDs at a dispensary in Avon, CO.

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Anna is set to debut in Massachusetts in September. Since the legalization of retail marijuana sales in November 2018, Massachusetts dispensaries have already made around 320 million dollars. While companies are excited about the idea, is it uncertain how it will affect the recent unionizations throughout the state.

In a statement by the United Food and Commercial Workers Union (UFCW):

“The legal cannabis industry is a newly regulated market that can offer local communities jobs with strong wages and benefits that can’t be outsourced.”

As for the future of anna, Frost suggests this is only the beginning. “The partnership that we’re about to strike I have to keep under wraps for now, but [it’s] a very significant CBD distribution opportunity that we’re excited about,” in an interview with The Know

The next dispensary planned for anna vending machines is Starbuds in Aurora, Colorado, for later this year.

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California wildfires claim several marijuana farms, threatening growers with financial losses

The series of wildfires ravaging Northern California have inflicted major damage on several marijuana farms, with possibly more outdoor grow operations threatened in the region.

“There are a ton of farms that are located in the fire’s path. No one’s out of the woods yet. This is just starting,” said Keala Peterson, whose small, family-run cannabis operation, Sweet Creek Farms in Sonoma County, was damaged by the fires.

Peterson noted that many of the largest fire complexes were either not contained at all or only slightly contained by firefighters, a situation that exposes cannabis farmers to significant financial losses because the outdoor crops aren’t necessarily insured.

Peterson said Sweet Creek Farms lost about four-fifths of its marijuana crop to the fire on Wednesday but noted that firefighters were able to save part of her family compound.

“It looks like a wasteland,” she said. “Pretty much, it’s a total loss.”

Peterson said her cannabis crop isn’t insured, and she estimated her family will likely absorb about $150,000 in losses, perhaps more, if they aren’t able to salvage the unburned marijuana that has yet to fully flower.

“We’re guardedly optimistic that those (unburned marijuana plants) could come to term, but with smoke damage, if the bud has set enough, it’ll just be smoky marijuana, and nobody wants to smoke that,” Peterson said.

Still, she’s not too worried about the future of Sweet Creek because her family has a diversified income and doesn’t rely solely on cannabis.

The fires, many caused by lightning and sometimes pushed by strong winds, have burned hundreds of thousands of acres as they chewed through brushland, rural areas, canyon country and dense forest surrounding San Francisco. Fires also burned in the Sierra Nevada and Southern California wild lands.

Another Sonoma County cannabis farmer replied to a call for comment with a text message that said, “I’m evacuating. Sorry I can’t talk now.”

Santa Cruz operations threatened

To the south of San Francisco, in Santa Cruz County, longtime medical cannabis nonprofit WAMM Phytotherapies also likely lost a farm, said founder Valerie Corral. But she’s not even certain of the farm’s status because she had to evacuate Tuesday night.

“We just found out that probably everything burned” at WAMM’s farm in northern Santa Cruz County, she said, adding that a second farm, in southern Santa Cruz, was still untouched.

“It’s pretty awful here in Santa Cruz,” Corral said. “I have to be thankful that no one’s life has been lost.”

The WAMM farm was also uninsured, but Corral said she and her organization have been through worse and they’ll get back on their feet, one way or another.

Yet another series of fires in Yolo County, directly west of Sacramento, is threatening Preferred Gardens, said owner David Polley.

He said Thursday he’ll have to deal with smoke damage to at least 2,000 of his 12,000 plants, which he said might have to be destroyed.

What he’s worried about is the possibility of the winds shifting and that the fires might turn and begin heading south toward his farm.

“If this fire doesn’t get under wraps, then everything is going to go down,” Polley said. ” We’re just going to pray that doesn’t happen.”

If it does, Polley said, it could put his losses in the millions of dollars and potentially put him out of business.

But Polley, like others in the industry, remains stubbornly optimistic, and he pointed out that he’s been in the industry for 15 years.

“I’ve been through all different kinds of hell,” he said. “This is just another day.”

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Adult-use cannabis sales remain steady even as unemployment bonus ends

Though the U.S. government’s temporary lifeline to tens of millions of unemployed workers expired, sales of recreational marijuana products have proved resilient.

The $600-a-week unemployment benefit ended July 31, and Congress failed to pass an extension before leaving for its August vacation.

The weekly boost brought the disposable income of many recipients to near “normal” – in pre-pandemic terms. Without the stipend, many people might be struggling to meet basic needs, such as rent and food.

But in the two weeks since the benefits ended, sales of recreational marijuana in key markets remained stable, even posting a visible increase during the first week, according to data provided by Seattle-based Headset.

It’s difficult to assess why that would happen, according to Liz Connors, director of analytics for Headset, but “it is still very early after the expiration.”

“Consumer spending doesn’t often drastically shift overnight but, rather, gradually changes over a few months,” she said.

The case might also be made that cannabis is an “inferior” good – a product that experiences sales increases during negative economic cycles. Alcohol sales often follow this pattern.

With fewer outside-the-home entertainment options available, consumers might shift discretionary spending to activities that can be done at home, including ingesting marijuana.

Speaker of the House Nancy Pelosi called back the U.S. House of Representatives to address other issues, but some legislators are pushing to vote on a coronavirus relief package, which includes additional unemployment benefits.

Markets might also see a shift toward medical marijuana purchases, which are not subject to the same taxes as recreational, according to analysis from New York-based cannabis consultants Greenwave Advisors.

States that allow adult-use sales often see a slowing of MMJ purchases as consumers opt for the ease of not having to register with the state to obtain a medical card for purchases.

However, as household incomes shrink, that ease of access might not be enough to offset the additional cost.

Sales of medical marijuana in Colorado, for example, have increased more rapidly than adult-use sales since the beginning of 2020.

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Federal Judge Rules Portland, Maine, Cannot Prioritize Local Cannabis Businesses in Adult-Use Licensing

U.S. District Judge Nancy Torreson ruled Aug. 14 that Portland, Maine, cannot prioritize local cannabis businesses in its adult-use licensing process, according to a Bangor Daily News report.

Wellness Connection of Maine, which operates dispensaries in Portland, Brewer, South Portland and Gardiner, along with its Delaware-based investor, High Street Capital Partners, filed a civil lawsuit in U.S. District Court in June, alleging that Portland’s cannabis ordinance, which offers a residency bonus for license applicants who have lived in Maine for at least four years, is “unconstitutional” and “discriminatory” to non-local businesses.

Torreson sided with Wellness Connection in her decision, which determined that there was “sufficient threat” that Wellness Connection would be at a disadvantage when competing for adult-use dispensary licenses in Portland, Bangor Daily News reported.

Maine’s Office of Marijuana Policy announced Aug. 14 that the state’s adult-use cannabis sales can launch Oct. 9, nearly four years after Maine voters approved legalization in 2016.

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Michigan marijuana testing lab closed for alleged reporting failures

Michigan regulators shut down a marijuana testing laboratory for alleged reporting failures, dealing a setback to a program that was already stretched thin because it lacked an adequate number of labs.

The move leaves the state with only five cannabis testing labs and could cause a backup throughout the marijuana supply chain.

According to the Detroit Free Press, Michigan’s Marijuana Regulatory Agency filed a complaint against Iron Labs, based in Walled Lake, and suspended the company’s license for a number of violations, including a failure to report:

  • Cannabis that tested above the legal limit for contaminants.
  • Edibles that tested above the allowable THC limit.

The state is warning consumers to be cautious about cannabis products tested by the lab, particularly medical marijuana patients.

“Respondent lacks integrity, moral character and responsibility or means to operate or maintain a marijuana facility,” the state wrote in its complaint, according to the Free Press.

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3 Tips to Help Cannabis Dispensary Buyers Select Vendors

© Vinnie Neuberg

Oregon’s market is flooded with more cannabis than Oregonians can consume, meaning customers have more options than ever to shop for quality and value. When it comes to vendor selection in Oregon’s highly competitive market, quality will always beat quantity. 

At Oregon’s Finest (OF), our purchasing team searches out quality first and foremost, so you’ll know what is on the shelf is the best possible representation of that product. As the company’s founders always say, “The strain is only as good as the grower.” Here are three tips to help ensure your vendors are worthy of your store: 

1. Work with transparent vendors. 

OF has an extensive and rigorous transparency process to ensure our customers are consuming the best cannabis products in Oregon. Each vendor must provide samples, extensive lab tests, detailed information about their company practices and processes, and agree to allow OF’s buying team to tour their facility at any time. 

The OF process requires vendors to disclose all grow methods and nutrients used. We ask vendors to specify their extraction methods for concentrated products, including all ingredients (including flower source), solvents, sources for any added terpenes and intended uses. 

2. Work with third-party certified vendors. 

As a Clean Green Certified dispensary, OF partners with other third-party certified companies. Due to federal restrictions, the United States Department of Agriculture (USDA) organic certifications cannot apply to cannabis businesses. Many cannabis companies use these third-party certifications, such as Clean Green and Certified KIND, to help them distinguish themselves from farms with conventional methods. That said, some vendors might not be able to afford a certification, so keep an open-mind and check if their processes meet those same standards. 

3. Don’t be shy about discussing ethics. 

Consider a company’s ethics when selecting your vendors. At OF, we give preference to companies who focus on sustainable business practices by being involved in their community, having earth-friendly processes, offering employee benefits and paying a living wage. Try to find vendors who relate and align with your mission statement, and don’t be afraid to trust your gut if something feels off. 

Justin Lipchitz is the general manager for Oregon’s Finest. He started with the company just as recreational cannabis became legal in Oregon. Lipchitz began working in the cannabis industry after moving to Oregon from the East Coast, where he acquired years of knowledge in both the fine dining and retail industries.

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Cresco Labs Announces Accelerating Revenue and Increasing Operating Leverage in Record Second Quarter 2020 Results

  • Record revenue of $94.3 million, 42% growth QoQ
  • 30+% sequential revenue growth in all of the Company’s U.S. markets except Massachusetts 
  • Record adjusted EBITDA1 of $16.5 million, 419% growth QoQ
  • Reduced SG&A by $1.5 million QoQ
  • Wholesale revenue growth of 44% QoQ to $55 million and retail revenue growth of 39% QoQ to $39 million

CHICAGO–(BUSINESS WIRE)– Cresco Labs Inc. (CSE: CL) (OTCQX: CRLBF) (FSE: 6CQ) (“Cresco Labs” or the “Company”), one of the largest vertically integrated multi-state cannabis operators in the United States, today released its unaudited financial results for the second quarter ended June 30, 2020. All financial information presented in this release is in U.S. dollars, unless otherwise noted.

Management Commentary

“While Q2 continued to be about building, scaling and refining our operations in the largest and most important cannabis markets in the U.S., we are also beginning to see the fruits of our labor come to bear,” said Charles Bachtell, Co-founder and CEO of Cresco Labs. “We grew revenue in every single one of our U.S. markets sequentially by more than 30%, with the exception of Massachusetts, where adult use was halted for part of the quarter. Cresco Labs is the largest wholesaler of branded cannabis products with nearly $55 million in revenue and our Sunnyside* retail strategy is outperforming with $39 million generated from our 17 locations. We are accelerating growth and beginning to generate substantial leverage as we scale our operations and benefit from the investments we’ve made over the past 12 months.”

Second Quarter 2020 Financial Highlights 

Operating Results

  • Revenue for the second quarter of 2020 was $94.3 million, an absolute increase of nearly $28 million or a 42% increase over Q1’20 revenue. Revenue increased sequentially by more than 30% in every U.S. market, with the exception of Massachusetts. Wholesale growth was driven by product popularity in California and first harvests from expanded capacity in Illinois and Pennsylvania. Retail growth was driven by strong sequential same-store growth of 31% and two new store openings in Illinois.
  • Operational Gross Profit1 as a Percentage of Revenue was 47% in the quarter as compared to 48% in the prior quarter. Operating costs associated with the expansion of the Company’s cultivation centers in PA and IL in Q4’19 and Q1’20 were associated with Q2 products sales, impacting the Company’s cost of products sold for the quarter.
  • SG&A was $45.2million, a reduction of $1.5 million from Q1. SG&A included $5.2 million in non-core costs associated with the integration of Origin House and the termination of the Tryke transaction, $0.8 million in COVID-19 related expenses, and $6.7 million in share-based compensation. Excluding these non-core and non-cash items, SG&A would have been $32.5 million or 35% of revenue.
  • Adjusted EBITDA1was $16.5million, an increase of 419% sequentially. This was achieved while integrating Origin House during the quarter, and was driven primarily from higher revenues and increased operational gross profit in Illinois and Pennsylvania.
  • Net Loss2was $4.7 million, whichincludes unrealized gains and losses on mark-to-market instruments that fluctuate until obligations are settled, changes in fair value of biological assets, interest expense and tax expense.
  • Net Cash Used in Operating Activities was $9.9 million, compared to $40.1 million used in Q1. The improvement in cash used in operating activities was driven by increased operating leverage across the business as the Company scales.

Shares Outstanding

Total shares on a fully converted basis were 377,691,701 as of June 30, 2020.

Conference Call and Webcast

The Company will host a conference call and webcast to discuss its financial results and provide investors with key business highlights on Thursday, August 20, 2020, at 5pm Eastern Time (4pm Central Time). The conference call may be accessed via webcast or by dialing 866-688-4235 (409-216-0711 for international callers) and providing conference ID 2957578. Archived access to the webcast will be available for one year on the Cresco Labs’ investor relations website.

Consolidated Financial Statements 

The financial information reported in this news release is based on unaudited management prepared financial statements for the three months ended June 30, 2020. The Company expects to file its unaudited interim consolidated financial statements on SEDAR by August 20, 2020. Accordingly, such financial information may be subject to change. All financial information contained in this news release is qualified in its entirety with reference to such financial statements. While the Company does not expect there to be any material changes, to the extent that the financial information contained in this news release is inconsistent with the information contained in the Company’s financial statements, the financial information contained in this news release shall be deemed to be modified or superseded by the Company’s financial statements. The making of a modifying or superseding statement shall not be deemed an admission for any purposes that the modified or superseded statement, when made, constituted a misrepresentation for purposes of applicable securities laws. Further, the reader should refer to the additional disclosures in the Company’s audited financial statements for the year ended December 31, 2019, previously filed on SEDAR.

Cresco Labs references certain non-IFRS financial measures throughout this press release, which may not be comparable to similar measures presented by other issuers. Please see the “Non-IFRS Financial Measures” section at the end of this press release for more detailed information.

About Cresco Labs Inc.

Cresco Labs is one of the largest vertically-integrated multi-state cannabis operators in the United States. Cresco Labs is built to become the most important company in the cannabis industry by combining the most strategic geographic footprint with one of the leading distribution platforms in North America. Employing a consumer-packaged goods (“CPG”) approach to cannabis, Cresco Labs’ house of brands is designed to meet the needs of all consumer segments and includes some of the most recognized and trusted national brands including Cresco, Remedi and Mindy’s, a line of edibles created by James Beard Award-winning chef Mindy Segal. Sunnyside*, Cresco Labs’ national dispensary brand, is a wellness-focused retailer designed to build trust, education and convenience for both existing and new cannabis consumers. Recognizing that the cannabis industry is poised to become one of the leading job creators in the country, Cresco Labs has launched the industry’s first national comprehensive Social Equity and Educational Development (SEED) initiative designed to ensure that all members of society have the skills, knowledge and opportunity to work in and own businesses in the cannabis industry. Learn more about Cresco Labs at www.crescolabs.com.

Non-IFRS Financial Measures

Operational gross profit, EBITDA and Adjusted EBITDA are non-IFRS measures and do not have standardized definitions under IFRS. The Company has provided the non-IFRS financial measures, which are not calculated or presented in accordance with IFRS, as supplemental information and in addition to the financial measures that are calculated and presented in accordance with IFRS. These supplemental non-IFRS financial measures are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-IFRS financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. These supplemental non-IFRS financial measures should not be considered superior to, as a substitute for or as an alternative to, and should only be considered in conjunction with, the IFRS financial measures presented herein. Accordingly, the following information provides reconciliations of the supplemental non-IFRS financial measures, presented herein to the most directly comparable financial measures calculated and presented in accordance with IFRS.

Forward Looking Statements 

This press release contains “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as, ‘may,’ ‘will,’ ‘should,’ ‘could,’ ‘would,’ ‘expects,’ ‘plans,’ ‘anticipates,’ ‘believes,’ ‘estimates,’ ‘projects,’ ‘predicts,’ ‘potential’ or ‘continue’ or the negative of those forms or other comparable terms. The Company’s forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including but not limited to those risks discussed under “Risk Factors” in the Company’s Annual Information Form dated April 28, 2020, and other documents filed by the Company with Canadian securities regulatory authorities; and other factors, many of which are beyond the control of the Company. Readers are cautioned that the foregoing list of factors is not exhaustive. Because of these uncertainties, you should not place undue reliance on the Company’s forward-looking statements. No assurances are given as to the future trading price or trading volumes of Cresco Labs’ shares, nor as to the Company’s financial performance in future financial periods. The Company does not intend to update any of these factors or to publicly announce the result of any revisions to any of the Company’s forward-looking statements contained herein, whether as a result of new information, any future event or otherwise. Except as otherwise indicated, this press release speaks as of the date hereof. The distribution of this press release does not imply that there has been no change in the affairs of the Company after the date hereof or create any duty or commitment to update or supplement any information provided in this press release or otherwise.

1 See “Non-IFRS Financial Measures” at the end of this press release for more information regarding the Company’s use of non-IFRS financial measures. 
2 Net loss includes amounts attributable to noncontrolling interests.

Cresco Labs Inc.
Unaudited Financial Information and Non-IFRS Reconciliations
(All amounts expressed in thousands of U.S. Dollars)
 
Unaudited Consolidated Statements of Operations
For the Three Months Ended June 30, 2020, March 31, 2020 and June 30, 2019
 
For the Three Months Ended 
($ in thousands) 6/30/20203/31/20206/30/2019
Revenue$94,256 $66,380 $29,890 
Cost of sales – production costs (60,835) (46,200) (17,145)
Gross profit before fair value adjustments 33,421  20,180  12,745 
 
Realized changes in fair value of inventory sold (41,774) (24,584) (17,620)
Unrealized gain on changes in fair value of biological assets 77,822  38,544  29,814 
Gross profit 69,469  34,140  24,939 
GP% 73.7% 51.4% 83.4%
Expenses:
Selling, general and administrative 45,186  46,653  19,705 
Depreciation and amortization 5,358  4,619  894 
Total expenses 50,544  51,272  20,599 
 
Gain (loss) from operations 18,925  (17,132) 4,340 
 
Other (expense) income:
Interest expense, net (9,597) (8,216) (2,087)
Other (expense) income, net (740) 15,523  (621)
Income (loss) from investment in associate 24  (144) 36 
Total other expense, net (10,313) 7,163  (2,672)
Income (loss) before income taxes 8,612  (9,969) 1,668 
Income tax expense (13,312) (3,462) (5,586)
Net loss 1$(4,700)$(13,431)$(3,918)
 
1 Net loss includes amounts attributable to non-controlling interest.
Cresco Labs Inc.
Summarized Consolidated Statements of Financial Position
As of June 30, 2020 and December 31, 2019
   
June 30, 2020  December 31, 2019
($ in thousands) (Unaudited)  (Audited)
Cash and cash equivalents$70,994  $49,102
Other current assets 185,732   110,236
Property and equipment, net 175,281   155,839
Intangible assets, net 199,882   94,206
Goodwill 451,632   137,719
Other non-current assets 125,583   69,452
Total assets$1,209,104  $616,554
   
Total current liabilities 163,396   150,169
Total long-term liabilities 308,890   143,762
Total shareholders’ equity 736,818   322,623
Total liabilities and shareholders’ equity$1,209,104  $616,554
Cresco Labs Inc.
Unaudited Revenue and Gross Profit Metrics
For the Three Months Ended June 30, 2020, March 31, 2020 and June 30, 2019
For the Three Months Ended
($ in thousands) 6/30/20203/31/20206/30/2019
Revenue$94,256 $66,380 $29,890 
Cost of sales – production costs1 (60,835) (46,200) (17,145)
Realized changes in fair value of inventory sold (41,774) (24,584) (17,620)
Unrealized gain on changes in fair value of biological assets 77,822  38,544  29,814 
Gross profit$69,469 $34,140 $24,939 
Cultivation costs expensed under IAS 412 3,951  6,050  912 
Net impact of fair value of biological assets (36,048) (13,960) (12,194)
Expansion, relaunch and rebranding costs3 4,616  3,881  722 
COVID-19 related expenses 1,887     
Fair value markup for acquired inventory 331  1,889   
Operational gross profit (Non-IFRS)$44,206 $32,000 $14,379 
Operational GP% 46.9% 48.2% 48.1%
 
1 Production (cultivation, manufacturing, and processing) costs related to products sold during the period.
2 Costs would be capitalized under IAS 2 and do not reflect cost of inventory sold in the period.
Costs related to non-recurring third-party product costs, start-up costs, and samples/discounts to expand footprint and relaunch in certain markets.
Cresco Labs Inc.
Unaudited Reconciliation of Net Income to Adjusted EBITDA
For the Three Months Ended June 30, 2020, March 31, 2020 and June 30, 2019
 
For the Three Months Ended 
($ in thousands) 6/30/2020 3/31/2020 6/30/2019
Net loss1$(4,700)$(13,431)$(3,918)
Depreciation and amortization 9,626  8,368  2,075 
Interest expense, net 9,597  8,216  2,087 
Income tax expense 13,312  3,462  5,586 
Earnings before interest, taxes, depreciation
and amortization (EBITDA) (Non-IFRS)
$27,835 $6,615 $5,830 
 
Expansion, relaunch and rebranding costs2 4,616  3,881  722 
COVID-19 related expenses 2,648     
Other expense (income), net 740  (15,523) 621 
(Gain) loss from investment in associate (24) 144  (36)
Fair value markup for acquired inventory 331  1,889   
Cultivation costs expensed under IAS 413 3,951  6,050  912 
Adjustments for acquisition and other non-core costs 5,205  11,843  3,203 
Management incentive compensation (share-based) 7,207  2,235  3,210 
Adjusted EBITDA (Non-IFRS)$52,509 $17,134 $14,462 
 
Net impact of fair value of biological assets (36,048) (13,960) (12,194)
Adjusted EBITDA (non-IFRS), net of impact of biological assets$16,461 $3,174 $2,268 
 
1 Net loss includes amounts attributable to non-controlling interest.
Costs related to non-recurring third-party product costs, start-up costs, and samples/discounts to expand footprint and relaunch in certain markets.
3 Costs would be capitalized under IAS 2 and do not reflect cost of inventory sold in the period.
Cresco Labs Inc.
Unaudited Summarized Consolidated Statements of Cash Flows
For the Three Months Ended June 30, 2020, March 31, 2020 and June 30, 2019
      
 For the Three Months Ended 
($ in thousands)  6/30/2020  3/31/2020  6/30/2019
Net cash used in operating activities $(9,881)  $(40,101)  $(5,797)
Net cash provided by (used in) investing activities  14,888    (38,641)   (34,863)
Net cash (used in) provided by financing activities  (2,227)   95,020    (4,047)
Effect of foreign currency exchange rate changes on cash  (288)   946     
Net increase in cash and cash equivalents  2,492    17,224    (44,707)
Cash and cash equivalents and restricted cash, beginning of period  71,376    54,152    113,401 
Cash and cash equivalents and restricted cash, end of period $73,868   $71,376   $68,694 
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4 Tips for Maximizing Cannabinoid Distillation

Separating cannabis extracts into their component molecules is a nuanced process. Here’s how to optimize results.

Components of the refinement process can cause isomerization during distillation. To mitigate this, it’s important to refine extracts prior to distillation.

Cannabis extraction and refinement create different raw materials for formulation. They are critical processes that separate cannabis extracts into their component molecules. Cannabinoid distillation is a particularly complex stage of the extraction and refinement process that involves a nuanced interplay among component boiling points, heat and vacuum. 

Here are some tips and tricks producers can use in their distillation protocols to optimize their results. 

1. Aim for highly refined and clean material. 

Limit the number of substances that interact during the distillation process and components that can negatively affect the performance of the equipment. For example, certain fatty acids have boiling points near cannabinoids and will often polymerize, which diminishes product purity and increases system maintenance. Also, components of the refinement process (i.e., clarifying agents) can cause isomerization during distillation. To mitigate this, refine extracts prior to distillation. Refinement processes include winterization, clarification and scrubbing filtration. 

2. Fully decarboxylate and degas the material. 

A simple way to increase the throughput of the distillation process is to decarboxylate and degas the cannabis extract before distillation. Decarboxylation and degassing are the processes of converting the acid form cannabinoids to the neutral forms and removing volatiles, respectively, by applying heat and agitation. By undertaking those two processes, the vacuum operates under reduced load and more cannabinoids are distilled per unit time. 

3. Use a well-designed vacuum system. 

The atmospheric boiling points of cannabinoids are not known to any degree of certainty because these heavy molecules tend to degrade before they boil. However, by removing atmosphere, the cannabinoids can be encouraged to boil at a lower temperature. Their boiling points under vacuum (i.e., 5×10-3 Torr)—as documented by Adams et al. in 1941 and Gaoni & Mechoulam in 1964—are between 155 and 160 degrees Celsius. That’s why it’s important to have a substantial vacuum system to reduce the heat required to vaporize cannabinoids and minimize the risk of degradation. An ideal vacuum system for this application is a dual-stage rotary-vane pump designed to pull to 1×10-4 Torr with a diffusion pump to increase the depth and stability of the vacuum under load. It’s also important to correctly size the tubing and seal the connectors.

4. Maintain short heated-surface contact. 

Heat can degrade or isomerize cannabinoids. Use a system that can deliver heat to a thin layer of oil to minimize total heat exposure. Wiped film or centrifugal systems are ideal for this because the oil’s contact with heat is several seconds compared to several hours. Finally, stainless steel heating surfaces (i.e., still body or centrifugal plate) increase the efficiency of heat transfer and the throughput of the distillation process.