Despite disruptions in tourism and Covid-19 fatigue, the cannabis industry continues to hit high marks. States like Colorado are reporting strong growth and the big players in the space were delivering stellar earnings results.
As much as Colorado depends on tourism that has all but evaporated, cannabis sales have held strong. Tourism volumes have fallen by 50%, but the state reported cannabis sales of $167 million in September, a new record. Year over year sales have grown over 20% each month since May 2020. It not only demonstrates that cannabis is resilient, but also that the state has a self-sustaining market that isn't just reliant on tourism.
While New Jersey got most of the attention as a potential new recreational market this month, other states look like they are also quickly coming into play. Lawmakers from Rhode Island said there is an opportunity on the horizon for their state to legalize. In addition, the governor of Virginia said that the state will "move forward with legalizing marijuana." The states that continue to reap the benefits are causing new states to want to jump on board.
Quarterly Winners
Curaleaf (CURLF) reported a record $193.2 million in managed revenue for the third quarter of 2020 which was an increase of 164.0% versus $73.2 million in the third quarter of 2019. The managed revenue for the third quarter increased 59.2% sequentially. Pro forma revenues would be $215 million, which is also an increase of 30% sequentially. The company is enjoying a bounce back for markets in Nevada and Massachusetts where stores were closed during lockdowns. The gross margins increased by 700 basis points to roughly 50% as the company improved its operational efficiencies. EBITDA was $42 million in the quarter and is approximately 51% over the second quarter.
Green Thumb Industries (GTBIF) reported that the company's balance sheet was strong at current assets totaling $159.1 million and included cash and cash equivalents equaling $78.1 million. The company has retained a positive cash flow for the third consecutive quarter. Green Thumb's revenue increased 31.3% quarter-over-quarter, and year-over-year 131.% to $157.1 million. The company's gross margin for the third quarter of 2020 was 55.4%, an increase from a 53.2% gross margin the quarter prior. The company's adjusted operating EBITDA increased by 50% to $53.2 million, or 33.9% of revenue for the third quarter of 2020. The prior quarter ended with an adjusted EBITDA of $35.4 million, or 29.6% of revenue. As of September 30th, 2020, the company reported a total debt outstanding of $97.1 million, $0.3 million being due within 12 months. CEO Ben Kovlar was right when he described it as an excellent quarter.
Cresco Labs (CRLBF) also turned in a solid quarter with revenues increasing 63% sequentially to $153 million. The adjusted EBITA of $46 million beat estimates of $20 million and was up 182% sequentially. The company's market share in Illinois and Pennsylvania helped push its growth in revenue. Cresco also managed to keep expenses inline even as revenues were increasing. SG&A fell from 48% of revenue in the second quarter to 31%.
Trulieve (TCNNF) continues to flex its financial prowess. The company revenue grew 13% sequentially to $136 million. The EBITDA came in at $68 million, which was up 12% sequentially and 83% year over year. They also delivered a 75% gross margin. If one counts the Pennsylvania acquisitions, then Trulieve's revenues would be $155 million. Canaccord Genuity analysts described the company as "the industry gold standard when it comes to profitability."
Other solid results came from Ayr Strategies (AYRSF) with revenue up 61% sequentially to $45.5 million.
TerrAscend's (TRSSF) net sales increased 90% to $51 million in the third quarter, as compared to $26.8 million in the third quarter of 2019. Net sales increased 8% sequentially. TerrAscend also showed a great improvement in profitability. The company is now increasing its full year 2020 guidance to at least $196 million in net sales and at least $54 million of adjusted EBITDA. TerrAscend is also providing first time guidance for 2021. The company expects full year 2021 net sales of $360-$380 million and adjusted EBITDA of $140-160 million.
What's Next
Overall, 2019 was a disaster for cannabis company earnings as many of the biggest players had to log millions in losses before turning the corner to profitability. Of course, just as things began to stabilize, the global pandemic threw up another roadblock. Even though it has been a challenging road for these companies, this past quarter seemed to signal a sign of positive things to come.
"From MSOs to ancillary businesses, the cannabis industry has proven to be surprisingly resilient and adaptable to pandemic-driven market turmoil," said Brian Lauvray, head of Strategy & Development for cannabis consultants MMLG. "The past quarter's very strong numbers reflect not only this resiliency, but also a consumer demand in licensed markets that exceeded even the most bullish expectations following a 'sky is falling' moment back in March of this year."
Lauvray added, "With more and more states coming online, and with states such as New Jersey and Arizona opening licensing application windows in 2021, operators and their shareholders, should look forward to continued growth. However, those same parties should guard against unbridled and absolute enthusiasm in the short term. While we all see the "up and to the right" charts, cash remains a little tight and the burden of 280E still serves as a significant restrictor plate on the engine of the cannabis markets. Additionally, until the runoff U.S. Senate election in Georgia is determined in early January, Mitch McConnell remains Senate majority leader. Even if Democrats do take the majority in the Senate, there are no guarantees that the Biden administration will legalize."
