Cresco Labs of Illinois (CSE : CL) and (OTCQX : CRLBF), which is based out of Chicago, is not rushing to start recreational retail cannabis in New York, but it is excited about entering the medical marijuana industry in Kentucky this next year. This was revealed by company management during Wednesday’s quarterly earnings call.
Charlie Bachtell said the Kentucky market was part of Cresco’s long-term plan. It is a strategic addition to their portfolio.
Bachtell stated that Kentucky is the first step of our next expansion phase. “We are excited about Kentucky. It’s really one of the first new states like launching a new program from scratch… in quite some time.”
Bachtell said that the Kentucky cannabis industry will take time to develop, which means that growth must be “phased”. The majority of new benefits to the market won’t appear until 2026-2027. Cresco, however, will control approximately 20 percent of all legal medical marijuana in Kentucky. This puts the company in a strong position to capture a large market share.
New York is, in contrast, less attractive, and Bachtell confirmed Cresco’s decision to wait-and see about further expansion. That’s primarily because of a required $5 million fee for any licensed medical marijuana “registered organization” – such as Cresco, which owns medical cannabis licensee Valley Agriceuticals – in order to launch recreational sales.
Cresco operates three New York medical dispensaries, and it sells marijuana in wholesale. However, the company hasn’t invested in converting to adult-use. Bachtell stated that it’s unlikely this will change, unless there is a reduction in the $5,000,000 fee. Bachtell did not answer the question of whether Cresco would be expanding to New York this year. He said that it is only “a continuous evaluation” by the MSO.
New York is still dealing with the fees. We’re therefore encouraged by the growth of the New York market. Bachtell added: “We will continue to monitor this market but still believe there are better opportunities for capital deployment.
Cresco, for example, has been very careful with its expansion plans and ongoing financials. Cresco announced that it will have a $60 million net loss for the year 2024. Despite having $141 millions in its bank account, the company is not in a position to throw money away, said President Greg Butler during the conference call.
Butler stressed that financial distress cannabis companies are still failing to pay for their bills across various markets. It’s a situation that has ripple effects on others along the supply chain. Cresco is one of them.
We just need to be careful about (accounts payable). Butler explained that “we have a number of customers who are basically borrowing because they don’t pay AR”. This caution applies to even retailers who are selling the brand well.
“We can’t extend credit,” said he. “This is one area we will be managing very carefully.”