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The company's adjusted gross margin slid 220 bps while EBITDA margin dropped to 22% from 28.8% YoY.
CRLBF warns of a Q2 revenue dip tied to Illinois system changes despite ongoing expansion efforts.
Although Cresco Labs (CRLBF - Free Report) remains one of the leading vertically integrated multistate cannabis operators in the United States, it has been facing persistent challenges in the domestic market over the past few years.
While it continues to execute a disciplined operational strategy, sales growth remains tepid and profitability is under pressure from rising costs.
Let’s delve into the company’s fundamentals to gain a better understanding of how to play the stock amid this price decline.
CRLBF’s Cannabis Business Continues to Falter
What differentiates Cresco from its peers is that all of its revenues are generated solely from the United States. This geographic concentration exposes it more directly to the challenges of a heavily regulated domestic market.
In its first-quarter 2025 results, Cresco’s revenues declined 10% year over year to $165.8 million. Although the company claims to retain “the No. 1 share position” across multiple U.S. states, restrictive federal laws and fragmented state-level regulations continue to pose challenges to operators like Cresco.
Though Cresco managed to generate $30 million in operating cash flow, the bottom line continues to deteriorate. In Q1, adjusted gross margin was at 49.3%, down 220 basis points year over year, while adjusted EBITDA margins contracted to nearly 22%, down from 28.8% in the year-ago quarter.
Looking ahead, we expect Cresco to remain under pressure, particularly in its wholesale segment. The company has already flagged a likely revenue dip in Q2 due to the mandatory seed-to-sale system transition in Illinois. While CRLBF points to new dispensary openings and cultivation expansions as potential growth drivers, these initiatives come with increased capital and operational demands. Though debt refinancing remains a key priority, the strategy depends on sustaining strong cash flow conversion, which may prove challenging if revenue softness persists.
Stiff Competition From Other Cannabis Players
Despite operational improvements, top-line growth remains a concern. Cresco faces stiff competition from its peers — Aurora Cannabis (ACB - Free Report) , Canopy Growth (CGC - Free Report) and Tilray Brands (TLRY - Free Report) — all of which are also pursuing similar expansion and cost-optimization strategies, making the competitive landscape even tougher.
Aurora Cannabis, Canopy Growth and Tilray Brands are also venturing beyond geographic borders to diversify their revenue streams, with expanding footprints in Europe and Australia. This international exposure gives them an edge over Cresco, which remains fully dependent on an increasingly saturated and fragmented U.S. market.
CRLBF Stock Performance and Estimates
Shares of Cresco have declined 24% year to date against the industry’s 6% rise, as shown in the chart below.
Image Source: Zacks Investment Research
Loss estimates for 2026 and 2027 have widened over the past 60 days.
Image Source: Zacks Investment Research
How to Play CRLBF Stock?
While Cresco’s strong operational discipline and ability to generate free cash flow offer some support, the stock remains exposed to significant domestic headwinds. With shrinking margins, declining revenues and no international diversification, Cresco’s turnaround hinges on a broader regulatory shift in the country — something that remains uncertain in the near term. With a Zacks Rank #4 (Sell), the stock offers limited upside and elevated risk for conservative investors.
Image: Bigstock
Cannabis Stock Cresco Labs Plunges 24% YTD: Time to Sell or Hold?
Key Takeaways
Although Cresco Labs (CRLBF - Free Report) remains one of the leading vertically integrated multistate cannabis operators in the United States, it has been facing persistent challenges in the domestic market over the past few years.
While it continues to execute a disciplined operational strategy, sales growth remains tepid and profitability is under pressure from rising costs.
Let’s delve into the company’s fundamentals to gain a better understanding of how to play the stock amid this price decline.
CRLBF’s Cannabis Business Continues to Falter
What differentiates Cresco from its peers is that all of its revenues are generated solely from the United States. This geographic concentration exposes it more directly to the challenges of a heavily regulated domestic market.
In its first-quarter 2025 results, Cresco’s revenues declined 10% year over year to $165.8 million. Although the company claims to retain “the No. 1 share position” across multiple U.S. states, restrictive federal laws and fragmented state-level regulations continue to pose challenges to operators like Cresco.
Though Cresco managed to generate $30 million in operating cash flow, the bottom line continues to deteriorate. In Q1, adjusted gross margin was at 49.3%, down 220 basis points year over year, while adjusted EBITDA margins contracted to nearly 22%, down from 28.8% in the year-ago quarter.
Looking ahead, we expect Cresco to remain under pressure, particularly in its wholesale segment. The company has already flagged a likely revenue dip in Q2 due to the mandatory seed-to-sale system transition in Illinois. While CRLBF points to new dispensary openings and cultivation expansions as potential growth drivers, these initiatives come with increased capital and operational demands. Though debt refinancing remains a key priority, the strategy depends on sustaining strong cash flow conversion, which may prove challenging if revenue softness persists.
Stiff Competition From Other Cannabis Players
Despite operational improvements, top-line growth remains a concern. Cresco faces stiff competition from its peers — Aurora Cannabis (ACB - Free Report) , Canopy Growth (CGC - Free Report) and Tilray Brands (TLRY - Free Report) — all of which are also pursuing similar expansion and cost-optimization strategies, making the competitive landscape even tougher.
Aurora Cannabis, Canopy Growth and Tilray Brands are also venturing beyond geographic borders to diversify their revenue streams, with expanding footprints in Europe and Australia. This international exposure gives them an edge over Cresco, which remains fully dependent on an increasingly saturated and fragmented U.S. market.
CRLBF Stock Performance and Estimates
Shares of Cresco have declined 24% year to date against the industry’s 6% rise, as shown in the chart below.
Image Source: Zacks Investment Research
Loss estimates for 2026 and 2027 have widened over the past 60 days.
Image Source: Zacks Investment Research
How to Play CRLBF Stock?
While Cresco’s strong operational discipline and ability to generate free cash flow offer some support, the stock remains exposed to significant domestic headwinds. With shrinking margins, declining revenues and no international diversification, Cresco’s turnaround hinges on a broader regulatory shift in the country — something that remains uncertain in the near term. With a Zacks Rank #4 (Sell), the stock offers limited upside and elevated risk for conservative investors.
You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.