• A $2.66 billion market cap has room to grow

• Federal legalization- Not a question of if but when

• A bullish trend in CRLBF over the past year

• Impressive revenue growth

• Buy recommendations since May 2020

The market had assumed that the Biden administration with majorities in the US House of Representatives and the Senate would move swiftly towards federal marijuana legalization.

Meanwhile, in a surprise move, the White House asked staffers who disclosed past marijuana use to resign or work remotely last week. Progressive Democrats are calling the move “unfair and out-of-touch.” Others say it is hypocritical after Vice President Harris admitted she had smoked the “evil weed.”

Many analysts believe that pot stocks will be the next high-flying sector of the stock market. However, that depends on federal legalization to open up financing and payment channels. The lack of coordination between states that have legalized medical and recreational marijuana and the federal government creates legal issues for banks and financial institutions. Everything from loans to bank accounts and even holding shares in pot companies is in limbo as the market awaits the administration to push legalization forward. The White House’s recent move and pushback create another political gulf within the majority party.

Cresco Labs Inc. (CRLBF) is a Chicago-based marijuana company. Its shares have been rallying since March 2020. Meanwhile, the price action could become explosive if Washington DC establishes federal legalization. However, the administration’s recent dismissals could cause some selling in the stock. I would view any weakness in CRLBF as another buying opportunity.

A $2.66 billion market cap has room to grow

At $12.40 per share on March 25, CRLBF had a market cap of around the $2.66 billion levels. Around 1.46 million CRLBF shares change hands on an average day.

Cresco Labs and its subsidiaries manufacture and sell medical cannabis and medical cannabis products in the United States. CLBF operates twenty-two dispensaries in Illinois, Pennsylvania, Ohio, California, Nevada, Arizona, Massachusetts, and New York.

CRLBF shares have been trading on the over-the-counter market since late 2018 when they opened for trading at the $5.30 level.

Federal legalization- Not a question of if but when

While many marijuana companies and users are disappointed with the speed of federal approval, it is not a question of if the US will legalize pot but when it will happen. Decriminalization is not sufficient for many Democrats in Washington, DC. Even though the administration appears hesitant to move forward with full-scale legalization, progressive Democrats and even many moderates support the marijuana business.

As the US economy attempts to dig out of the financial cost of the global pandemic, pot is a revenue stream that is hard to resist. Federal and local taxes will fill the government’s coffers with receipts on pot sales. As business profits rise, tax revenue will grow.

Aside from raising taxes on corporations and individuals, pot and gambling are the only other emerging businesses that could add significant revenue to the federal and state governments at a time where the US is desperate for cash to fund the virus’s legacy.

A bullish trend in CRLBF over the past year

CRLBF shares fell to a low of $1.94 in mid-March 2020 as COVIDS-19’s risk-off conditions caused selling in stocks and across all asset classes. Since then, the shares reached a record high.

Source: Barchart

The chart shows that CRLBF shares rose to a new record high in early February 2021 and peaked at $17.4911. Since then, the stock corrected to the $12.40 level on March 25. The trend remains higher despite the correction.

Impressive revenue growth

After reporting a loss over the past four consecutive quarters, consensus EPS forecasts were for a two cents per share profit when the company reported Q4 2020 earnings last week on March 25. CRLBF released earnings before the stock market opened and said that revenue reached a new record.

Source: Yahoo Finance

The chart shows that the company’s revenue trend has been impressive over the past four consecutive quarters. As CRLBF earnings move into positive territory, its shares are likely to move to new highs. However, the most recent earnings report sent shares lower on March 25, but they remained above the March 5 $11.75 low.

Buy recommendations since May 2020

Cantor Fitzgerald has reiterated its overweight rating on CRLBF shares five times since May 2020, with the latest rating coming in January 2021.

Source: Yahoo Finance

Meanwhile, a survey of thirteen analysts on Yahoo Finance has an average price target of $17.74 for the shares, with forecasts ranging from $14.00 to $28.84 per share. At the $12.40 level, the shares are below the low end of the range and could offer a compelling buying opportunity.

A rising number of states are legalizing recreational marijuana. It is only a matter of time before the federal government does the same, opening financing, banking, and other channels enjoyed by mainstream businesses. Cresco Labs, Inc enjoys impressive revenue growth. As the company moves towards positive earnings, the potential for a much higher share price is rising. US federal legalization would likely provide a bullish spark.

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