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The Highlights

It was a quieter week for global equities, as investors waited for news on the debt ceiling negotiations. The MSCI World Index dropped 0.40% and the S&P 500 inched 0.33% higher. The small-cap Russell 2000 was up 0.02%, while the NASDAQ surged 2.45% on the back of NVIDIA's (NASDAQ: NVDA) strong outlook. The US cannabis-focused MSOS ETF finished the week +0.74%. Most of the gains were from Cresco (CSE: CL, OTCQX: CRLBF), which gained 12.35%, while Green Thumb (CSE: GTII, OTCQX: GTBIF) gained 4.73%. Canadian cannabis stocks were hit hard as the New Cannabis Ventures Canadian Cannabis LP Index fell 6.74% last week. Canopy Growth (NASDAQ: CGC) and Tilray (NASDAQ: TLRY) drove the decline at -20.18% and -22.82%, respectively. Cresco Reports Earnings; Merger Concerns Escalate Cresco Labs (CSE: CL, OTCQX: CRLBF) reported 1Q revenue of $194.2 million, down 3% sequentially, but above consensus of $192.4 million. It cited weakness in Illinois as the primary driver of slower sales, with the rest of the footprint experiencing growth. We have heard from several operators that Missouri moving to adult-use sales has cannibalized business from Illinois stores that are closer to the border. Adjusted EBITDA of $29.3 million was down 4% sequentially and below consensus of $32.4 million. Adjusted EBITDA margins of 15.1% slipped 200 basis points and remained on the low end of the peer group. Cresco is addressing the low margins by focusing on higher-margin areas of its footprint and controlling costs. Gross margins improved 300 basis points sequentially to 44.2% and Cresco guided to 50%+ by year-end. Investors were hoping to hear news about the proposed merger with Columbia Care (NEO: CCHW, OTCQX: CCHWF), which is supposed to close by June 30. While we did not hear specifically if there will be an extension, renegotiation, or termination, we did hear some specific concerns. It needs to sell overlapping assets and with the depressed prices across cannabis, it's been difficult to get attractive bids, especially for the Florida component. The issue is that if the prices come in lower than planned, this means less money to pay down the combined debt, which may leave an unpalatable leverage ratio. On the earnings calls, Cresco CEO Charlie Bachtell stated, "So it really does come back to these divestitures still remaining to be closed. They're a big driver of whether or not we can make the deal make sense, and we'll continue to update the public as we have more definitive information on those divestitures."