CHICAGO--(BUSINESS WIRE)-- Cresco Labs Inc. (CSE:CL) (OTCQX:CRLBF) (“Cresco Labs” or the “Company”), a vertically integrated multistate operator and the number one wholesaler of branded cannabis products in the U.S., announced today that it will report financial results for the first quarter ended March 31st, 2021 on Thursday May 27th, 2021 before the market opens.
The Company also announced that it will, for the first time, report its financial results under accounting principles generally accepted in the United States (“U.S. GAAP”), resulting in a later reporting date than typical. This conversion from IFRS to U.S. GAAP is being made to further prepare Cresco Labs for future capital markets opportunities in the U.S. and to more closely align with reporting standards familiar to U.S. investors and stakeholders. The Company also plans to provide prior financial information recast under U.S. GAAP for the previous four quarters along with the release of its first quarter 2021 earnings.
The Company will host a conference call and webcast to discuss its financial results and provide investors with key business highlights on Thursday May 27th, 2021 at 8:30 am Eastern Time (7:30am Central Time).
Event: Cresco Labs First Quarter 2021 Earnings Conference Call Date: Thursday May 27th, 2021 Time: 8:30am EST Webcast: Link Dial-in: 1-844-200-6205 (US Toll Free), 1-646-904-5544 (US Local), 44-208-0682-558 (Int’l) Passcode: 354282
Archived access to the webcast will be available for one year on the Cresco investor relations website.
About Cresco Labs Inc.
Cresco Labs is one of the largest vertically integrated multistate cannabis operators in the United States, with a mission to normalize and professionalize the cannabis industry. Employing a consumer-packaged goods (“CPG”) approach, Cresco Labs is the largest wholesaler of branded cannabis products in the U.S. Its brands are designed to meet the needs of all consumer segments and comprised of some of the most recognized and trusted national brands including Cresco, High Supply, Mindy's Edibles, Good News, Remedi, Wonder Wellness Co. and FloraCal Farms. Sunnyside, Cresco Labs’ national dispensary brand, is a wellness-focused retailer created to build trust, education and convenience for both existing and new cannabis consumers. Recognizing that the cannabis industry is poised to become one of the leading job creators in the country, Cresco Labs operates the industry’s largest Social Equity and Educational Development initiative, SEED, which was established to ensure that all members of society have the skills, knowledge and opportunity to work and own businesses in the cannabis industry. Learn more about Cresco Labs at www.crescolabs.com.
Forward Looking Statements
This press release contains “forward-looking information” within the meaning of applicable Canadian securities legislation and may also contain statements that may constitute “forward-looking statements” within the meaning of the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking information and forward-looking statements are not representative of historical facts or information or current condition, but instead represent only the Company’s beliefs regarding future events, plans or objectives, many of which, by their nature, are inherently uncertain and outside of the Company’s control. Generally, such forward-looking information or forward-looking statements can be identified by the use of forward-looking terminology such as, ‘may,’ ‘will,’ ‘should,’ ‘could,’ ‘would,’ ‘expects,’ ‘plans,’ ‘anticipates,’ ‘believes,’ ‘estimates,’ ‘projects,’ ‘predicts,’ ‘potential’ or ‘continue’ or the negative of those forms or other comparable terms. The Company’s forward-looking statements involve known and unknown risks, uncertainties and other factors which may cause the Company’s actual results, performance or achievements to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements, including but not limited to those risks discussed under “Risk Factors” in the Company’s Annual Information Form for the year ended December 31, 2020 filed on March 26, 2021, and other documents filed by the Company with Canadian securities regulatory authorities; and other factors, many of which are beyond the control of the Company. Readers are cautioned that the foregoing list of factors is not exhaustive. Because of these uncertainties, you should not place undue reliance on the Company’s forward-looking statements. No assurances are given as to the future trading price or trading volumes of Cresco Labs’ shares, nor as to the Company’s financial performance in future financial periods. The Company does not intend to update any of these factors or to publicly announce the result of any revisions to any of the Company’s forward-looking statements contained herein, whether as a result of new information, any future event or otherwise. Except as otherwise indicated, this press release speaks as of the date hereof. The distribution of this press release does not imply that there has been no change in the affairs of the Company after the date hereof or create any duty or commitment to update or supplement any information provided in this press release or otherwise.
Seeking Alpha's transcripts team is responsible for the development of all of our transcript-related projects. We currently publish thousands of quarterly earnings calls per quarter on our site and are continuing to grow and expand our coverage. The purpose of this profile is to allow us to share with our readers new transcript-related developments. Thanks, SA Transcripts Team Q1: 2021-05-27 Earnings Summary EPS of - beats by $0.00 | Revenue of $178.44M (168.81% Y/Y) beats by $7.46M Cresco Labs Inc. (OTCQX:CRLBF) Q1 2021 Earnings Conference Call May 27, 2021 8:30 AM ET
Corporate Participants
Jake Graves - Investor Relations
Charlie Bachtell - Chief Executive Officer and Co-Founder
Dennis Olis - Chief Financial Officer
Greg Butler - Chief Commercial Officer
Conference Call Participants
Aaron Grey - Alliance Global Partners
Vivien Azer - Cowen
Camilo Lyon - BTIG
Kenric Tyghe - ATB Capital Markets
Matt McGinley - Needham
Pablo Zuanic - Cantor Fitzgerald
Michael Lavery - Piper Sandler
Andrew Partheniou - Stifel GMP
Graeme Kreindler - Eight Capital
Andrew Semple - Echelon Capital Markets
Glenn Mattson - Ladenburg Thalmann
Luke Hannan - Canaccord Genuity
Operator
Good day and welcome to Cresco Labs' First Quarter 2021 Earnings Conference Call. All participants will be in listen-only mode. [Operator Instructions] Please note this event is being recorded.
I would now like to turn the conference over to Jake Graves, Investor Relations for Cresco Labs. Please go ahead.
Jake Graves
Good morning and welcome to Cresco Labs' first quarter 2021 earnings conference call. I am joined today by our Chief Executive Officer and Co-Founder, Charlie Bachtell; our Chief Financial Officer, Dennis Olis; and our Chief Commercial Officer, Greg Butler, who will be available for Q&A.
Prior to this call, we issued our first quarter earnings press release which has been filed with SEDAR and is available on our Investor Relations website at investors.crescolabs.com. We are pleased to announce the transition to U.S. GAAP from IFRS this quarter to ensure consistency and transparency of our financial reporting and to further address Cresco Labs preparedness [indiscernible] in the U.S. capital markets.
Accordingly, we have also provided the four previous quarters [recast] [ph] under U.S. GAAP and earnings press release and we plan to file our corresponding financial statements and MD&A for the three months ended March 31, 2021 on SEDAR and EDGAR by the end of this week.
Before we begin our remarks, I would like to remind everybody that certain statements made on today’s call may contain forward-looking information within the meaning of applicable Canadian Securities Legislation as well as within the meaning of the Safe Harbor provisions of the United States Private Securities Litigation Reform Act of 1995. Such forward-looking statements may include estimates, projections, goals, forecasts or assumptions that are based on current expectations and are not representative of historical facts or information.
Such forward-looking statements represent the company's beliefs regarding future events, plans or objectives, which are inherently uncertain and are subject to a number of risks and uncertainties that may cause our actual results or performance to differ materially from such forward-looking statements, including economic conditions and changes in applicable regulations.
Additional information regarding the material factors and assumptions forming the basis for our forward-looking statements and risk factors can be found under Risk Factors in Cresco Labs' publicly available filings at sedar.com and sec.gov. Cresco Labs does not undertake any duty to publicly announce the result of any revisions to any of its forward-looking statements or to update or supplement any information provided on today’s call.
Please note, that all financial information on today’s call is presented in U.S. dollars and all references to GAAP are related to U.S. GAAP unless otherwise noted and all interim financial information is unaudited.
In addition, during today’s conference call, Cresco Labs will refer to certain non-GAAP financial measures such as adjusted EBITDA which do not have any standardized meaning prescribed by GAAP. We believe these non-GAAP financial measures assist management and investors in understanding and analyzing our business trends and performance.
Please refer to our earnings press release for the calculation of these measures and a reconciliation to the most directly comparable measures calculated and presented in accordance with GAAP. These non-GAAP financial measures should not be considered superior to, as a substitute for or as an alternative to and should only be considered in conjunction with the GAAP financial measures presented in our financial statements.
With that, I will turn the call over to CEO, Charlie Bachtell. Charlie, please go ahead.
Charlie Bachtell
Good morning, everyone and thank you all for joining us today.
I'll begin with a few highlights from the first quarter and discuss our year-to-date progress on the three specific ways Cresco Labs is delivering growth and shareholder value in 2021. After that, Dennis will provide additional details from our financial results, highlighting the changes related to our transition to GAAP this quarter, and discuss our strong capital position as we approach the midpoint of 2021. After that, we look forward to taking your questions.
At this time last year, the world looked and felt a lot differently than it does today. Reflecting back on May of 2020 it's amazing to think that today a third of the U.S. is now fully vaccinated, travel restrictions are being lifted and Wrigley Field is back to 60% capacity.
For the cannabis industry, the change we've witnessed year-over-year has been extraordinary, with nine new states passing medical or adult-use laws over the last 12 months and a growing excitement about cannabis’ total addressable market.
For Cresco Labs, I'm proud to say that the last year has been transformational. We've operationalized multiple organic growth projects and are nearing completion on several new ones. We've announced and closed acquisitions in strategic markets, and we have significantly expanded the presence of our brands across the country. Today as an organization, we're in a similar phase of the growth cycle that we were in at this time last year. And what we achieved in 2020 is a sign of what's to come.
On the call this morning, we'll cover all of the details in the first quarter, discussing the transition to GAAP and the removal of previously broken out one-time costs to provide an apples-to-apples comparison to prior quarters. Before we dig into the quarter, which always remained a constant part of the Cresco Labs story is having a clear and focused strategy of building the most strategic geographic footprint, obtaining material positions in each state and emphasizing the middle two verticals of the value chain.
By adapting a traditional CPG approach to cannabis, we've demonstrated our ability to reach and sustain the number one market share positions in two of the top five states. And in 2021, we're gearing up to repeat the success in more markets. To achieve this level of success in the largest and most lucrative markets, you have to lay the foundation for growth. And just as we proven before the fruits of that labor will come.
In Q1 under GAAP, we delivered $178 million of revenue $87 million of gross profit, $35 million of adjusted EBITDA and $13 million of positive operating cash flow. We achieved these results primarily from our existing assets, while making material investments in the business that have set us up to deliver consecutive quarters of substantial growth throughout the remainder of 2021 in years to come. While I'm very proud of our performance in Q1 as previously mentioned, this quarter was about building, staffing and refining our operations across our footprint. On our Q4 call in March, we laid out three specific ways Cresco Labs will deliver growth and shareholder value in 2021. Our hope is that this framework provides a simple and straightforward view into our company's progress throughout the year.
Number one, we're accelerating growth through organic investments and M&A in the most strategic markets. Last month, we officially entered Florida, our 10th state and another top five market that rewards execution with unmatched profitability. We now operate in all seven of our country's 10 most populated states that have cannabis programs. By dedicating our resources to this strategic footprint, we're doing so with the ultimate goal of achieving a top three share position in each market. We have solidified our top positions in Illinois and Pennsylvania. And we're putting the pieces in place that add at least two more markets to that list in 2021 with Massachusetts and Ohio.
In Massachusetts, we have two initiatives that will help us achieve our market share goal. First, we're nearing completion on the expansion of a Fall River cultivation facility, which will drive significant organic growth and operating leverage starting in the second half of the year. Second, with the expected closing of the cultivate acquisition in Q4, we'll operate the maximum number of dispensaries, the maximum amount of canopy and vault into a top three share position by year-end, making it the third billion dollar plus market where we will achieve this top three status.
In Ohio, we also have two initiatives to achieve our market goal. First, we closed the acquisition of Verdant halfway through Q1, adding four retail stores to our operations. Second, our teams are working now to complete the build out of extraction and manufacturing capabilities to bring our entire house of branded products and forms to a state where to date, we've only produced and sold flower. Once again with the maximum number of retail stores, the maximum amount of canopy and already more than 80% penetration, Cresco Labs will be well positioned to achieve another top three market share.
Closing on the Bluma transaction in April represents our entrance into Florida, the third most populated state in the U.S. and another strategic acquisition that is true to our strategy. We've talked about the many distinct advantages the combined company has in Florida. And those have only become more evident as we've begun integration with the existing team.
Success in Florida's forced vertical regulatory structure is dependent on an operator's ability to execute in all aspects of the value chain from building cultivation capacity through servicing the retail customer and that success is rewarded with profitability margins higher than in any other market.
To grow our share over the coming 12 months, we will significantly increase cultivation capacity, introduce new form factors like edibles, aim to at least double the current store count and continue our track record of operational execution.
Looking further ahead, construction of our cultivation facility in Michigan is nearing completion as we set our sights on operating a robust statewide wholesale platform in 2022. As a company, we thrive in highly competitive markets with large populations and lots of retail doors. Michigan's adult-use market offers us an abundance of opportunity as we increase our wholesale strength in the Midwest.
Consistent with our strategy, we've made substantial progress year-to-date investing in markets that matter and we continue to find that the most opportunity lies within our strategic geographic footprint. Number two, we're increasing our leadership as the number one wholesaler of branded products in cannabis. Cresco Labs first quarter net wholesale revenue was $96 million by far the most in the industry. During the quarter, we increase wholesale penetration as our brands reached a record 957 retail stores around the country.
According to BDS and state data for Q1 in Illinois, we maintained the number one market share position, distributed to 100% of stores, had the best selling brand overall, and the top two best selling flower brands in the state with Cresco and High Supply. According to Headset data for Q1 in Pennsylvania, we maintained our number one market share position at 100% wholesale penetration and Cresco was the number one best selling brand overall.
In California, while state sales grew 2% in Q1, Cresco Labs California revenue grew 10%, marking our fifth consecutive quarter of taking share in the largest most competitive cannabis market in the world. Top selling flower brands like Floracal have opened doors for the whole portfolio and our other own brands are resonating with California consumers.
According to Q1 BDS data, our combined portfolio of owned flower brands ranked sixth in the state. Owned brand sales and vape increased 69% sequentially in Q1 and Cresco is now the eighth most popular live resin brand in the state. While our California distribution business may present a lower margin profile than our other more vertical operations. It provides us an enormous offline opportunity, rich consumer insights and is paving the way for more successful brand launches and innovation in our portfolio. California is the largest most competitive cannabis market in the world and must be a part of any strategy that seeks long-term industry leadership.
Across our footprint, we continue to focus our brand strategy on both the distinct needs of the current consumer and the needs of future adopters. Here are two recent examples of success in these categories. First, at the recent 2021 Emerald cup in California, what is often considered our industry's version of the Academy Awards, our Cresco and Floracal brands took home prizes in the indoor flower, live resin, and hydrocarbon extraction categories. The quality of our products ranked among the very top in the country, as these results demonstrate validation from the experienced knowledgeable high volume consumer base.
Second, we're addressing the needs of wellness minded consumers and the “Canna-curious’ new entrants. In Q1, we launched wonder gummies and wonder mints to increase our share in low dose effects based edibles. The response from consumers is fantastic, the velocity and reorders are incredibly strong and we're excited to bring this new brand across our footprint.
We continue to show proficiency in the spectrum of consumer needs and our house of brands is delivering on quality, consistency and availability. Strong wholesale capabilities and execution are the key for long-term success in the cannabis industry. And no company has proven these capabilities more than Cresco Labs.
We're very proud to deliver the most revenue from wholesale among operators in cannabis. But even more important is actually having the teams in place and the experience as an organization of executing wholesale operations in multiple competitive markets. I can't express how proud we are of what our teams have accomplished over the last year.
Our cultivation and manufacturing teams produce premium craft quality flower and derivative products at immense scale. Our analytics and data science teams synthesize information at every point in the supply chain, driving a new level of planning and operating efficiency.
Our sales teams focus on maximizing customer lifetime value with both multi-state retailers and independent operators. And our brand marketing teams lead the industry in the innovative portfolio-based approach to building brand loyalty and trust. As we progress through the year, we will continue to distinguish ourselves as the number one wholesaler of branded products in cannabis to create near-term growth and long-term success.
Number three, we're operating high volume strategic retail stores. Q1 retail revenue was $83 million from 24 contributing stores, driven by both increasing same-store sales as well as new stores. Same-store sales grew 9% sequentially from the 19 stores opened during the entirety of Q4 and 60% year-over-year for the 15 stores opened in Q1 of 2020.
Average quarterly revenue per store increased to $3.8 million for the 20 stores opened during all of Q1, the highest among top MSOs. Behind the bright and welcoming façade, our Sunnyside platform is driven by precision assortment models, deliberate category management, selected promotional practices and a dedicated operations team that continues to set the bar for cannabis retail.
In Illinois, despite nine new stores opening around the state during the quarter, our Sunnyside stores held our Illinois retail market share and increasing the gap through our pro rata share. In Pennsylvania, our stores averaged more than 50% higher quarterly revenue than the pro rata share. And in Ohio, the Verdant stores combined for 11% sequential growth Q1 over Q4. We've proven our ability to open in the best locations, secured breadth of products on our shelves and deliver an excellent consumer experience while also maximizing throughput. While we're very pleased with our retail performance in Q1, there's even more to look forward to this year as we add stores in Florida and Massachusetts make enhancements to Illinois locations and open new retail in Pennsylvania.
In summary, we're accelerating growth through organic investments and M&A in the most strategic markets. We're increasing our leadership as the number one wholesaler of branded products in cannabis. And we're generating outsized growth from new and existing retail stores.
As I said at the beginning, in order to execute all of these growth initiatives that are still ahead of us in [Audio Gap] and now our expertise with integrating new assets and producing operating leverage will kick in. We remain dedicated to our thesis and the steps we've taken so far this year that put us on a path to continue growing revenue, profitability and shareholder value in 2021 and thereafter.
I'll now pass the call to Dennis to provide detail on our financial results and to discuss our capital position.
Dennis Olis
Thank you, Charlie, and good morning, everyone.
Before digging into the numbers, we're pleased to make the conversion to U.S. GAAP this quarter and to continue preparing for the company for future capital opportunities in the U.S. All of us here today believe that federal regulatory change on cannabis is only a matter of time and I can tell you Cresco Labs is now structurally prepared to take advantage of what awaits us in the U.S. markets.
With the long game in mind, we're taking the opportunity at the outset of the year to transition to GAAP. The move to breakout of [indiscernible] and provide you with clarity on the transition.
For the purpose of comparing Q1 on an apples-to-apples basis to prior quarters in the prior year, we provided a table in our earnings press release showing our operating results for the four quarters of 2020 recapped under U.S. GAAP. All numbers and comparisons, I reference today will be in U.S. GAAP and U.S. dollars unless otherwise specified.
Turning to the numbers. Revenue in the first quarter was $178.4 million up 10% quarter-over-quarter and 159% year-over-year. In Q1, we consolidated 40 retail stores through the Verdant acquisition in Ohio halfway through the quarter on February 16. We're happy with the top-line performance this quarter on the underlying business especially given that our focus in Q4 and Q1 was deliberately on building, staffing and refining operations for our next phase of growth.
Revenue mix in the first quarter was 54% wholesale and 46% of retail. We're proud to say that $96 million of wholesale revenue, we were made the number one wholesaler of branded products and cannabis. Despite unexpectedly slow [indiscernible] retail openings in January and February, the seven store openings in the back half of March and 11 openings in April provided strong growth opportunities for our Illinois wholesale business and positive momentum for Q2.
On the retail side, while the same-store sales growing 9% sequentially then $3.8 million of average revenue per store in Q1, [indiscernible] continues to be the most productive per store retail platform among top MSOs. We also closed on the Bluma transaction on April 14, and look forward to reporting as a combined company starting in Q2.
Gross profit in Q1 was $87 million, or 49% of revenue compared to 46% in Q4, again, a reminder that all of these comparisons to prior quarters are apples-to-apples under GAAP.
We expect gross margin to be above 50% in the subsequent three quarters of this year as we reach [indiscernible] like Florida, Massachusetts and Ohio.
Similar to the cadence we saw in 2020 expansion costs are being absorbed in advance of revenue as we increased production capacity and infrastructure to support it. In Q1, we had $600,000 in tax charges for the fair value market of the inventory acquired from Verdant. In Q2, we expected this will be a larger line item as we consolidate Bluma into our results.
First quarter SG&A expense excluding share-based compensation and one time items was $58 million, or 32% of revenue. You can see on a GAAP basis from Q1 to Q3 last year, we held SG&A expense flat while revenue grew 131%. Then from Q3 to Q4, costs outpaced revenue for the period as we began to ramp operations for 2021 growth.
In the second half of this year, we'll expect to see revenues significantly outpace expenses once again. Adjusted EBITDA for the first quarter was $35 million, a 17% increase from Q4 under GAAP. We've invested heavily in both CapEx and OpEx to build the operating platform and capacity that will drive our next leg of growth.
Looking ahead, we expect substantial growth of EBITDA margins as previously announced expansion projects bring supply to market and we integrate creative acquisitions like Bluma and Cultivate.
First quarter net CapEx was approximately $16 million. As a reminder, the expansion projects in Massachusetts, Ohio and Michigan are already funded from sale leaseback transactions, that the cost of such lease is already reflected in our P&L. As we aim to go deeper in more states like Florida and New York, we'll keep you apprised of our expansion plans as we get closer to deploying capital.
There's an abundance of high ROI opportunities within our footprint and we will continue to keep our foot on the gas as we aim for tax free share positions in each of our 10 markets. We exited Q1 with $256 million in cash on the balance sheet, putting us in a strong position to pursue both organic opportunities and additional accretive M&A to generate shareholder value.
To summarize the impact on the bottom-line going from Q4 under IFRS to Q1 under GAAP, we have approximately $3 million of additional [cgos] [ph] in SG&A related to the new treatment of leases and $13 million of relaunched rebranding COVID and other costs that were no longer breaking out. The conversion from IFRS also impacts on cultivation costs or expense for facilities not yet at full utilization.
Until a facility is producing at full capacity, we take a charge to the P&L rather than burden the inventory with additional fixed costs. This creates some variability in [cgos] [ph] leading up to full utilization of facilities. All that said, on an apples-to-apples basis adjusted EBITDA grew sequential in Q1 and the fundamentals of our business will continue improving over the coming quarters.
Our efforts during Q1 has set the stage for soft strong growth in the remainder of 2021 and beyond. To give you a sense of our internal projections, we expect that by the end of the year Cresco Labs annualized revenue will be at a run rate of more than $1 billion with gross profit margins north of 50% and an adjusted EBITDA margin of at least 30%.
We have a valuable footprint with a diverse set of growth initiatives already underway, and we're laser focused on gaining meaningful share in each of our 10 states. We look forward to updating you on our progress.
Thank you for your time today. And now, I'll hand the call back to Charlie for a few final remarks.
Charlie Bachtell
Thanks, Dennis.
To close, we're incredibly encouraged by the developments being made on cannabis within the states and at the federal level. As I've said many times before, this industry has been built on incremental steps that at one time may have seemed insignificant but later turned out to be pivotal moments of progress. Cresco Labs continues to play the leading role in the education and advocation of a normalized and professionalized cannabis industry. And we've built our organization to succeed today and as the industry inevitably evolved in the U.S. We embrace the challenges of an ever changing landscape and this eventual $100 billion plus industry. We're playing the long game and we're building this company to win.
We have arguably the most valuable footprint in cannabis. We've demonstrably established leading positions in multiple billion dollar plus markets and have laid the foundation to achieve more top three market shares over the quarters to come. With a diverse set of growth initiatives already underway that are yet to contribute to the P&L. We're very bullish on the future.
2021 is going to be an exciting year for Cresco Labs and the industry and I very much look forward to speaking to you again on our Q2 call. Thank you for your time today. I'll now ask the operator to open the line for questions.
Question-and-Answer Session
Operator
[Operator Instructions] Our first question comes from Scott Fortune of ROTH Capital Partners. Apologies. We have lost Scott. So I will move on to our next question from Aaron Grey of Alliance Global Partners.
Aaron Grey
So first one for me. Mostly wanted to talk about the EBITDA margin rights, you guys provided some guidance, for the end of the year, thanks for giving some guidance on that. So 30%, just want to think about, as we kind of look forward in the business, how do you think about, the potential margin that you can get through as we look to 2022 and beyond, especially as you think about maybe going into deeper into markets, and also investing back into the business. Do you think there's a lot of opportunity beyond that 30%? Or are you guys playing more of a top-line game right now and if you want to get to [30%] [ph] but then beyond that you want to focus on maybe investing more back into the business beyond just trying to get a profitability as much as possible. So any kind of guidance on that would be helpful. Thanks.
Charlie Bachtell
Aaron, thanks for the question. This is Charlie, I'll start and then kick to Dennis. We're excited about the outlook, right, and we're putting the pieces in place to really develop that scale and depth in the footprint that we've created, right. You know our story, our story is pretty solidly focused on creating that most strategic geographic footprint possible, and then getting that meaningful material position in those states. And what we've seen so far is that when we can create that meaningful material position in our state, the margin profiles are pretty phenomenal. So in mid last year, to really prepare for 2021 was create depth in most states like Massachusetts, Michigan, Ohio, the acquisition in Florida and the steps that we're taking there to really ramp up through the rest of this year and into '22. They do create excitement for us in margin profiles will look like exiting the year and going into '22. But I think it's a valid question about from there, where does it go, we do like to invest back into the business, this footprint that we've created, it's very valuable. And we know that the long-term value is like creating scale in these states that really matter. Dennis?
Dennis Olis
Yes, thanks Aaron. Again, as we kind of laid out in the press release and the script, our results in EBITDA margins will continue to grow through the course of the year. The scale that Charlie talked about a lot of that comes up in the second half of the year. And we'll get the scale going into the Q4 and beyond. So there is opportunity to grow. Furthermore, if you look at our SG&A expenses and how we're investing there, we're investing to -- for a billion plus dollar company and we're making those investments now. And we'll reap the benefits of those in the second half of the year and certainly into 2022 and we expect to get further leverage from those investments as well.
Aaron Grey
Okay, great. Thanks for that color. And then, second question for me, is on Florida, congrats on closing that. Just wanted to give an incremental color maybe in terms of quantifying some of the cultivation expansion initiatives and then timing that you have in the state. And then, I believe Bluma had previously, mentioned plans for four additional your store openings in 2021. Charlie, I think you mentioned earlier, you want to double that within the next 12 months. So to even clarify, if we still have plans for maybe a doubling within the next 12 months for four those to be within a calendar year 2021? Thanks.
Charlie Bachtell
Yes, great question. And we're incredibly excited about that Florida market, as we explained in the prepared remarks, it's a very unique structure down there and it rewards execution and it rewards execution with their unique profit margins. So the way that we're approaching it as we knew coming and now [branded] [ph], we're about a month in to the post closing integration. So plans are still in development. But we wanted to take a fast hit the ground running approach to some incremental growth strategies while we continue to finalize what the larger scale build out will look like. But it's a meaningful state. We want to have just like we do in all of our state, the top three position down there, we're going to invest the next day to create that outcome.
Operator
Our next question comes from Vivien Azer of Cowen.
Vivien Azer
So to piggyback on Aaron's question, as we think about the guidance and thank you for that. When you characterize your billion dollar revenue run rate aspiration as well as the 30% adjusted EBITDA margin, are we meant to understand that is as a fourth quarter runway, or is that something that you hope to hit kind of in December, but perhaps, the blended margin or revenue numbers in the fourth quarter might be shy of that expectation?
Charlie Bachtell
Thanks Vivien for the question and it's a good question, just for clarification, the Q4 outcome for us that we're speaking to, there's a high competence factor there. We have the pieces to achieve it. So we're really excited about not only what the second half of this year looks like for us, but the acceleration that we have going into '22 also.
Vivien Azer
Perfect. Thanks for that. And then, Aaron and I were clearly like minded in our questions, because my follow up is also on Florida. But differently in evaluating your weekly, Bluma's weekly market share recognizing a lot of this was, not while the business was under your control, it does look like there's a fair amount of momentum in concentrates just in terms of kind of the growth concentrates, obviously, picking up a fair amount of share per capita wise in Florida. So can you just talk about kind of your capabilities there? And what if any enhancements you'd like to make to deepen your penetration in concentrates?
Charlie Bachtell
Yes, certainly. I think I'll start this and then I might ask Greg to provide some comments too, because I think really the -- what we've seen with Bluma so far is without question, best in class execution when it comes to quality flower and really high-end or [indiscernible] concentrates, the live resin as they're creating down there, I think is best in class for an industry, not just Florida. So they really created that platform already. And what we're looking forward to doing as we ramp up expansions and not only on cultivation and production side, but also with retailer needs, the omni-channel approach to getting consumers their products is broadening the breadth of the offerings down there.
As we mentioned in the prepared remarks, getting edibles into that marketplace as soon as possible and the other concentrate forms that we excel at with the live resin, etc. onto that platform as soon as we can, while we build out a broader offering set. And Greg?
Greg Butler
One of the things in the Florida market is just like every market, patients are looking for variety. And one of the benefits we have in our house of brands, we have lots of brands that service lots of different consumer needs. And so even though you're in the forest, vertical nature of the state, we believe that we can create stores that have one of the most robust offerings of different brands and different forms by leveraging what we've done in other states and taking into our stores in that state, which we think in addition to store growth that we're planning to achieve in Florida. We will also drive back to growth by having one of the most competitive assortments in the state.
Operator
Our next question comes from Camilo Lyon of BTIG.
Camilo Lyon
And congrats on the top on momentum, it's really nice to see. Just keeping with the theme here on Florida. Charlie, I’m just curious if you could just articulate a little bit in greater detail around your capacity -- your cultivation capacity and what that supports from stores perspective today. And how, what the timeline is on your expectation of expanding that capacity, that cultivation capacity around supplying a much larger store base? And then, I have a follow up please.
Charlie Bachtell
Yes, absolutely. So, again, good question. Florida, we want to be as we laid out over the last couple of years very strategic in the way that we approach the state and that doesn't change as we now find ourselves to be an operator within Florida. So, again, incrementally the guidance so far with regard to additional store openings will be supported by production capacity plans that are already underway. So I can tell you the cement pads already been poured for the expansion that will be able to service the store account that's roughly double of what it is. And we'll start to see that as we get towards the end of this year here, that actually reaches store shelves. But the larger scale expansion project is something that'll be relevant for 2022 and it's still on development.
Again, Bluma historically has been a really good job of managing number of stores, to production availability. And that won't change with us. I think we talked about in the prepared remarks, with 3.8 million for store in a quarter, we like to have high volume, very efficient, very effective retail outlets. And that's something that'll continue on as we implement the broader plan in Florida. But the broader plan is 2022 and beyond the incremental steps will be seen second half of '21.
Camilo Lyon
Great, that's helpful. Thank you. And then, my follow up is on New York. I think you touched on it briefly in the prepared remarks, I’m just curious how you're thinking about CapEx allocation. I don't believe you have cultivation in the state but in preparation for adult-use turning on. How do you think about the timeline there for your CapEx investment in preparation for that switch?
Charlie Bachtell
Definitely we see CapEx investment begin this year, we were thrilled that the development in New York and adult-use market you're probably looking at the second largest cannabis market in the world behind California. So we're going to make sure that we're prepared to create that top three position that we're going to achieve in every state. But there's also still a lot of work to chop on what the structure of -- in the details of that program look like.
So as we're going to move forward with plans this year, it's also very important that we receive that guidance and sort of how that's going to look and feel so we can develop the structure accordingly. Very excited about New York overall.
Camilo Lyon
Great. And on that point, is there -- can you tell us where you're at on cultivation or even land in that process? Are you at a point where at secured land and waiting for guidance on how much you can build out? Where are you in the phasing of just that very large project that can be very time consuming?
Charlie Bachtell
Yes, optionality is there for us. Again, there's no geographic restrictions really in New York. You basically have the whole state that's available to you. So there's a couple of options that we're looking at, that we would have the ability to move forward on immediately. But again, guidance is important. You want to make sure that you build that out correctly. And as we've proven before, we're pretty good at getting buildings built and operationalized and products on shelves.
Operator
Our next question comes from Kenric Tyghe of ATB Capital Markets.
Kenric Tyghe
Charlie, with respect to your top three sort of target, I'd like to better understand or how do you think about defending your most in the life of Pennsylvania, what supports your conviction, what differentiates your offering to tick in the context of, the slew of transactions that are either recently announced, close or closing from everybody from -- Verdant truly Columbia [indiscernible]. Can you just help us better understand your sort of thinking around your moat in Pennsylvania as one example. And as some other markets, where you are already number one or two player, that would be great.
Charlie Bachtell
Yes, Kenric. Thanks for the question. Look, Pennsylvania is receiving a lot of attention, because it's an incredibly attractive market. And we've known that for a while, we do appreciate, enjoy our number one market share there. And we have no designs of giving up the position. And again, while number one is great and top three is the goal in every state that we're in. So we just want to make sure that we are in a driver's seat position in all of our markets. So, we don't really look at that many of our states as moat or having moats or unique advantages in them. We approach all of our markets, like we have to be a better competitor than our peer set. So we're going to make sure that we have the capacity available to meet the growing and very strong demand from the consumer base in the state. We're going to make sure that we produce the quality of products that the consumer wants.
And then, we're also going to make sure that we manage our footprint, both not on just the cultivation side, but on the retail side with -- to make sure that we maintain our position in that state. And then, Greg also had some comments on it.
Greg Butler
Just to build on that, we believe that the strength of our brands or products, our wholesale business does gives advantage. And even in state today, where you have a lot of our competitors only retail, we have 100% distribution state, which means if you have a good product that we believe patients consumers line, we will get it on shelves.
Kenric Tyghe
That’s fair. Thanks gents. And just one other quick one, just switching gears to Illinois. Can you just refresh us on the new license expectations? I think certainly people looking for kind of June, July, any additional color on that and how you think about that sort of impacting not only your sort of shelter in wholesale, but just broader market dynamics, if those 75 licenses are finally issued here in the third quarter.
Charlie Bachtell
Yes. So we're very excited for the expansion of the dispensary licenses here in Illinois. And now it's not just the 75. It's the 75. It's another 110 and then another 35. I hate to comment on legislation before pen is to paper on it. But we had success in the house here over the past couple of days in the Senate, and the support from the governor was issued yesterday. So we're looking to have that legislation that'll provide the path forward for that completed here in relatively short basis. And it's terrific, it's needless to say, with our wholesale focus, a lot of growth opportunities is presented there with the expansion of doors in Illinois. So for us, very exciting. There's some other components that billed to which are really important, which is the ability to move dispensary locations, there's other components that are great that will continue to drive growth in this Illinois market, where again, we are number one market share and here we do have a unique advantage with those three cultivation licenses. So we'll be able to have that capacity to be able to service the demand in the state. So very excited about it and hopefully, it's a very, very near-term event.
Operator
Our next question comes from Matt McGinley of Needham.
Matt McGinley
My question is on retail productivity, with the acquisitions in Ohio and Florida, will that impact the retail productivity into the second quarter? Is it reasonable to assume that those retail outlets sustain, something around that 3.8 million productivity per unit? Does that fit with what might be the inclusion of these lower volume units?
Charlie Bachtell
Good morning, Matt. Thanks for the question. I will hand that over to Greg.
Greg Butler
Good morning, Matt. You are. As we add more stores, we tend to see, there's a ramp up of stores. So we continue to open doors. There is on average evolution to the productivity overall. So we always expect to see that. Now what I would say is, what continues to make us very encouraged is, we look at same store sales for our stores. They continue to show very healthy growth rates, right? And so even though you will have the solution to they're just smaller store volumes at the beginning, those existing stores continue to grow across our states.
Matt McGinley
And on the gross margin, do you -- what do you assume drive that gross margin north of 50% into the second quarter? Is that primarily the inclusion of Florida or is that more productivity gains and planned capacity? And moreover, under GAAP gap with the asset base you have coming together? What do you think gross margin rate could normalize for Cresco?
Dennis Olis
Yes, thanks for the question Matt. So gross margins will improve throughout the course of the year. So again, we are varying some of the costs of the sale leaseback expense in some of our expansions that we have in Michigan, Massachusetts and Ohio, so varying the cost without the revenue that will come up in the second half of the year. We also as you noted, we will have Florida go live which will certainly help the mix and the volume that the gross margin percent in total for the company started this quarter and moving through the rest of the year. But if you look at it in a big picture and I would, in the space we are fully utilized in Illinois, Pennsylvania, for example, I put our gross margins up against anybody in the industry. As we continue to expand and increase capacity in Michigan, Massachusetts, Ohio and Florida and get those facilities up to scale. We will expect margins to continue to improve.
So we're optimistic about where margins will go. As we said, we expect to have margins in excess of 50%, for the balance of the year. Longer term, we'll continue to make the proper investments to improve automation and look to expand margins as we move forward as well.
Operator
Our next question comes from Pablo Zuanic of Cantor Fitzgerald.
Pablo Zuanic
Look, gentlemen, it's a very simplistic question. But just thinking of the wholesale business, you got that 60% round sequential growth in the third quarter, then flat in the fourth and up 6% in the first, right? As we think of the rest of the year, how does that play out, right? It seems in the 2Q, you will have it around your capacity coming in, and it's more 4Q story, can you give some color there just to -- it's a modeling question, but it seems that wholesale in organic and expansion, that you're doing aside of acquisitions, you will have much growth in 4Q. Can you go through that? Thanks.
Charlie Bachtell
Sure, Pablo. Appreciate the question. I think the growth, you saw, we had 5% growth, here on the wholesale side in Q1. I'd say that that growth could have been more had we had more doors open in Illinois in January, February in the first half of March. So there's also capacity in Illinois that we have optimization in Illinois that's underway, that will allow us to actually get more juice from the same squeeze. And that's the case across our platform and nationwide. So I think that's where the growth comes from in Q2 and Q3, and before the additional capacity from Ohio, Massachusetts, and then later, towards the end of the year, beginning in 2022 in Michigan, come online.
Pablo Zuanic
Got it. Thank you. And then, this is bit of a general philosophical question. But, I get the idea of wanting to be top three in key markets. But in those markets, where you have caps, like Massachusetts, rivalry stores, 100,000 square feet in terms of cultivation. Everyone gets to cap eventually and it's difficult to be a leader or adult-free doesn't mean much, because it's a fragmented market, right? So how do you think about that, because at the end of the day in Pennsylvania, pretty much every one of the guys would have15 stores or more, just go through that, because one idea, one thing is being number one in Florida with 15% market share and being number one in Arizona with 10% retail share. How do you think about that? Thanks.
Charlie Bachtell
Yes. I agree with you. Again, I think it's one of the reasons that we prioritize the middle two verticals in the value chain, right, because I think where you see the caps, the majority of the caps is going to be on retail. But that's just not an approved in this cap, that's not a total cap. So I would envision, our thesis is, there will always be more and more retail, owned by more and more independent non verticals that come into the states. So the opportunity for that type of expansion and where again market leadership really matters is on the wholesale side more so than on the retail side. And, there's benefits to be in top three, in every market with the strength of our footprint having a presence in all seven of the [Audio Gap] executing in the states that we have making sure that they're valuable states not only does that build strong margin profiles by scale, also build that brand equity as additional states come on, we'll take a look at them, they meet their criteria of strategic state will expand. But that's the strategy, that's the rationale for really focusing on not only the middle two verticals, but achieving that top three status in every state that we're in.
Pablo Zuanic
Right. And squeeze one last one here. Other companies have talked about what they call the Schumer wheel dropping this month or next. Do you have any views on that? And how would you characterize Cresco versus other MSOs in terms of your positioning when interstate trade arrives whenever that happens? Thanks.
Charlie Bachtell
Technically, I think there was two more Pablo. I think we are, of course, we're active on not only state legislative initiatives but of course, federal. I'm Chairman of the National Cannabis Roundtable. So we're engaged in this. What I'll tell you is, we're building the company to be successful today with this current dynamic that we've been operating in for the last six years and inherently in the way that we develop our business model. It prepares us to be successful long-term within open market, interstate commerce, federal legalization, right? That prioritization of building brands and distribution is akin to traditional CPG. That's why we built the company, the way that we built it. It is a matter of when not if, I don't know when that's going to happen. But I can tell you, we are the company that's built to win today. And we have the company that's built to win in the future.
Operator
Our next question comes from Michael Lavery of Piper Sandler.
Michael Lavery
Just I'll actually sort of tie two questions together instead of attacking on extras. But you mentioned the importance of insights from California in particular, just curious what you're seeing and learning there. And then, the related follow up just from the brands perspectives mentioned, in so many states, how important that is. And then, you're seeing some equity building, how those tie together? And how do you see brands, your brands developing in the space?
Charlie Bachtell
Thanks, Michael. Good morning. I'll take the first half and then Greg will comment on the second. California is a marketplace, it is the largest cannabis market in the world, also uber competitive, right. So it's a consumer base that is fairly well knowledgeable in cannabis. And it doesn't look and feel and act from that perspective, like a more mature market. I won’t say that it is mature, it's still developing, but it acts like a more mature market.
So consumer insights and how to operate not only brands that resonate with consumers, but operate in a competitive market with lower margins is something that everybody needs prepare for, as you have a longer view in this industry and if you want to have a leadership position in it.
So it's been insightful for us, we're investing there because of the dynamics of that state and what it provides for us now, even if it is a lower margin business, especially on the distribution side. As it relates to brands, though, I'll hand it over to Greg.
Greg Butler
As we live in California, in all of our markets, and look at the industry as a whole, what you are seeing is that this industry has a wide breadth of both consumers and patients that have very different needs, interests and forms they're willing to consume. And so as we think of our house of brands, our portfolio brands, we're very much focused on trying to figure out what are the consumer occasions and needs that are most important and building the right value propositions and our brands to win against us, right? And that's why we have a little bit different approach, which is we do believe this market is going to have many different brands for many different consumers versus one brand for all. And that's the thesis of our investment strategy.
Operator
Our next question comes from Andrew Partheniou of Stifel GMP.
Andrew Partheniou
Maybe I could start with just your acquisitions. You have a few to integrate this year. Before them, you already had a strong cultivation knowledge, especially through Floracal, which now as I understand white labels for some very strong brand like cookies. Now you're acquiring, or you have acquired Bluma, which also has a strong reputation for the quality among your other acquisition. Could you talk or could you walk us through, how do you integrate your acquisitions and share best practices? What kind of pace that takes and any other kind of color that you can share on how you think about integrating assets acquired to be helpful.
Charlie Bachtell
Hi, Andrew, thanks for the question. I think we could spend a long time sort of going through that and it's because it fascinating, it is strategic and competitive advantage to be able to integrate acquisitions and we've developed practice in it. And it's also one of the areas if you look at the spends in Q4 and Q1 where we have invested in building out that platform to be able to integrate these acquisitions that are coming online here already and through the remainder of the year, because we've had successful integration is more important than the announcement of a transaction without question. So, again, it's a great question. Best practices are developed by reasonable professionals with acumen in their subject matter coming together and developing what that next best practice is together. So, not to be too philosophical, but it's having a roadmap, it’s having an outline, but it's also having an open mind to really work together for the benefit of the org. And again, Cresco Labs is built to be the most important company in cannabis, that type of culture, that type of approach flows through in our integration models as well.
Andrew Partheniou
Thanks for that. And just switching gears, talking about your West Coast presence in California in particular. Last year, we saw some record wildfires. And this year, it seems to -- that might be repeated. Could you discuss, what did you see last year in terms of any impact or unexpected, positive outcomes from these wildfires? And how do you see this year unfolding?
Charlie Bachtell
So, I mean, it's tough to project last year, we were fortunate and we didn't have material interruption from those fires, but it was close. And from the perspective of our Cresco family members that are out there, there is definitely concern and we're fortunate not to have material negative impacts, but tough to project on what the rest of this year would look like. It is part of operating a business. We also didn't expect a global pandemic last year either. So understanding how to manage through scenarios is part of operating an effective business and it's something that we'll continue to address as needed.
Operator
Our next question comes from Graeme Kreindler of Eight Capital.
Graeme Kreindler
Just one question. Want to follow up? Greg, I think you mentioned earlier in the call with respect to the gross margin and outlook through the balance of the year that the mix what's being sold in Florida is going to help to propel the gross margin to that 50% plus point. If I look at the update Bluma put out back from February, their gross margin was at 41% for the month there. So just I mean, that would imply to me that there's been significant increases in efficiencies over the past couple of months. And finally, I just want to confirm if that's the case, or maybe get a bit more color in terms of what's changed in that last update on public record. Thanks.
Charlie Bachtell
We might have Dennis start this, if you have more than for Greg. Greg will jump in.
Dennis Olis
Yes, thanks for the Graeme. So in Florida, we talked about there the impact that Florida would have on the overall gross margin of the company. The fact that it is an integrated market where you cultivate and sell that product through your own stores, just has an inherent higher margin to it and it will be a positive impact. So I talked about mix, I wasn't talking mix of products; I was talking about the mix of the Florida model into the greater Cresco Labs margin profile.
Having said that, they continue to expand and their stores and rolled out some additional stores in Q1. So their margin profile I think is higher than what you've said, going into Q2 and beyond and more in line with what you see in some of the other players on the Florida market. So again, that will be accretive to our overall margins for the balance of this year and going forward.
Operator
Our next question comes from Andrew Semple of Echelon Capital Markets.
Andrew Semple
Just a pair of questions on the guidance, the first one here, so you're guiding towards EBITDA margins using the year at 30%. It is quite a bump from the 20% level we saw in Q1. In your view is that being driven primarily by the gross margin side or due to operating leverage? And how are those two factors going to influence the EBITDA margins over the course of the year?
Charlie Bachtell
Good morning. Dennis?
Dennis Olis
Yes. Thanks for the question. So the improvement that we're seeing from our current EBITDA margin levels to where we expect to end the year at the 30 plus percent range, is really a combination of improvements that we expect to see in gross margin, I kind of highlighted some of the improvements that we expect to see. Earlier in the call, but also sort of leverage that we're going to get our SG&A spent. So we're making investments now to help offer people and processes and branding are products, that the percentage of revenue for this percentage of SG&A spend as percentage of revenue will explain in the second half of the year.
So again, we expect to get the leverage from the investments that we're making now in the second half of the year. And then, in addition to the revenue growth and the gross margin performance, that's how we feel comfortable going from our current levels to the 30 plus percent in Q4.
Andrew Semple
That's great color. Thank you. And then, just a follow up here, on the sales guidance for the year, just want to clarify whether Cultivate is being included in that exit run rate of over a billion dollars expected by the end of the year. Thank you.
Dennis Olis
I'll take that one again. This is Dennis. Yes. Cultivate, we are assuming in that assumption that Cultivate is rolled into our financials for the full quarter of q4.
Operator
Our next question comes from Glenn Mattson of Ladenburg Thalmann.
Glenn Mattson
I realize, this is late in the call. So just one for me. But I wanted us to get a little more color on the Michigan market. So when you talk about, you mentioned that you want to be top three everywhere, obviously. But you kind of focused on Massachusetts and Ohio as your next targets for that. So just thinking about Michigan, it's highly fragmented. Maybe you're learning a lot from California that could translate to that market. But no one's really figured it out to a great degree yet. So maybe you can just give us a sense of, what do you think you guys can accomplish in the medium term in Michigan. And that's it for me. Thanks.
Greg Butler
Thanks for the question, Glenn. Michigan, you are absolutely correct, highly fragmented. That's why we believe our wholesale approach is the right approach for Michigan. We are in the process of building out our capacity for the state. And so through the back half of this year into Q4 and 2022, you'll see that come online. So our goal for the state, is to really ensure that we're increasing our penetration across doors that exist with our wholesale brands. So we will be bringing our suite of portfolio into Michigan as we get into 2022 with a goal of taking meaningful share and so that's our strategy to state.
Operator
Our next question comes from Luke Hannan of Canaccord Genuity.
Luke Hannan
Dennis, I'm wanted to go back to an earlier point I think you mentioned on SG&A. You guys are expecting to see leverage in the back half of the year. And obviously, that's going to come primarily from a larger revenue base. But I guess when you look at your SG&A line in general and your infrastructure and the people that you have in place, like how many -- where would the incremental costs come from, I guess if you feel you need to add any people or a cost into the system in order to drive that 1 billion in annual run rate. Where will be the additional cost that we could see throughout the course of the year?
Dennis Olis
Yes, thank you for that. So the costs will increase during -- obviously integration costs. I want to talk about the acquisition that we have in Bluma and then Cultivate will come on later in the year. So there will be some costs that we will look for to get some synergies by integrating those companies into the Cresco family. We will continue to make investments in people and processes, building back end operation to support a billion plus dollar company and making sure that we get the systems and processes in place for inventory tracking and automation and just even financial systems, for example. So we'll continue to make those investments.
And then, as we roll out retail stores in Florida and Pennsylvania and Massachusetts, there will be some costs associated with hiring the staff and making sure that we've got the right people in place. But overall, I mean, we built the foundation. We're building the foundation in Q4 and Q1 investments, to help us grow the company and be in a position where we can start to build those leverages and start to recognize synergies and efficiencies more quickly in the second half of the year and beyond.
Luke Hannan
Got it. Thanks for that. Charlie, maybe this one's for you. I think you had mentioned earlier in the call in Ohio that you're close to 80% wholesale penetration. Now, I think you've commented in the past, that you plan to get to the 100% wholesale penetration in the back half of the year. I guess my question, the two part question. The first is beyond just incremental cultivation coming online, how specifically do you close that gap? And then beyond that, for those dispensaries where you already have mature products already being sold? How do you expand, I guess we'll call it shelf penetration within those stores or velocity of those same products, what specific levers that you have, within the Ohio market to drive that.
Charlie Bachtell
It's [Audio Gap] ability to extract and process and manufacture products in Ohio. To-date, we did not receive our processing license at the same time we received our cultivation license. So to-date, we've only been selling flower into the state of Ohio. So as we now build out, we received the processing license, we built out the lab that'll come online here in second half of the year, we're actually bringing our full suite of product forms and our full house of brands to the Ohio market for the first time. So that's how we'll go from the 80% to the desired 100% penetration and also take down more shelf space. We've only been playing on the flower shelf so far. So we'll be bringing in those additional form factors and additional house of brands. Greg, any additional comments?
Greg Butler
[Indiscernible] on every one of those accounts we have relationships with today as we know there's a tremendous opportunity for us to expand not just beyond our flower -- curve flower offerings, but on all formats so we can get, it's such a great opportunity for us.
Operator
There are no further questions in the queue.
Charlie Bachtell
Excellent. So that's it for questions. Just want to thank everybody for joining us on the call today. We look forward to speaking to you on our Q2 call. I hope everybody in the U.S. has a wonderful Memorial Day. Thanks, everybody. Bye-bye.
Operator
Ladies and gentlemen, this concludes today's call. Thank you for joining. You may now disconnect your lines.
Local medical marijuana producer Cresco Labs is planning a $40 million expansion at its Yellow Springs facility over the next five years, with plans to add 140 jobs over that time.
On Tuesday May 11, the Village Planning Commission unanimously approved a site plan review for the multi-phase expansion at its location at the western edge of the village at 1130 Yellow Springs Way. The plan was submitted by architect Ted Donnell and Cresco’s vice president of government affairs, Christian Ficara.
Planning Commission members Frank Doden, Stephen Green, Laura Curliss, Sarah Amend and Susan Stiles voted in favor of the expansion at the medical marijuana cultivation and processing plant. The approval was required as the property is zoned as a Planned Unit Development, or PUD.
Donnell and Ficara presented an expansion plan that involves building two additional structures and an expanded parking lot. Current buildings will stay in operation while new buildings to the east and west side of existing structures are constructed. The older buildings will then be phased out and remodeled after the newer buildings are completed.
According to Ficara, the decision to expand was influenced by increasing revenues generated from the Yellow Springs location. Cresco’s 2020 revenues brought in $7.6 million in sales. From those profits, $1.15 million in taxes were paid, according to information presented at the meeting.
“Given promising numbers, we really felt now was the time to not only reinvest in the facility but it’s time to double down on Yellow Springs,” Ficara said. “The Village has been incredibly welcoming and wonderful to work with.”
The five-year plan also includes increasing the number of employees working at the site.
“We’re keen on continuing our commitment of creating good local jobs both direct and indirect jobs,” Ficara said.
The Cresco facility in Yellow Springs currently employs 79, with full-time employees earning more than $40,000 with benefits.
The company plans to initially hire an additional 33 people, an increase of just over 40% of the current workforce. In total, the five-year plan will bring an additional 140 people for a total of around 220 full-time employees.
According to materials presented at the meeting, Cresco anticipates $16 million projected wholesale sales next year, and $2.4 million in taxes. By 2023, those figures are expected to grow to between $57 million and $95 million in sales and $8 million to $14 million in tax payments to all government entities.
The current facility is about 48,000 square feet. When construction is complete the facility will grow to 144,724 square feet. They will also add 207 parking spaces for cars and motorcycles and an additional 40 feet of bike rack.
The company also plans to get rid of the greenhouse, according to Donell.
“They don’t work for cultivation, they are inefficient for yields,” he said. “Therefore the idea is to go with black boxes that use low LED lighting in stages, so it simulates seasons and daylight.
But getting through the process of expansion involves zoning and regulations at local, county and state levels, a difficult undertaking according to Donnell. Securing the proper zoning approval is the first step in navigating the complex Ohio marijuana control regulations.
“A single delay is pushing a difficult construction schedule, so this zoning approval is incredibly important to us” he said.
Donnell also told the commission that there will be construction traffic through each phase, and security will be tight. “Everyone is monitored, checked at the building and each time you go from area to area.”
“It’s a complicated project, but we are excited to be involved in it,” Donnell said,
Planning Commission member Stephen Green asked about any issues related to the marijuana odor emitted from the site. Donnell responded that the mechanical systems are designed to alleviate the odors.
“Since I’ve been there, I’ve not had any odor issues with the filter systems,” he said.
Former Planning Commission member Rose Pelzl spoke as a citizen about the odor issue.
“I would like to say that as a community member I would argue with the fact that there isn’t spill from the odors of the Cresco facility,” she said.
However, she said “if it was a tomato growing greenhouse would it be as smelly, and would we mind as much? I think it’s a stigma and an agricultural use.”
Ficara said the company will continue to monitor the odor around the facility.
“We are always looking for state-of-the-art technology and mitigation systems for odors, so I have no doubt that when it comes to this expansion, we’ll be using top of the line machinery and technology to ensure that stays in-house,” he said.
According to Donnell, the building will be a structural steel building with a metal facade. When asked about whether it was possible to amend the façade to include a more welcoming appearance, Donnell said that because of security concerns at the facility, “you can’t have a lot of stuff on the wall.”
“We can’t do a lot of things that we would normally do by state regs,” he said.
Commission alternate Matthew Kirk suggested natural landscaping.
“It would be encouraging for them to plant wildflowers or something like that. In between the area from the road to the property. It’s not going to be a height thing, but it would still make it look like a more natural part of the landscape.”
Commenting on ways to improve the look of a metal façade, Ficara committed to working with the village for solutions.
“One of the things about Cresco is our facilities, whether it’s retail or cultivation, is that we try to make them really bright and vibrant and welcoming,” he said.
Founded in 2013, the Chicago-based medical marijuana company employs around 2,000 people across the country. It is operational in 10 states and owns 18 cultivation and production facilities, including the facility located in Yellow Springs.
Construction at the location site concluded in 2017 and Cresco received a certificate of cultivation in 2018 and certification of operation processing in 2021 from the state of Ohio.
The site plan review was approved by the planning commission with the following conditions:
• To allow the option for an entrance for passenger vehicle traffic for East Enon Road.
• Maintain a maximum height for the parking lot fixtures at 20 feet.
• That a front façade design be enhanced with design or landscaping as approved by staff.
• Phased parking so they don’t have to build more than is needed.
• Third loading dock area if needed (which is less than what is required because of the size of the facility). They currently have two but may add an additional dock.
In other Planning Commission business —
Four TGLs permitted
Planning Commission members reviewed four conditional use applications for transient guest lodging establishments, or TGLs, after Council passed an ordinance on May 3 requiring TGLs to be operator occupied. The ordinance is scheduled to take effect on June 3, so the applications were considered under the previous law.
The first TGL application was submitted by property owner Jill Pauley to build a 650-square-foot garage with an ADU, or accessory dwelling unit, on the second level at 402 N. Winter St. Pauley said she intended to use the ADU as both a dwelling and TGL. Commission members Frank Doden, Laura Curliss, Susan Stiles and Stephen Green voted to approve the application by a vote of 4–1 in favor of approving the ADU separately from the TGL. Member Sarah Amend voted against approval. As part of the conditions, the applicant must orient the garage doors towards North Winter Street and seek a variance to do so from the Board of Zoning Appeals.
The commission also voted 3–2 with commission members Amend and Susan Stiles opposing, to approve the TGL permit for the ADU. According to the conditions set by the commission, the applicant must obtain and provide to the zoning administrator an inspection from the Miami Township Fire Rescue for the ADU prior to its use as a TGL.
Pauley’s application received the most attention by the commission in a discussion that lasted well over an hour. Swinger stated that conditional uses are good for one year. If the structure is not built, Swinger asked the commission if Pauley could keep the permission for the TGL.
According to Village Solicitor Breanne Parcels, “if the structure had not been built in that year, permission for the TGL would expire, and it could not receive permission again, given the new TGL rules in place.”
Pauley, who currently resides in California, said that she would use the ADU when in town to visit family. There is also a main house on the property that is occupied by a long-term renter. Pauley explained that she was seeking permission for TGLs for both the ADU and the home in case the building of the ADU fell through.
Neighbors on both sides of the location wrote letters citing concern for both the height of the garage, and the placement of a proposed driveway in addition to the planned use of the ADU for transient guest lodging.
While acknowledging that Pauley courteously wrote a letter about her intentions to build a garage/apartment, resident Judy Woods stated her concerns in a letter addressed to the commission. Woods wrote, “My concern is how that structure would fit on the property and still respect current regulations for acceptable dimensions and for distances from structures to property lines.”
Woods, citing similar concerns with TGL density, mentioned during the public hearing that there were already three or four TGLs in her neighborhood. Believing that the village should place a moratorium on TGLs for the time being, Woods asked in her letter to the commission opposing the TGL, “how densely do we want to allow homes to be put to transient guest use? Do we want to have TGLs take over an entire street or neighborhood?”
Another neighbor, Susan Wolf, who lives across the street from Pauley’s property mentioned oversight in her letter to the planning commission stating her opposition to the proposed TGL.
“We are dismayed that a short-term rental unit may still be built across the street from our home — by a very out-of-town landlord. No matter how good the intentions, there is no way that short term rentals can be less than a nuisance — at least from time to time — when there is no onsite oversight,” Wolf wrote.
Both the ADU and TGL were approved with the condition that the ADU has to be constructed, and the TGL in use one year from the date of the Planning Commission approval.
One TGL was approved for the property after the owner withdrew her request for two.
A conditional use application for a TGL at a property owned by Elizabeth Gish at 324 West Davis St. was approved by the planning commission by a vote of 4–1 with member Amend voting against it.
Gish explained that she plans to operate as an owner-occupied TGL on a limited basis, which she described as three to four times a month when she is out of town. She told the commission, “we do live here, and I have a strong interest in making sure that the people who are staying here are trustworthy on Airbnb.”
Gish also told the commission that she’s heard some concerns and talk in Yellow Springs that TGLs raise affordable housing issues. However, in her situation, a TGL “does make it more affordable for me to live in Yellow Springs,” she said.
“It ends up that it’s a little bit of a stretch for us. We’ve faced some unexpected costs, so it helps,” she said of a TGL.
Three letters were submitted to the commission in opposition to Gish’s request for a TGL, two from neighbors on either side of Gish’s home and one down the street. One letter cited guests smoking in her driveway near the person’s home. In response, Gish said she would not allow smoking at the site.
Gish’s TGL application was approved by the commission if certain conditions are met including, the owner’s request that the TGL be available for a maximum of four days per month, and that there be a designated smoking area at least 15 feet from every property boundary if smoking is allowed by the owner on their property.
A TGL within a single-family dwelling at 437 Suncrest Drive was also approved by the commission. The property, owned by former villager and teacher Aurelia Blake, was previously approved for a transit guest lodging permit. Owners Jonathan Dalmau and Logan Ginsburg purchased the home from Blake and “want to use it as a TGL,” according to Village Planning and Zoning Administrator Denise Swinger.
Swinger described it as “a downstairs suite with its own private entrance and bathroom.”
The property includes four off street parking spots available, and the owners, who will be living on the property, told the commission they were prepared to add two more spaces at the request of their neighbors. No opposition letters were filed against the proposed application.
After Amend’s motion to deny approval of the TGL application based on proximity to other TGLs failed, the commission voted to approve the application by 4–1 with a condition that if owners allow smoking on the property there be a designated smoking area at least 15 feet from every property boundary. Amend voted against approval.
A conditional use application submitted by property owner Josh Myers for an ADU and TGL guest lodging at 202 Fairfield Pike was approved by the commission by a vote of 4–1 with Susan Stiles opposing. No letters of opposition were submitted from neighbors.
Myers, one of the property owners, is from Columbus. While he and his partner have no plans to move to Yellow Springs yet, they do want to consider moving when their kids are school age. Currently, there is a long-term renter occupying the house. The commission approved Myers’ conditional use application as long as there will be a designated smoking area at least 15 feet from every property boundary. The vote was 4–1, with Stiles opposing.
The next Planning Commission Meeting is Tuesday June 15th at 7 p.m. in Council Chambers.
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