Cresco Labs Inc. Annual Report Summary (Fiscal Year 2025)

Cresco Labs Inc. navigated a dynamic cannabis market in fiscal year 2025, as detailed in its latest 40-F filing. This summary offers investors a concise overview of the company's performance, strategic direction, and the significant industry shifts impacting its future.

Business Overview

Cresco Labs operates as a prominent multi-state cannabis company in the U.S., specializing in cultivating, manufacturing, and distributing high-quality cannabis products. It primarily operates through two segments:

• Wholesale: Supplying cannabis products to other licensed dispensaries and retailers.
• Retail: Operating its own chain of dispensaries, mainly under the Sunnyside® brand, for direct sales to consumers.

As of early 2026, Cresco Labs maintains a substantial operational footprint, with 73 dispensaries and 13 cultivation and production facilities spanning 10 U.S. states. Its key markets, including Illinois, Massachusetts, Michigan, New York, Ohio, and Pennsylvania, feature adult-use (recreational) programs in five states, offering significant growth potential. Cresco also developed a strong portfolio of proprietary brands, such as Cresco®, High Supply®, and RemediTM, which it sells through its Sunnyside® stores and third-party retailers.

Management Discussion (MD&A Highlights)

In 2025, Cresco's management focused its strategy on optimizing its operational footprint, strengthening its presence in core markets, and boosting profitability within a dynamic industry. The company aimed to build a "productive cash-generating platform" by balancing organic growth with strategic acquisitions in high-potential markets and disciplined cost control. Cresco prioritized operational efficiency, brand development, and preparing for potential federal regulatory shifts, all while maintaining a strong balance sheet.

Key strategic developments and operational highlights for the year included:

• Targeted Expansion: In April 2024, Cresco acquired Keystone Integrated Care, LLC for $8.5 million, adding two dispensaries and a cultivation license in Pennsylvania. This led to the opening of a new Sunnyside® dispensary in Chippewa Township, PA, in May 2025, reinforcing its position in a high-growth medical cannabis market.
• Portfolio Optimization & Divestitures: The company strategically divested non-core assets to streamline operations and improve capital efficiency:
  • In June 2023, Cresco sold a Maryland production facility for $3.3 million in cash, realizing a $1.4 million gain.
  • In October 2023, it sold assets related to Encanto Green Cross Dispensary for $6.5 million in cash.
  • In October 2025, Cresco divested its Sonoma’s Finest Cultivation Facility in California. This sale stemmed from a broader strategic reassessment of its California operations, aiming to reduce capital intensity and focus on more profitable segments within the state.
• Operational Efficiency: Management successfully implemented cost-control initiatives, reducing adjusted Selling, General, and Administrative (SG&A) expenses by 5.7% year-over-year. The gross profit margin remained relatively stable, reflecting Cresco's ongoing efforts to manage production costs despite revenue declines. A significant $105 million impairment loss in 2025 primarily resulted from writing down assets in the New York market and adjusting the value of California assets after strategic reassessments and divestitures.

Financial Performance (Fiscal Year 2025 vs. 2024)

Cresco Labs faced challenges in top-line growth during 2025 but showed progress in operational efficiency and cash generation.

• Revenue: Total revenue for 2025 was $656 million, a 9.4% decrease from $724 million in 2024. This decline primarily stemmed from pricing pressures in certain markets and strategic divestitures, partially offset by growth in key retail markets. Q4 2025 revenue was $162 million, down from $176 million in Q4 2024.
• Gross Profit: Gross profit decreased to $325 million in 2025 from $364 million in 2024. The gross profit margin remained relatively stable at 49.5% in 2025, a slight dip from 50.3% in 2024, reflecting ongoing efforts to manage production costs.
• Operating Expenses: Total operating expenses significantly increased to $353 million in 2025 from $257 million in 2024.
  • Selling, General, and Administrative (SG&A) Expenses: Cresco effectively managed these core operating costs, which decreased slightly to $218 million in 2025 from $221 million in 2024. On an adjusted basis (excluding one-time items), the company reduced SG&A by 5.7% year-over-year to $200 million, underscoring its successful cost-control initiatives.
  • Impairment Loss: Cresco recorded a substantial $105 million impairment loss in 2025 (up from $2.3 million in 2024). This non-cash charge primarily reflects a write-down of assets in the New York market and adjustments to the value of California assets following strategic reassessments and divestitures.
• Net Loss: Due to the significant impairment charge, Cresco reported a net loss of $140 million in 2025, a considerable increase from the $60 million net loss in 2024.
• Adjusted EBITDA: Adjusted EBITDA, a key profitability metric for cannabis companies facing unique tax burdens, reached $157 million for 2025, representing a 24.0% margin. Management highlighted sequential improvement, with Q4 2025 Adjusted EBITDA reaching $40 million at a 25.0% margin, indicating a positive trend in core operational profitability.

Financial Health

• Cash Flow: Despite reporting a net loss, Cresco generated positive cash from operations, with $73 million in operating cash flow and $38 million in Free Cash Flow (cash remaining after operations and capital expenditures) for 2025. This demonstrates the company's ability to generate real cash, distinguishing its operational performance from accounting losses primarily driven by non-cash charges.
• Balance Sheet (as of December 31, 2025): Cresco maintained a liquid position, holding $91 million in cash and cash equivalents. Total debt stood at approximately $330 million, comprising $311 million in senior secured term loans and $19 million in mortgage loans. The company's working capital management and liquidity remain critical for navigating the capital-intensive cannabis industry.

Risk Factors

The U.S. cannabis industry operates under significant federal legal and regulatory uncertainty, presenting both unique risks and opportunities for Cresco Labs.

• Federal Illegality & 280E Taxation: Cannabis remains illegal at the federal level, classified as a Schedule I controlled substance. This status prevents traditional banking services, limits access to capital markets, and, critically, subjects cannabis businesses to IRS Code Section 280E. This provision disallows normal business deductions, leading to significantly higher effective tax rates and hindering profitability.
• Slow Legislative Progress: While various legislative efforts like the MORE Act and SAFER Banking Act have been introduced to address federal cannabis reform, progress has been slow. The SAFER Banking Act passed a Senate committee in September 2024 but has not yet become law.
• Potential for Federal Reform – Rescheduling: A major development occurred in December 2025 when President Trump signed an Executive Order directing federal agencies to expedite rescheduling marijuana from Schedule I to Schedule III under the Controlled Substances Act.
  • Impact of Schedule III: This move, while not full federal legalization, would acknowledge cannabis's medical utility and lower its perceived risk. Crucially, it would likely eliminate the burden of 280E taxation, significantly improving the profitability and cash flow of cannabis operators like Cresco. It could also facilitate greater access to traditional banking services, open doors for more scientific research, and potentially attract increased institutional investment. The exact timeline for this change remains uncertain, but its potential financial impact is substantial.
• New Hemp Restrictions: A new law signed in November 2025, effective 365 days later, will restrict the total THC content in hemp products (0.4 mg per container). This could impact certain segments of the broader cannabis and hemp-derived product market.
• Other Risks: Cresco also faces risks common to the industry, including intense competition, evolving state-level regulations, product liability, supply chain disruptions, and the ability to secure additional capital for growth.

Future Outlook

Cresco Labs positions itself to capitalize on both continued state-level market growth and potential federal reforms. The company focuses on operational efficiency, strategic market leadership in key states, and disciplined capital allocation to build a resilient and profitable business. The potential rescheduling of cannabis to Schedule III represents a transformative opportunity that could fundamentally alter the financial landscape for Cresco and the entire U.S. cannabis industry, significantly improving profitability and access to capital.

Competitive Position

Cresco Labs maintains a strong competitive position as a leading multi-state cannabis operator in the U.S. The company successfully held its No. 1 market share position in multiple billion-dollar adult-use markets, including Illinois and Pennsylvania. This demonstrates strong brand equity and operational execution in competitive environments. Despite this leadership, Cresco acknowledges intense competition across its markets, a common risk in the rapidly evolving cannabis industry.