With legalization coming to the state of Virginia, cannabis company Jushi Holdings (Jushi Holdings Stock Quote, Chart, News, Analysts, Financials CSE:JUSH) should be a major benefactor, according to analyst Russell Stanley of Beacon Securities. In an update to clients Friday, Stanley reiterated his “Buy” rating for JUSH and raised his target price from C$9.50 to C$12.50, representing at press time a projected 12-month return of 25 per cent.
Virginia took a big step forward in the push to legalize adult-use marijuana when earlier this month both of the state’s General Assembly chambers voted in favour of recreational usage. The House of Delegates passed a bill to eliminate criminal penalties for marijuana possession while Virginia’s Senate passed a bill to establish a regulatory framework including taxation on retail sales.
With a population of 8.5 million, Virginia has had a number of marijuana-related developments along the way, with limited medical use legalized in 2015, followed by broadened medical use in 2018, an expansion in terms of product forms of THC and CBD to allowable forms such as oils, capsules and patches and the decriminalization of possession of up to one ounce.
While adult-use stores aren’t expected to open until 2024, the newly passed legislation would include a provision to legalize the sale of cannabis flower for medical use, with that development potentially being enacted as early as this year. Passing the rec cannabis bill would make Virginia the 16th state in the union to do so, just the third to legalize adult-use through legislative process and the first state in the South to have legal rec sales.
In his report, Stanley said the developments in Virginia should be good for Jushi, a multistate operator focusing on limited license markets and with interests in Illinois, Pennsylvania, Virginia, California, Nevada and Ohio.
“While work is required before the legislative session ends February 27th, the progress to date is impressive,” Stanley wrote. “We believe the flower progress was largely overlooked, given the media focus on adult-use. Flower often represents ~50 per cent of sales in markets that allow it, so legalization for medical use could double the addressable market for JUSH, ceteris paribus.”
“We also expect the flower bill to be enacted far sooner (likely 2021 versus 2023/2024 for adult-use),” Stanley said. “JUSH is one of just four companies licensed to operate in VA, with each licensee allowed to open six dispensaries within their assigned health service area (HSA). JUSH is the only company currently allowed to open dispensaries in HSA II, the region just outside of Washington DC and home to 2.5 million people.”
Last week, Jushi announced the close of its overnight marketed offering of 7.475 million shares including over-allotment for net proceeds of about $56 million. The company aims to use the funds for repaying senior secured notes, acquisitions, general corporate purposes and strategic transactions, potentially including the purchase of its 93,000 sq ft facility in Prince William County, Virginia, currently operated by Jushi’s wholly-owned subsidiary. (All figures in US dollars except where noted otherwise.)
“Subject to regulatory approvals, the acquisition, together with the planned build-out of the facility, will enable the Company to efficiently produce a consistent supply of medical products as patient access improves and as the medical program matures and expands,” Jushi said in a February 12 press release.
Stanley is estimating JUSH to have over $100 million in dry powder to fund potential strategic transactions. In terms of a forecast, the analyst has raised his 2022 revenue and EBITDA estimates on the Virginia news, while he has also increased his valuation multiple from 13x to 14x 2022 EBITDA.
Now, Stanley is calling for 2021 revenue and adjusted EBITDA of $223 million and $45 million, respectively, and 2022 revenue and adjusted EBITDA of $465 million and $176 million, respectively.
Stanley is estimating JUSH to be trading at a 40 per cent discount to the 19x 2022 EBITDA average among its US operator peer group and at a 45-per-cent discount to the 21x average among the broader peer group.
“Potential near-term catalysts include M&A activity, progress on the retail and cultivation build-outs in Pennsylvania (population 12.8 million), the Q4/20 results, and further regulatory progress in Virginia,” Stanley said.
Jushi last reported quarterly earnings in late November where its third quarter 2020 featured revenue up 67 per cent sequentially to $24.9 million and adjusted EBITDA of $1.9 million compared to a loss of $1.2 million for the previous quarter. Gross profit grew 64 per cent sequentially to $12.3 million.
The company updated on January 4, 2021, its fourth quarter 2020 guidance, now calling for Q4 revenue of between $32 and $33 million (up from $28-$30 million) with a maintained adjusted EBITDA guidance of $2.5-$3.0 million.
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