Jushi Holdings could double, says Beacon Securities

Beacon Securities analyst Russell Stanley is staying bullish on US cannabis multi-state operator Jushi Holdings (Jushi Holdings Stock Quote, Chart, News, Analysts, Financials CSE:JUSH), saying in an update to clients on Monday the company continues to deliver the goods each quarter and is full steam ahead on its expansion plans.

Vertically-integrated cannabis company Jushi, based in Boca Raton, Florida, targets assets in limited license markets with strong growth potential and where adult-use cannabis has either been legalized or there’s a clear trajectory for the state to do so. The company’s current core markets are in Illinois, Pennsylvania and Virginia, with additional interests in California, Nevada, Ohio and Massachusetts.

After a multi-week delay, the company announced on Monday both its full 2020 financials as well as its Q1 2021 numbers, showing net revenue for 2020 of $81 million compared to $10 million for 2019 and an adjusted EBITDA loss of $3 million compared to a loss of $28 million a year earlier. For the first quarter 2021, Jushi’s top line was $41.7 million compared to $8.6 million for 2020 Q1 and adjusted EBITDA came in as a positive $3 million. (All figures in US dollars except where noted otherwise.)

Jushi also announced on Tuesday morning the opening of subsidiary Franklin Bioscience’s 13th medical cannabis dispensary in Pennsylvania, this one in Easton, PA, under the Beyond/Hello banner and representing the company’s 20th Beyond/Hello store across the country.

“The first BEYOND / HELLO dispensary was opened in Pennsylvania, so it’s only fitting that we reach our 20th retail store milestone with the opening of our 13th medical marijuana dispensary in the Keystone State,” said Jushi CEO, Chairman and founder Jim Cacioppo in a press release.

“With the opening of our newest retail location, we have not only broadened access for more Pennsylvania patients but we have also expanded the reach of our newly introduced suite of highly innovative branded products, including the The Bank, The Lab, Nira+, Tasteology and Seche. In the coming months, we look forward to deepening and enhancing our business in key Pennsylvania markets with the continued expansion of our store base,” Cacioppo said.

Its filings now up to date, Stanley said Jushi’s fourth quarter 2020 and first quarter 2021 results were essentially in line with what the company had previously announced in May, with revenue growth of 30 per cent sequentially in the Q4 2020 and up 29 per cent quarter-on-quarter in the Q1 2021.

Stanley said retail revenue continues to dominate Jushi’s topline, contributing 94 per cent of net revenue in the Q1, up 386 per cent year-over-year, while wholesale revenue grew 586 per cent, with the analyst saying wholesale should lead growth in upcoming quarters for Jushi.

“Adjusted EBITDA margins remained steady in Q4, followed by a slight trimming in Q1, which we attribute to increased staffing ahead of expected growth, with salaries/wages increasing from 21 per cent of sales in Q4 to 24 per cent in Q1. With significant revenue growth expected in subsequent quarters, operating leverage should support resumed EBITDA margin expansion,” Stanley wrote.

Stanley said with $168 million in cash and securities at the end of the first quarter Jushi should be well-financed for its planned capex spend of between $80 and $100 million during the Q2-Q4 period, along with covering the recently completed $22-million acquisition of its facility in Virginia and the planned acquisitions in Massachusetts and Ohio.

Jushi, which currently has a market capitalization of $1.2 billion, had a huge run-up over 2020 and into the first month of 2021, but the stock has pulled back since. JUSH returned 335 per cent in 2020 and is currently down three per cent for 2021.

But Stanley sees lots of upside ahead. With his new update, the analyst has maintained his “Buy” rating and C$14.00 target price, which at press time represented a projected 12-month return of 93 per cent. The analyst said JUSH is currently trading at 7.4x his 2022 EBITDA forecast, which represents a 44-per-cent discount to the 13.3x average among US operators.

Looking at his projections, Stanley is calling for full 2021 revenue and adjusted EBITDA of $250 million and $45 million, respectively, and 2022 revenue and EBITDA of $560 million and $210 million, respectively.

On the company’s growing business in the states of Massachusetts and Ohio, Stanley noted that Jushi’s $110-million acquisition of Nature’s Remedy is expected to close during the second half of the year. Jushi is also expected to close on a planned $5-million acquisition of OhiGrow, giving it one of just 34 licensed cultivation facilities in Ohio, while the company’s new processing facility in the state is expected to begin operations during the current quarter.

“This positions JUSH well to add retail in Ohio, either through M&A or de novo licensing applications, given the state’s plan to expand the license base from 57 to 130,” said Stanley.