Beacon Securities analyst Russell Stanley has slightly altered his view of Jushi Holdings (Jushi Holdings Stock Quote, Chart, News, Analysts, Financials CSE:JUSH), lowering his target price to C$12.00/share from C$14.00/share while still maintaining a “Buy” rating in an update to clients on August 25.
Founded in 2007 and headquartered in Boca Raton, Florida, Jushi Holdings is a vertically-integrated multistate cannabis company targeting assets in limited license markets that have either legalized adult use or have a trajectory for doing so. Jushi currently operates in its core markets of Illinois, Pennsylvania and Virginia, with additional interests in California, Nevada and Ohio with a pending acquisition to enter the Massachusetts market.
Stanley’s latest analysis of Jushi comes after the company reported its second quarter financial results on August 25, with the analyst noting they were in line with expectations.
“During Q2, 20 dispensaries contributed to the top line, up from nine in Q2/20,” Stanley said. “Wholesale revenue showed strong growth, up over 1,600 per cent year-over-year on a net basis, or over 3,000 per cent when inter-company sales are included, though its share of revenue is still modest at five per cent.”
Jushi reported revenue of $47.7 million in the quarter, a 14.3 per cent quarter-to-quarter increase and a 220 per cent year-over-year increase from the same point in 2020, while the gross margin remains unchanged at 45 per cent.
Jushi’s adjusted EBITDA also experienced a jump in the quarter, reporting $4.6 million for a 54 per cent quarter-to-quarter jump while significantly outpacing the $900,000 loss incurred on adjusted EBITDA in the second quarter of 2020. The increase also led to a higher adjusted EBITDA margin of ten per cent compared to seven per cent in the previous quarter.
The company recently announced further expansion into Ohio after completing its previously announced acquisition of Franklin Bioscience, a licensed medical cannabis processor with an 8,000 sq. ft. processing facility in Columbus. Jushi is also planning on introducing its Seche fine flower line, along with its Tasteology cannabis-infused gummies and tarts and The Lab vaporization line.
“With our strong balance sheet we are well positioned to execute on our plans, which include expanding our national retail footprint as well as building out our cultivation and processing assets to support increased demand from both patients and consumers for our high-quality products,” said Jim Cacioppo, CEO, Chairman and Founder in the company’s August 25 press release.
“Our performance has been driven by our commitment to delivering a differentiated customer shopping experience both in-store and online, by bringing to market innovative and exciting new brands and products, and by leveraging cutting edge technologies and data analytics to improve customer engagement. As we look out to the second half of the year, we plan on building on our recent successes and driving continuous improvement across all of our operating assets,” Cacioppo said.
Jushi has lowered its 2021 guidance, citing a number of factors including a slower-to-develop medical market in Virginia, reduced flower grow room capacity in Pennsylvania due to expansion plans and corporate overhead related to expansion efforts in both Virginia and Pennsylvania.
Management now pegs its 2021 revenue at between $220 and $230 million compared to the previous call of between $205 and $255 million. Adjusted EBITDA has also been revised to between $32 and $37 million compared to between $40 and $50 million, previously.
Both Stanley and the company have made adjustments to future financial guidance following the quarterly reports, with slower than expected market development in Virginia, reduced flower room capacity in Pennsylvania, and increased company overhead at the root of the changes.
For his part, Stanley has forecasted 2021 revenue and adjusted EBITDA of $228 million and $31 million, respectively, and 2022 revenue and adjusted EBITDA of $418 million and $116 million, respectively. For 2023, he is calling for a $598 million topline and EBITDA of $213 million.
On M&A, Stanley said Jushi’s pipeline is still strong.
“During [Tuesday’s] conference call, management noted it continues to evaluate transactions that would strengthen Jushi’s presence in existing markets. Combined with management’s preference for being vertically integrated in all operating markets, this points to cultivation/manufacturing capacity in Illinois, retail in Ohio and additional retail in Massachusetts (it obtains two dispensaries in the Nature’s Remedy transaction) as likely priorities. The company added that would also selectively enter new limited license markets, without diluting the company’s ex-acquisition growth rate,” Stanley wrote.
On valuation, Stanley has JUSH’s EV/Revenue multiple projected to drop from an estimated 5.7x in 2021 to 3.1x in 2022, then to 2.2x in 2023., while EV/EBITDA is expected to drop from an estimated 42.4x in 2021 to 11.2x in 2022 then to 6.1x in 2023.
“JUSH trades at 6.1x our new F2023 EBITDA forecast, representing a 48 per cent discount to the 11.9x average at which US operators trade. Potential catalysts include further buildout and M&A updates, closing of the Massachusetts acquisition (expected in September), and the Q3 results in November,” Stanley said.
Jushi’s share price has declined since reaching a high point of $11.00/share on February 4 and currently is down 22.7 per cent overall for the year to date. At press time, Stanley’s C$12.00 target represented a projected return of 103 per cent