Jushi is trading at a discount, says Beacon

Beacon Securities analyst Russell Stanley is holding steady on Jushi Holdings (Jushi Holdings Stock Quote, Chart, News, Analysts, Financials CSE:JUSH), maintaining a “Buy” rating and target price of C$12.00/share for a potential return of 149 per cent in an update to clients on Thursday.

Founded in 2007 and headquartered in Boca Raton, Florida, Jushi Holdings is a vertically-integrated multistate cannabis company targeting assets in limited license markets with strong growth potential that have either legalized adult use or have a clear trajectory for doing so. Jushi currently operates in its core markets of Illinois, Pennsylvania and Virginia, with additional interests in California, Nevada, Ohio and Massachusetts.

Stanley’s latest analysis of Jushi comes after the company announced it had signed into a $100 million senior secured credit facility from Sunstream, a joint venture sponsored by Sundial Growers, with an additional $25 million available contingent upon certain conditions being met. (All figures in US dollars except where noted otherwise.)

“We view the development positively as it provides valuable balance sheet flexibility,” Stanley noted.

Under the terms of the deal, Jushi Holdings can make drawdowns over an 18-month period, with loans issued under the facility paying 9.5 per cent per annum and maturing five years after closing, with the first two years of the loans made up solely of interest.

According to Stanley, the company is planning an initial $40 million draw to cover the cash component of the recently closed $91 million acquisition of Nature’s Remedy of Massachusetts, with the remainder then being available to support further expansion efforts.

“Management noted it is looking at opportunities in both existing markets (Illinois, Ohio, and California) as well as potential new markets such as New Jersey and Maryland,” Stanley said.

The company recently announced a change in its executive team, having appointed Ed Kremer as Jushi’s new Chief Financial Officer after most recently serving as Chief Operating and Restructuring Officer of Le Tote and Lord & Taylor, and bringing over 20 years of financial leadership experience across a number of industries, including technology, fashion, manufacturing, wholesale distribution, licensing, and retail.

“I am pleased to welcome Mr. Kremer to our leadership team,” said Jim Cacioppo, Jushi’s CEO, Chairman and Founder in the company’s October 18 press release. “As we continue to position Jushi for the future, his passion for the cannabis industry, strong leadership, and extensive experience in driving financial and operational improvements is expected to have an immediate positive impact on our Company. I am confident Ed will be an excellent addition to our team as we continue to organically grow and strategically target inorganic opportunities.”

Stanley presents positive financial projections for Jushi, with projected revenue of $231 million for 2021 growing to a projected $418 million in 2022 for a potential year-over-year increase of 81 per cent, followed by another projected jump to $598 million in 2023, marking a potential year-over-year increase of 43.1 per cent.

The adjusted EBITDA projections present an even steeper upward trajectory, with Stanley forecasting $32 million and a margin of 13.9 per cent in 2021 before a projected spike to $116 million and a 27.8 per cent jump in 2022, followed another increase to a projected $213 million and 35.6 per cent margin in 2023.

From a valuation standpoint, Stanley’s projections also show a healthy company as the EV/Revenue multiple projects at 5.1x for 2021 before dropping to a projected 2.8x in 2022, then to a projected 2x in 2023. The EV/EBITDA projections follow a similar path, with Stanley projecting a multiple of 36.8x in 2021 before falling to a projected 10x in 2022 and to 5.5x in 2023.

Stanley notes that the company is presently trading at a rate of 5.5x the 2023 adjusted EBITDA forecasts, which represents a 35 per discount to the 8.4x rate presented by its peer group; Stanley points to upcoming third quarter financial results in November as a possible catalyst, along with further updates pertaining to mergers and acquisitions, along with buildouts.

Furthermore, Stanley notes that the company is already providing investors with high revenue leverage in Illinois and Pennsylvania with further market expansion on the horizon thanks to additional licenses, putting the company in prime position to be a major player in Virginia as it moves toward potentially opening its commercial adult-use cannabis market in January 2024, with potential for that date to be moved forward.

“In combination with positions in MA, CA and NV, JUSH may offer investors the highest leverage to adult-use markets in the US,” Stanley said.

Overall, the stock price for Jushi Holdings is down 37.6 per cent for the year to date, reaching a high point of $11.00/share on February 4 before falling to its present low point of $4.78/share.