Jushi is a buy in US cannabis, says Beacon

Beacon Securities analyst Russell Stanley has updated his analysis of Jushi Holdings (Jushi Holdings Stock Quote, Chart, News, Analysts, Financials CSE:JUSH) as he maintained a “Buy” rating but reduced his target share price 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 report comes after the company released fourth quarter financial results, headlined by revenue of $66 million which matched the consensus expectation and was in line with the Beacon Securities estimate of $67 million while producing 22 per cent sequential growth and a 104 per cent year-over-year increase. The uptick was driven by a full quarter impact of the Nature’s Remedy acquisition in Massachusetts, along with improvement from retail in Pennsylvania and Virginia.

However, the company’s $1 million adjusted EBITDA report was a miss in relation to the $8 million predicted by both Beacon Securities and the Street, with company management attributing the EBITDA shortfall to increased talent/staffing ahead of expected revenue growth combined with price pressure, particularly in Pennsylvania, which Stanley noted has been a discussion point for many MSOs throughout the season.

“Throughout 2021, we made significant progress scaling our operations and positioning our platform for sustained growth and market leadership,” said Jim Cacioppo, Chief Executive Officer, Chairman, and Founder of Jushi Holdings in the company’s March 24 press release. “During the year, we nearly doubled our operational retail store count through organic and inorganic expansion opportunities and bolstered and expanded our cultivation and processing capabilities with the addition of various assets across both our core and developing markets.”

The newly released financials lock in year-end figures of $209 million in revenue with $17 million in adjusted EBITDA for an implied margin of 8.1 per cent, and have prompted Stanley to revise some of his forward-looking projections for the company.

Taking a cue from management’s reduced guidance, Stanley has lowered his revenue projection for 2022 from $409 million to $319 million for a year-over-year increase of 52.6 per cent, while the accompanying 48 per cent gross margin is down from the initial estimate of 56 per cent. For 2023, Stanley has lowered his projection from $666 million to $591 million for a 85.3 per cent year-over-year increase, paired with a projected gross margin of 60 per cent, down from 62 per cent.

From a valuation perspective, Stanley forecasts the company’s EV/Revenue multiple to drop from the reported 4.5x in 2021 to 3x in 2022, then to 1.6x in 2023.

Meanwhile, Stanley continues to project a widening of the company’s adjusted EBITDA margin, though not at the pace he originally forecasted as he reduced his 2022 estimate from $103 million and a 25 per cent margin to $40 million and a 13 per cent margin. Looking ahead to 2023, Stanley forecasts the margin to widen to 31 per cent with $181 million in adjusted EBITDA, down from the original projection of 34 per cent and $223 million in adjusted EBITDA.

In terms of valuation, Stanley sees a significant reduction in the company’s EV/EBITDA multiple as he forecasts a drop from the reported 55.9x in 2021 to 23.6x in 2022, then to a projected 5.2x in 2023.

Looking ahead, Stanley projects a number of states to factor in as growth drivers for the company, namely Virginia, which he still regards highly given its patient count of approximately 50,000 with a backlog between 12,000 and 15,000 still waiting for cards once adult-use is legalized in state, which is still set for January 2024.

According to Stanley, other state priorities for Jushi include Illinois, where a joint venture will allow the company to have a fifth license on top of strong-performing stores there; Ohio, where Jushi was selected for a provisional dispensary license in a January lottery; and Nevada, where Jushi has now vertically integrated following the closing of The Apothecarium dispensary in Las Vegas.  

“Notwithstanding our estimate revisions, JUSH still has one of the strongest growth profiles in the space,” Stanley said.

With his maintained “Buy” rating, Stanley has moved his target price from C$12.00 to C$10.00 on account of estimate revisions, yielding a potential return of 162 per cent.

Over the last 12 months, Jushi Holdings has seen its share price drop by 51.8 per cent, and is down 6.7 per cent since the start of 2022. After hitting a 52-week high of $8.86/share on April 28, the shares have gradually gone down in value, falling to a 52-week low of $3.61/share on March 14.