Jushi has a 275 per cent runway, says ATB

It’s been a long way down for the stock over the past year but ATB Capital Markets analyst Kenric Tyghe continues to be bullish on US cannabis company Jushi Holdings (Jushi Holdings Stock Quote, Chart, News, Analysts, Financials CSE:JUSH). Tyghe maintained an “Outperform” rating and one-year target of $9/share for a projected return of 275 per cent in an update to clients on Thursday.

Florida-based Jushi Holdings is a vertically integrated cannabis company that engages in the cultivation, processing, retail and distribution of medical and adult-use products, with operations in Pennsylvania, Virginia, Ohio, Illinois, California, Nevada and Massachusetts.

Tyghe’s update comes ahead of Jushi releasing its first quarter financial results for 2022 on May 25, with Tyghe expecting there to be plenty of noise based on the wide range of adjusted EBITDA estimates, which have varied from a $3.2 million loss to potentially being $6.8 million to the positive. (All report figures are in US dollars apart from share prices.)

“The noise in-quarter (in addition to the broader and well documented macro headwinds) includes the puts and takes on material cost cutting and vendor rationalization initiatives in Pennsylvania, overlaid with negative weather and recall related impacts,” Tyghe said.

Tyghe is forecasting $62.2 million in revenue for the quarter compared to the consensus target of $63.5 million, with his forecast coming on account of a weak macro backdrop, continued pricing pressure, and weather-related store closures, which would more than offset the positives from new stores, share gains in key markets, and the contribution from the acquisition of the Apothecarium Nevada, which only closed on March 17.

However, Tyghe is forecasting improvement on the margins, as his $2.8 million adjusted EBITDA forecast (4.6 per cent margin) is more optimistic than the consensus estimate of $1.3 million, which Tyghe expects will be supported by shelf space optimization initiatives and substantial labour related expense reductions.

Meanwhile, Tyghe projects an adjusted gross profit of $26.9 million to expand that margin to 43.2 per cent, which he believes will be driven by vendor and product rationalization, along with cost cutting in key markets.

This past week has been busy overall for Jushi, having launched its first line of solvent-free live rosin extracts made by The Lab and solely done with flower, water and ice in Pennsylvania, with the expectation of entering its other markets throughout the summer pending regulatory approval.

Most recently, the company announced that its Campbell Hill Ventures subsidiary in Ohio has been awarded a provisional medical marijuana dispensary license by the Ohio Medical Marijuana Control Program, meaning Jushi now has five fully-integrated states as its first store will open just east of Cincinnati.

“We are very pleased with the outcome of the lottery selection, which allows Jushi to open its first licensed medical dispensary in Ohio and establish our fifth vertically integrated market. Along with this win, we intend to pursue additional retail dispensary licenses through opportunistic acquisitions to expand our Ohio retail store base,” said Jim Cacioppo, Chief Executive Officer, Chairman and Founder of Jushi in the company’s May 18 press release. “We look forward to bringing the full Jushi retail experience to Ohio, including our new retail design system, which will provide patients with an efficient, accessible, and safe experience that goes beyond the traditional cannabis retail environment. With this newly awarded retail license, along with our existing state-of-the-art cultivation and processing assets, Jushi is well-positioned to support the rapidly evolving Ohio medical market.”

With quarterly results pending, Tyghe has maintained his overall financial outlook for Jushi Holdings, as he continues to project revenue coming out at $318.8 million for 2022, producing a potential year-over-year increase of 52.3 per cent. Looking ahead to 2023, Tyghe forecasts a jump to $449.1 million in revenue for a projected year-over-year increase of 40.9 per cent.

From a valuation perspective, Tyghe forecasts the company’s EV/Sales multiple to drop from the reported 2x in 2021 to a projected 1.3x in 2022, then to a projected 0.9x in 2023, which would come in ahead of the mid-cap peer group average of 1.4x and the large-cap peer group average of 1.9x.

Meanwhile, Tyghe also maintained an EBITDA projection of $42.8 million in 2022 for a year-over-year increase of 152.3 per cent and a margin of 13.4 per cent, followed by a jump into nine figures at a projected $101.9 million for year-over-year growth of 138.3 per cent and a wider margin of 22.7 per cent.

Accordingly, Tyghe forecasts a dramatic drop in the EV/EBITDA multiple from the reported 24.4x in 2021 to a projected 9.7x in 2022, then to a projected 4.1x in 2023, which would outpace the mid-cap peer group average of 5.1x and the large-cap peer group average of 5.6x.

Jushi Holdings has seen its stock price drop by 41.3 per cent over the course of 2022, beginning its decline after early momentum sent it to a 2022 high of $5.87/share on February 9, dropping as low as $2.33/share on May 13.