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Jushi still a Buy with ATB Capital

New quarterly results from US cannabis company Jushi (Jushi Holdings Stock Quote, Charts, News, Analysts, Financials CSE:JUSH) arrived more or less in-line with expectations, but management’s negatively revised guidance was a bit of surprise. That’s according to ATB Capital Markets analyst Kenric Tyghe, who delivered a report on the company on Wednesday where he reiterated his “Outperform” rating on the stock while lowering his target price from C$9.00 to C$8.00.

Jushi, a multi-state operator with presence in seven states including core markets in Pennsylvania, Illinois, Massachusetts, Virginia and Ohio, announced first quarter 2022 earnings on Wednesday, showing total revenue of $61.9 million, which represented a 48.5 per cent year-over-year increase. (All figures in US dollars except where noted otherwise.)

“Despite the seasonal weakness in the first quarter and a series of challenges including the loss of store hours due to Omicron, snowstorms and the Pennsylvania distillate cartridges recall, I am pleased with our first quarter performance and the progress we have made in positioning our business for the long term,” said Founder, Chairman and CEO Jim Cacioppo in a press release. 

“We remain focused on investing in our businesses, including building out our store base, significantly expanding our cultivation and processing facilities in both Pennsylvania and Virginia, scaling our wholesale channel in Massachusetts, Pennsylvania, and Virginia, and integrating our two recently acquired businesses in Nevada,” Cacioppo said.

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Jushi’s Q1 featured a net loss of $14.3 million compared to net income of $7.5 million a year earlier and an EPS loss of $0.08 per share compared to positive $0.04 per share in the first quarter of 2021.

Operationally over the quarter, the company completed its acquisition of Las Vegas-based The Apothecarium, they closed on a $13.7-million private placement and launched new brands in Massachusetts, while since the end of March Jushi was awarded a provisional medical license in Ohio and bought land for a grow facility in the state, completed another Nevada acquisition in NuLeaf and opened its 32nd store in California under the Beyond/Hello banner. Jushi ended the quarter with $76.2 million in cash and equivalents.

Looking ahead, management said it expects to open four more stores but it also said its fourth quarter 2022 annualized revenue was now likely to be between $340 and $380 million and annualized adjusted EBITDA between $60 and $80 million, with both sets of numbers now lower than previously guided. Management pointed to three factors: a weakening macro environment, ongoing regulatory delays and supply chain issues.

“We want to be conservative in regard to our projected revenue ramp through the remainder of the year. By the end of 2022, we are targeting 50 retail licenses across seven markets, including 36 operating retail locations and approximately 330,000 sq. ft. of cultivation and processing capacity,” Cacioppo said.

Taking a look at the quarter, Tyghe proclaimed it mostly in-line with expectations, with the $61.9 million in revenue slightly below the consensus call of $63.2 million and the adjusted EBITDA of $1.1 million a bit above the Street’s $1.0 million. To Jushi management’s list of reasons for the negative guidance, Tyghe added the further idea that Jushi has had a more conservative M&A cadence than initially thought.

Tyghe also noted that despite being a year-over-year uptick, the $61.9 million in revenue represented a worse-than-expected 6.1 per cent sequential drop, which Tyghe put on macro pressures, the company’s vape recall in Pennsylvania and weather- and pandemic-related store closures.

“While the market-related challenges in Pennsylvania (on a 6.9% sequential sales decrease in-quarter, according to BDSA) were marked, driven by the weak macro backdrop and compounded by the vape recall, Jushi’s challenges extended to also include slightly weaker-than-expect performance in Illinois and Massachusetts. While cost-cutting initiatives gained some traction (and gross margin actually improved in Pennsylvania despite the headwinds), the benefit was partially offset by the increase in promotional penetration (and pricing pressure) in Illinois and Massachusetts,” Tyghe wrote.

Tyghe called closing The Apothecarium acquisition “a ray of sunshine” poking through the Q1 storm clouds and also noted the company’s rapidly expanding footprint in Virginia where three more stores are expected to open this year. The analyst noted that along with The Apothecarium closing on NuLeaf brings Jushi’s Nevada operations to three dispensaries (and a fourth to open in the current quarter) along with cultivation and production. Tyghe said Nevada sales were strong in 2021, rising by 46.5 per cent on 2020 to $1.0 billion, with the market showing resiliency during the pandemic. Nevada’s pot market is expected to grow at a 16.7 per cent CAGR to 2025 at sales of $1.9 billion.

Like the rest of the cannabis space, JUSH’s share price has been mostly falling for over a year now, with its year-to-date return currently at about negative 41 per cent. At press time, Tyghe’s C$8.00 target represented a projected one-year return of 237.6 per cent.

“Our new C$8.00 price target is based on the blended average of our DCF and EV/EBITDA valuation methodologies, which imputes a value of C$8.16 using a USDCAD rate of 1.28. We believe our price target is well supported given Jushi’s strong relative footprint in catalyst-heavy states. Our EV/EBITDA valuation applies an 18.0x target multiple (a premium to its mid-cap peer group average of 5.4x) applied to our 2023e EBITDA of $84.1 million (from $101.9 million prior). Our DCF terminal value represents roughly 13.6 per cent of our valuation, and our EV/EBITDA valuation an exit multiple of 93.4x,” Tyghe said.

About The Author /

Jayson is a writer, researcher and educator with a PhD in political philosophy from the University of Ottawa. His interests range from bioethics and innovations in the health sciences to governance, social justice and the history of ideas.
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