Jushi has target slashed by Beacon Securities

The stock is still a “Buy” but Beacon Securities analyst Russell Stanley has dimmed his outlook for US cannabis company Jushi Holdings (Jushi Stock Quote, Charts, News, Analysts, Financials CSE:JUSH). In a Thursday report to clients, Stanley lowered his target price from C$7.00 to C$3.50 per share, saying Jushi’s potential in the state of Virginia is worth watching.

Multi-state cannabis company Jushi, which has core markets in Illinois, Pennsylvania and Virginia and additional interests in California, Nevada, Ohio and Massachusetts, announced on Thursday that it has refinanced its debt otherwise due to mature next month and it also modified its other major debt facility to reduce covenant requirements. Proceeds from the $69 million debt financing will go with the company’s $9 million cash on hand to repay the company’s ten per cent senior secured notes. Jushi issued 16 million warrants convertible at C$2.84 per share, expiring December 2026.

With the new financing, Jushi’s forward earnings took a hit in Stanley’s estimates, where his 2023 adjusted EBITDA forecast has now been reduced from $138 million to $75 million, resulting in the drop in the analyst’s target price.

“We continue to view JUSH as one of the most revenue-levered plays on Virginia (still our #1 draft pick amongst cannabis markets, expected to open the adult-use market in January 2024) and Pennsylvania (likely to revisit AU legalization during the 2023 legislative session),” Stanley wrote.

Looking at the upcoming fourth quarter results, Stanley noted that in the company’s third quarter report in November management had reiterated its previous guidance for annualized revenue of $320-$350 million, with low double-digit EBITDA margins. Stanley said that translates to about $84 million and $10 million in revenue and adjusted EBITDA, respectively. For his part, Stanley is forecasting $79 million and $4 million. Further afield and with the new amendment, the analyst’s call is for 2023 revenue and adjusted EBITDA of $404 million and $75 million, respectively.

“JUSH is trading at 8.9x our new F2023 adjusted EBITDA forecast, representing a nine per cent premium to the 8.2x average amongst US operators. Potential catalysts include additional retail openings (particularly in VA), other buildout updates and the Q4 results in early 2023,” he said.

US pot stocks sold off sharply in recent sessions, with Stanley pointing to the exclusion of the SAFE Banking Act from the US National Defense Authorization Act as a factor. For Jushi, the development has taken the stock into a test of its original uptrend, Stanley said, as well as its 50-day moving average, which could offer near-term support, he says. At press time, Stanley’s new C$3.50 target represented a projected one-year return of 51 per cent.