Is Jushi Holdings a buy?

Following the company’s first quarter results, Echelon Capital Markets analyst Andrew Semple has maintained his “Hold” rating on Jushi Holdings (Jushi Holdings Stock Quote, Chart, News, Analysts, Financials CSE:JUSH).

On May 9, JUSH reported its Q1, 2024 results. The company posted Adjusted EBITDA of $13.3-million on revenue of $65.5-million.

“Our organization-wide commitment to delivering margin improvement is continuing to have a strong impact on our profitability,” said CEO Jim Cacioppo. “I am proud to share that our Q1 2024 gross profit margin is up to 49.4 per cent, with adjusted EBITDA further improving to 20.4 per cent of revenue for the quarter. While our revenue during the quarter was impacted by seasonal factors, including fewer sales days from the shorter month in February, a reduction in consumer spending post holidays and weather-related closures, the enhancements we have made at our grower-processors continue to drive bottom-line growth. Furthermore, we continued to reduce our debt and delever our balance sheet.”

Semple says this quarter showed signs of improvement, but he still wants to see more before recommending the stock.

“Jushi Holdings Inc. reported strong Q124 results, driven by a huge sequential improvement to margins,” he noted. “Gross margins beat our estimates by 525bps with a 923bps sequential improvement which drove higher than expected EBITDA. Its investments in efficiency optimizations led to increased output and verticalization in its key markets which helped lift margins in both wholesale and retail, while improved product quality also benefitted its realized pricing and consumer uptake of Jushi’s branded products. Although we were pleased with Jushi’s performance this quarter, we believe that the balance sheet risk still needs further improvement before we see a sustained re-rating in the Company. Jushi has taken several actions during the quarter to improve its balance sheet including repaying ~$10.0M of debt (offset by $4.8M of new debt issued) while maintaining its lower targeted capex spend of $3-5M for the year. The Company intends to raise additional cash for repaying its $58M acquisition facility provided by SunStream by year end. We estimate the Company will require a minimum of $40M of additional capital to refinance this upcoming debt maturity, and potentially higher amounts if the Company is interested in pursuing M&A or organic growth investments. This may be in part funded by various strategic initiatives the Company is pursuing. From the prior Q423 earnings call, management noted they are looking for receiving $10M of ERTC proceeds, $2-3M from asset sales, and ~$3M related to state tax refunds. If all these amounts materialize, we see the Company requiring ~$25M additional capital for refinancing the December maturing loan facility.”

In a research update to clients May 10, Semple maintained his “Hold” and price target of 39.8% on JUSH, implying a return of 39.8% at the time of publication.

Semple thinks JUSH will post Adjusted EBITDA of $56.4-million on revenue of $264.8-million in fiscal 2024. He expects those numbers will improve to Adjusted EBITDA of $61.5-million on a topline of $278.2-million in fiscal 2025.

“Even though we are optimistic on the prospects for cannabis to be rescheduled to Schedule III, we believe the risk/reward trade-off may be better in our Buy and Speculative Buy rated US cannabis names,” the analyst added. “Jushi’s upside potential is still heavily dependent on federal and/or state catalysts (e.g., PA/VA and a lesser extend OH) materializing and successfully navigating its balance sheet risk in 2024, in our view.”