Background and Information
Jushi Holdings (OTCQX:JUSHF) is a cannabis company well-positioned to dominate from multiple trends within the cannabis industry. I interviewed Michael Perlman, EVP of Investor Relation and Treasury for Jushi. Michael and I covered various micro and macro topics affecting the company’s product portfolio, top and bottom line, and federal legalization. While our time was brief, we made the best of it, and I hope this article can truly articulate the unique value opportunity that investors have with Jushi. Looking forward, federal legalization is not the only solution for Jushi as they operate in medical use markets trying to go to recreational legalization. Therefore Jushi can work with or without legalization. It also helps that Jushi is a vertically integrated MSO with experience in moving from medical to recreational legalization. I don’t believe the market has priced in the company’s forward high growth due to Jushi’s continued underfollowing. As I prepare my portfolio for 2022, Jushi will be one of my top picks for this year.
Growth Potential is Unmatched
The company’s growth potential is unmatched. Jushi has been very active in collecting licenses and establishing cultivation centers. The nature of their vertically integrated business will streamline profits for future quarters. The high profitability of this venture shows in their earnings. I believe sales will be significant throughout 2022, and cannabis will become a powerful theme with legalization on the horizon.
The strong presence in emerging markets is exciting. Pennsylvania has a robust medical program, and the state will increasingly look to transition toward recreational sales. This would create massive traction in the stock due to 18 out of 50 total dispensaries. I like the market in Pennsylvania, especially since New York and New Jersey are huge markets that are relatively close by. Jushi is targeting Ohio, which is new. Considering the company has an office in Ohio, it’s easy to see how it would want to open up dispensaries in the state. Currently, Jushi only has processing and cultivation centers in Ohio. Still, when state recreational legalization comes around, I wouldn’t be surprised if Jushi is No. 1 on the shortlist for Ohio cannabis dispensary licenses. Specifically, in Ohio, the market is enormous from Cleveland to Columbus. There are populations of people that will be happy consumers of Jushi’s products.
I am most excited about the three markets for Jushi are Ohio, Nevada, and California. I like Ohio precisely because of the mass population centers and the early focus on the state. Setting up a satellite headquarters in Ohio makes it easy to see how Jushi is trying to get into the condition early and get a massive lead before other operators have time to get into the market. Nevada is attractive because of the sheer amount of tourism to Nevada. By strategically setting up dispensaries, growers, and processers, in significant cities, Jushi is enabling future wholesaling and distribution opportunities and bolstering their inventory and robust product line. California is the market when you think of weed. However, Jushi has a surprising foothold. The company has one out of three total dispensaries in Santa Barbara and has planned operations and operational stores along the coast. These are the population centers and where the most traffic will be. This is not accounted for in the stock price as investors have seen.
At first glance, the statistic that pops out to me the most is online sales. Considering the company can conduct transactions online and give consumers a variety of options at their fingertips puts Jushi ahead of the competition. The company is giving itself a definite advantage in its potential mass retail adoption by embracing technology. Their conversion rate and the high average cart size will prove promising for future earnings.
Operations are Bolstered by the Strong Product Portfolio and Liquidity
Jushi’s operations will only expand into the near future. With a robust product portfolio and a solid base of operations, the company has the needed fundamentals to have a breakout year. Along with the substantial cash reserve, Jushi will remain stable for some time. The company will be using the remaining cash for dispensary and cultivation licenses in new states. This could bring in high revenue due to their existing locations and destruction network. This would be QA’s major boon for any dispensary trying to start.
The concentrates portfolio markets toward a wide variety of consumers. From CBD tinctures to THC concentrates, Jushi has a variety of products for various consumers. This will be key as the company can slowly introduce consumers to other cannabis products with functional or recreational use. Overall the brands are strong and market to the right brand of consumers.
The strong liquidity position is an underappreciated asset. Even though there is higher debt than cash on hand and the market cap will be considerably diluted, the company’s shares will remain strong. This is natural for companies to go through at this stage, and I encourage investors to hold through these dips. Jushi is competing in a small pond, and currently, the company makes up considerably more in market share than it does market cap. When investors realize the opportunity at hand, Jushi will have a significant re-rating.
Risks are Relevant to the Growth Story
With any growing industry, there are risks to the growth thesis. Cannabis legalization may not happen on a federal level in 2022, and investors may have to wait out another year in anticipation of federal legalization. Regardless of this scenario, Jushi is well-positioned to weather the storm. The company has loaded up on cheap debt and is ready for rising rates and other macroeconomic factors such as the fed balance sheet. Looking at Jushi against its industry, I believe it stands pretty well. Considering the company makes up 3% of AdvisorShares Pure US Cannabis ETF (MSOS) and 10% of AdvisorShares Poseidon Dynamic Cannabis ETF (PSDN), there are steady fund flows along with improving fundamentals. This begins to des risk the tock slightly as there is a fundamental price basis into the stock kinds. Therefore, it will be somewhat less volatile. Granted, it is in the Poseidon Dynamic Fund, but the company still means a solid pick regardless of the potential volatility. Overall, Considering 2022, Jushi is a strong plan and will continue to generate investors’ profits for quarters to come.
Valuation is Low Compared to Peers
Jushi closely tracks its MSO peers as they operate in markets with similar macroeconomic factors. The two companies that most closely align with Jushi are the Canadian company does is Curaleaf (OTCPK:CURLF) and the Florida Based company Trulieve (OTCQX:TCNNF). Both are trying hard to penetrate the US market once federal legalization happens in the US. This has also caused the three stocks to trade relatively similarly due to their small market and low investor sentiment over the past twelve months.
Jushi has severely underperformed in the past couple of months. This is because of increased negative sentiment about cannabis due to stuffy regulations and the oversupply of products. If legalization is genuinely on the horizon, this surplus could quickly turn the other way.
EV sales for Jushi look strong at these levels. The company’s EV/Sales ratio is also at these levels because of the high sales growth the company has been achieving while maintaining profitability. With continued funds flowing into the stock, I could easily see these multiples expanding as investor sentiment around the cannabis industry improves in 2022.
Conclusion and Rating
Jushi is a strong pick, and the company’s growth opportunities are apparent. I was impressed by the interview with Michael, and I am even more engraved diving deeper into the company. I have to give Jushi a Strong Buy, and I look forward to future results. I know I will be a strong buyer of Jushi stock, especially at these low levels.