Report: Jushi Plays Long Game to Weather Cannabis Volatility

The company is betting on medical-to-recreational transitions in already-staked markets.

Despite weathering the challenging headwinds facing the cannabis industry over the past few years, Beyond Hello dispensaries owner Jushi Holdings Inc. (CSE: JUSH) (OTCQX: JUSHF) has forged a path toward growth and resilience, according to a recent report by Water Tower Research LLC.

The cannabis sector has experienced a considerable downturn over the past half decade, with the MSOS ETF plunging more than 90% from its peak in February 2021. In this environment, Jushi’s vertical integration approach, which it employs in five of the seven states where it operates, stands out.

That integration is aimed at achieving “higher margins and greater control of the supply chain,” according to Jesse Redmond, managing director of WTR.

Central to Jushi’s strategy is its focus on limited-license markets that are transitioning from medical to adult-use cannabis. The report highlights that as a “cannabis investing sweet spot,” with “sales often more than double when markets move from medical to adult-use,” a natural trend responding to pent-up demand that could ideally impact Jushi’s future revenue streams.

According to the report, consensus estimates between 2023 and the previous year expect Jushi “to grow revenues at 3.16%, while the average for the basket is 12.16%.”

“The two biggest drivers of Jushi’s future revenue growth are Virginia and Pennsylvania transitioning to adult-use markets,” Redmond said.

“With 16 active (Beyond Hello) dispensaries and an ~123,000-square-foot cultivation and processing facility, Jushi is poised to benefit when Pennsylvania allows adult-use sales. While politics are unpredictable, Governor Josh Shapiro has an adult-use line item in the budget starting no later than January 1, 2025.”

In-house brands represented approximately 52% of Jushi’s total retail sales in the third quarter, which could reflect strength in its product line and consumer appeal.

Additionally, Jushi’s stock is trading below the average for its peer group, at “just 1.0x 2023 EV/sales,” the report said. The company has also been effective in cost management, with a operating expenses falling 5.5% over the quarter and 67.1% over the year.

But while the figures give a glimpse of that firm’s financial management approach in a sector known for its volatility, Jushi still lost $20.6 million during the third quarter, which brought its losses for this year so far to $47 million (a $34.1 million improvement year-over-year).

“Jushi is focused on improving its balance sheet and financial performance,” Redmond said. “At the end of 3Q23, the company had $226.4 million in principal amount of total debt, excluding leases and property, plant, and equipment financing obligations and $30.5 million in cash, cash equivalents, and restricted cash.”

“Increased operational efficiencies, increased wholesale revenue, growth of Virginia patients in the cannabis medical program, and new states opening for adult-use are the most likely drivers of improved performance moving forward.”

However, Jushi’s prospects, like those of the broader industry, are closely tied to legislative developments. And the cannabis industry’s growth is continually hampered by regulatory issues, including the classification of cannabis under federal law and conflicting state and federal laws.

The report posits that “many of the challenges of today are the opportunities of tomorrow,” suggesting a meaningful upside if legislative hurdles are settled. That cautiously optimistic outlook has driven both the company’s market positioning and a willingness for financial prudence – the long play, so to speak.

“While top-line growth has been constrained while we wait for key states like Pennsylvania and Virginia to convert to adult-use sales, the company has been focused on cutting costs and increasing operational efficiencies,” it said.

“Cannabis presents an opportunity ahead of these changes to harvest the expanding TAM (total addressable market) as new states come online.”

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.


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