Jushi Holdings JUSHF Stock – significant upside potential

I have looked at Jushi Holdings JUSHF stock a couple of times.  In fact, Jushi is one of my top picks listed with the best marijuana stocks to buy now.  They are growing.  Fast.  They recently pseudo-reported their earnings (They are delayed).  Jushi Holdings pseudo-report showed the most recent revenues (Q4 2020) as well as this quarter’s revenues (Q1 2021).  I was willing to wait until the final report to do an analysis.  However, Mr. Market was not.  JUSHF jumped up from about $5.50 to nearly $7.50 in a very short period of time.  This officially becomes a cannabis stock to watch if it is not already on your list.

I wanted to first break down the latest chart movements and some rationale as to what is going on.  Then, I wanted to show how Jushi Holdings is putting it together and will continue to increase revenues while EBITDA positive, they continue to improve.  The eventuality is that Jushi Holdings becomes net earnings positive, something that I can see occurring this year.

JUSHF Stock Chart

Here is  a look at JUSHF Stock daily chart:

Jushi Stock JUSHF 4-Hour Chart
Jushi Holdings JUSHF Stock Daily Chart

As anyone can see, this has been a long, slow progression upward for the stock off of its bottom back in October.  Had you picked this up back one year ago, you are legend.  I am going to break this down and show that there is still a lot of upside potential here.  I believe that this is the early part of the move in cannabis.

First, however, I wanted to point out that cannabis does not live in a bubble.

S&P 500 Chart

There has been a lot of movement upwards in the broader market.  This is something that investors in cannabis need to start focusing on:

Jushi Holdings JUSHF Stock v SPX Chart
Jushi Holdings JUSHF Stock v SPX Chart

As an investor in the cannabis market, you need to see both the tree and the forest.  The above chart, the S&P 500, shows the results of what is going on in the broader economy.  Companies are earning profits and stocks are continuously moving higher.

When we look at future earnings per share and the multiple we use to determine a rational valuation, we look towards interest rates as a key barometer.  This is just but one variable.  But, it is important.  Interest rates are pushing higher.  Because of that, the future earnings multiple is going to begin to move lower.  The above chart, the S&P 500, is going to move lower… along with cannabis stocks.

I expect there to be a minor correction and then a continuation of prices higher.  Treat the dip as a buying opportunity.  Then, adjust your future earnings multiple accordingly based upon future inflation and yield.

Jushi Holdings JUSHF Stock Essentials

Here are a couple of basics that a potential investor will need to know about Jushi Holdings.  First, here is the dispensary count:

  • 11 Dispensaries in PA
  • 4 Dispensaries in IL
  • 1 Each Dispensary in CA & VA
  • Planned acquisition in OH
  • Options for 3 dispensaries in other locations (2 operational)
  • Another 17 dispensaries planned

They have 6 brands covering all of the various possibilities for products such as flower, vape, edibles, CBD/Hemp products, and such.  I don’t go too far into products and brands; I treat all cannabis companies about the same.  I figure they have a solid product mix and that consumers generally enjoy the products.  As long as revenue continues to increase that shows that this basic concept is in line.  Later, down the road, I will look deeper into more competitive aspects of which product outperforms the next, and why.  There’s no real need to look at that kind of minutia at this point.  For now, it is all about the metrics for me.

Revenues

First up from the financials is revenue; increasing rapidly:

Jushi Holdings Revenues
Jushi Holdings Revenues

The final revenue report was just finished.  The auditors had not finished the audit and therefore Jushi delayed the release.  They put out a press release that I am using to create this chart above.  All we were supposed to get was the $32.3M revenue but, management was feeling confident and gave us Q1 2021 revenue levels.  That is the $41.6M.  There were some numbers inside the latest release that I was able to get.  The rest I had to squeeze out from previous quarters.

Nonetheless, the revenue picture is solid.  There should be continued revenue increases going forward.  But, I am not certain that the 29% QoQ will hold every quarter.  This is something additional that cannabis investors are going to have to contend with, the rate of growth.  These companies are not going to print massive revenue increases quarter-after-quarter ad infinitum.

Gross Margins – is it a typo?

Gross margins were reported as 44%.  But, total revenue for Q4 was also reported as $32.3M with $17M in gross profits.  Do the math.  That puts gross margins at 54%.  The report stated 44%.

Jushi Holdings Gross Margins
Jushi Holdings Gross Margins

I’m thinking that the reported statement was to be 54% simply because my calculator has never lied to me before.

At this level, Jushi is getting there.  They would need to push this metric up slightly to about 60% over the next couple of quarters.  The top-tier cannabis companies usually print about 60% – 65% in gross margins.  My expectation is that as revenues continue to increase, economies of scale and productivity gains will create more cost savings and by consequence, higher margins.

For Jushi Holdings Financial data; click HERE

Operational Costs

Operational costs have been kept in check.  As the company has grown into higher revenues they have not increased back-office supporting staff:

Jushi Holdings Total Operating Costs
Jushi Holdings Total Operating Costs

Now, I do NOT want to speak too soon.  Take a look at the long, long list of career opportunities at Jushi.  Most of these jobs would add to total operating costs.  Hopefully, the increase in employee additions will be measured and proactive.  Just for the record, there was a listing for a financial analyst to look into opportunities for Jushi to invest in.  It’s almost tempting to me.

The current operating costs versus revenue gains are showing an improving trend with operating efficiencies:

Jushi Holdings Operating Efficiencies
Jushi Holdings Operating Efficiencies

As I mentioned, Jushi has a long list of jobs they are looking to fill.  In the meantime, this metric is solid as the best companies tend to print between 30% – 35% for total operating costs versus total revenues.  If revenues continue to climb at this same pace then Jushi will be sitting in an excellent position.

It is important to make note that while Jushi is building out its remaining facilities and just launching other facilities, they are not generating revenues.  In the meantime, they have to pay the rent.  So, this number is slightly skewed because of the latest build-outs.  Once these dispensaries are up and running, this metric will improve significantly (You want the lowest possible number).

For Jushi Holdings Financial data; click HERE

EBITDA & Net Profits

We are still in the stages of cannabis where the first place we look is EBITDA profitability.  This shows whether the fundamental foundation of the business is going to be profitable.  If a company can produce a product at a certain cost, sell it, and keep operational costs low enough where there is a profit, then it is a matter of time that net earnings will turn profitable.  Jushi is EBTIDA profitable:

Jushi Holdings EBITDA
Jushi Holdings EBITDA

From this point, if there are continued increases in revenues, especially from same-store sales, then economies of scale will inevitably increase EBTIDA profits.  Then, once a certain level of marginal profits is achieved, net earnings positive is the next step.

Jushi Holdings Net Earnings
Jushi Holdings Net Earnings

Net income positive is not far behind.  However, one-time expenses pushed this metric negative.  I look for net earnings to turn positive this year.

For Jushi Holdings Financial data; click HERE

Balance Sheet

A commenter asked that I start adding in information regarding assets and liabilities.  Mostly, the focus is still on gaining traction with revenues and costs for cannabis companies.  But, something popped out at me with Jushi and I wanted to show this:

Jushi Holdings Book Value
Jushi Holdings Book Value

Book value per share shows what a fire sale would do for the company and the per-share value of assets.  It also adds a small nod towards intrinsic value.  I like using this as a metric for a company when they are not profitable yet.  After all, we look towards future earnings to create a multiple for EPS and valuation.  So, if a company is not profitable the only thing available to go on is its book value per share.  Jushi is not profitable but, they are getting there.  However, its stock is about 10x book value.  This is an eyebrow-raiser for me.

This merits a bit of thinking when it comes to current valuation and where to get in with price.  I had hoped to get in at a much lower price – wouldn’t we all.   But, the recent moves upwards have me giving pause.

On the other hand, they also have some $98M cash on hand (With about $168M total cash & short-term investments)

Jushi Holdings Cash On Hand
Jushi Holdings Cash On Hand

For Jushi Holdings Financial data; click HERE

Is JUSHI Stock a good buy?

Across the board, Jushi Holdings has solid metrics; they really do not struggle anywhere.  There will be continued increases in revenues and that will offer economies-of-scale and improved purchasing power, pricing power, as well as productivity.  Jushi does not have too far to go to get to some of the best levels for gross margins. They are printing about 55% now but incrementally, I expect they will get above 60% soon.

Then there are operating efficiencies.  As low as that metric is it shows how close they are to accomplishing an industry-leading metric there.  Plus, once these new facilities open up and generate revenue the math on this immediately improves.

The one thing that gives me pause is price.  Book value is 1/10th the price of the stock.  And, Jushi is not profitable.

What is a good price for Jushi Holdings JUSHF Stock?

There are a few things that I like about Jushi.  First, just look at the revenue picture; straight up.  Next, they are almost there with margins and costs.  EBITDA profitability is very positive for me.  The last thing is that they do not have a large outstanding share base; just 150M (As of the last data I saw).

Expectations are for $250M in revenue for this year with upwards of $50M in EBITDA.  let’s reverse engineer these figures to see how that kind of revenue and profit level would drive the stock.

  • $250M Revenue (Already printed $42M)
  • 40% Cost of Goods
  • 35% Operating Costs
  • 10% Continuing Costs

These are fairly standard metrics that I generally use for all of the companies I look towards.  However, I think with JUSHF Stock, the opportunity is with gross margins.  I think they can hit slightly higher than 62.5% but not until later in the year.  So, it is a balancing act with trying to gain insight into the metrics.

In the meantime, using these general margins and costs, management is a little soft on their own metrics.  Management ends with 20% EBTIDA whereas I hit about 25%.  That is close but, not exact.  Given that, net profits are going to be in the range of $25M – $37.5M.  At $32.5M, a conservative average, that is $0.216 EPS.  With a 100x future earnings multiple you are looking at a stock price of $21.65 per share for JUSHF Stock. That is by the end of the fiscal year.

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