In a recent comprehensive analysis by senior analyst Pablo Zuanic of Zuanic & Associates, Jushi Holdings JUSHF stands out as a multi-state operator (MSO) with significant market cap upside potential, particularly from developments in Pennsylvania and Virginia.
Zuanic underscores Jushi’s leading position to benefit from regulatory shifts in these states.
Assessment of Financial Outlook
Jushi’s current enterprise value (EV) is calculated at $414 million, trading below the MSO average at 1.5x EV to current sales. This undervaluation overlooks the substantial upside from Pennsylvania and Virginia, suggesting a rerate is imminent as regulatory clarity emerges.
Zuanic’s analysis also addresses Jushi’s financial maneuvers and strategic positioning, including debt management and market expansion strategies, indicating a cautiously optimistic outlook for the company’s future.
Evaluating Bull And Bear Cases
Zuanic articulates a bullish scenario where Jushi’s EBITDA could quintuple, assuming Pennsylvania and Virginia initiate recreational sales. This could propel the company’s valuation to significant heights, potentially making the company an attractive acquisition target.
Conversely, the bear case suggests a limited downside due to ongoing growth in Virginia’s medical program and operational efficiencies, despite challenges in other markets.
Pennsylvania’s Promise
Jushi is poised for a market cap surge of over 250% if Pennsylvania
initiates recreational cannabis sales, leading the pack among MSOs. With PA’s well-developed medical marijuana market generating sales above $1.5 billion and home to over 430,000 active patient certifications, the transition to recreational sales could vastly amplify Jushi’s valuation.
Under various scenarios, Zuanic projects an EBITDA upside, with a potential market cap increase of over 200% for Jushi, eclipsing competitors like AYR AYRWF, Cresco CRLBF, and TerrAscend TSNDF.
Virginia’s Potential
Virginia presents an even more dramatic upside, with a projected market cap increase for Jushi exceeding 500% if the state transitions to recreational sales. Despite the current modest medical market size of $145 million, the potential expansion to rec sales could result in a 6-8x growth.
Jushi, holding one of the four vertical licenses in VA, is well-positioned to capitalize on this growth, alongside The Cannabist CBSTF and Green Thumb GTBIF.
Potential Outcomes If Status Quo Remains
Zuanic’s assessment indicates that despite Jushi Holdings lagging behind its MSO peers in sales momentum, profit margins and balance sheet robustness, the company is well-prepared to handle the current market environment.
In response, Jushi has streamlined its operations, including closing two stores in California, relocating stores in Pennsylvania and improving operational efficiencies, which has led to a significant increase in EBITDA margins to 17% for the first three quarters of 2023 from 9% in Q4 2022 and 2.5% for the full year of 2022.
The company has also seen a notable improvement in cash flow, with free cash flow for January-September 2023 improving to -$16 million, compared to -$78 million in 2022 and -$90 million in 2021.
Despite a strained balance sheet, Zuanic considers the situation manageable, noting Jushi’s financial net debt at the end of Q3 2023 stood at $181 million, which is 0.7 times sales and four times the annualized year-to-date EBITDA run rate.
Debt reduction efforts are ongoing, including potential waivers from litigation, asset sales, finalizing the liquidation of Jushi Europe SA and securing $10 million from the Employee Retention Tax Credit program.
Jushi is contesting a $103 million income tax liability and has reclassified $99 million to long-term liabilities as “unrecognized tax benefits,” a move also seen with other companies like Curaleaf CURLF and Trulieve TCNNF.
Looking ahead, approximately $65 million of its first lien debt is due in December 2024, which Zuanic expects will be refinanced under potentially more favorable terms, especially if Pennsylvania and Virginia initiate recreational sales by that time.
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