Jushi Strategizes for Long-Term Amidst Cannabis Market Volatility
- Jushi Holdings Inc., the owner of Beyond Hello dispensaries, has seen growth and resilience despite the downturn in the cannabis sector, according to a report by Water Tower Research LLC. They have used a vertical integration approach, achieving higher margins and control of the supply chain.
- Jushi’s focus is on limited-license markets transitioning from medical to adult-use cannabis, which are expected to more than double sales. Virginia and Pennsylvania transitioning to adult-use markets are the two biggest drivers of Jushi’s future revenue growth. Jushi has also managed to reduce its operating expenses.
- However, despite these positives, the company reported losses of $20.6 million in the third quarter, bringing its losses for the year to $47 million. Jushi’s prospects are closely tied to legislative developments, with the cannabis industry’s growth continually being hampered by regulatory issues. The report suggests that these current challenges could be future opportunities if legislative hurdles are settled.
Resilient Growth of Cannabis Leader Jushi Holdings Amid Industry Challenges
Despite the numerous challenges in the cannabis industry, Beyond Hello dispensaries owner Jushi Holdings Inc. (CSE: JUSH) (OTCQX: JUSHF) has found a pathway to growth and resilience, according to a recent Water Tower Research LLC report.
The cannabis sector has seen a considerable downturn, with the MSOS ETF falling over 90% from its peak in February 2021. Despite this, Jushi’s vertical integration strategy, implemented in five out of its seven operating states, shows promise.
Such an integration is meant to achieve higher profit margins and better supply chain control, according to Jesse Redmond, WTR’s Managing Director.
At the core of Jushi’s strategy is focusing on limited-license markets transitioning from medicinal to adult-use cannabis. This sector shift often results in double sales, a trend that could greatly impact Jushi’s future revenues.
The report estimates Jushi’s revenue to grow at 3.16% between 2023 and the previous year, while the sector average is 12.16%.
“The main drivers of Jushi’s future revenue growth are Virginia and Pennsylvania transitioning to adult-use markets,” said Redmond.
“Jushi is well-positioned to benefit when Pennsylvania allows adult-use sales, with its 16 active Beyond Hello dispensaries and an approximately 123,000-square-foot cultivation and processing facility. Despite the unpredictability of politics, Governor Josh Shapiro included an adult-use line item in the budget starting from January 1, 2025.”
Approximately 52% of Jushi’s total retail sales in Q3 were represented by its in-house brands, highlighting its strong product line appeal.
Jushi’s stock is currently trading below its peer group average, at “just 1.0x 2023 EV/sales,” according to the report. The company also demonstrated effective cost management, as its operating expenses fell 5.5% over the quarter and 67.1% over the year.
Despite such solid financial management, Jushi reported a $20.6 million loss during Q3, leading to this year’s losses totaling $47 million, an improvement of $34.1 million YoY.
“Jushi is working on improving its balance sheet and financial performance,” said Redmond. “At the end of 3Q23, Jushi had $226.4 million in total debt, excluding leases and property, plant, and equipment financing obligations, and $30.5 million in cash, cash equivalents, and restricted cash.”
However, like the broader industry, Jushi’s future is closely linked to legislative developments. The cannabis industry’s growth is often stymied by regulatory challenges, including federal cannabis laws and conflicting state and federal laws.
The report suggests that current challenges could become tomorrow’s opportunities, hinting at a potential upside if legislative barriers are resolved. This cautiously optimistic outlook has influenced the company’s market positioning and financial prudence.
The report states, “While revenue growth has been constrained as 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.”
“Cannabis presents an opportunity ahead of these changes to capitalize on the expanding total addressable market (TAM) as new states legalize it.”
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