Jushi Holdings: Outlook Intact Despite Near-Term Pressures (OTCMKTS:JUSHF)

Jushi (OTCQX:JUSHF) reported $66M in Q4/21 revenues and adjusted EBITDA of $1.5M. Revenues were mainly in line and reflected strong sequential growth on the inclusion of acquired Massachusetts operations, higher traffic to dispensaries in Illinois and Virginia and greater wholesale activity in Pennsylvania and Virginia. EBITDA results however came in well below our in line, with prior guidance estimate of $7.6M on higher than anticipated OPEX as Jushi’s management continues to invest in the business for the long haul and gross margin pressure on both pricing headwinds and enhanced promotion.

Meanwhile, management withdrew 2022 guidance which had called for revenues to be in the range of $375M to $425M and for EBITDA to be between $21M and $25M. Instead, management now expects Jushi will achieve a run rate of roughly $375M to $425M in revenues and EBITDA between $70M to $90M for Q4/22 with results for the first three quarters of the year ramping to get to that level. The drag on results stems from a combination of factors including slower than anticipated regulatory progress particularly in Virginia, where the medical market was expected to ramp this year before a kick-off of rec sales in 2023 but little progress has still been made, pricing pressure in key markets including Illinois and Massachusetts, a slower than anticipated ramp in operations with the newly acquired Massachusetts assets and some temporary store closures due to Omicron concerns. In particular, we expect first half results to be challenged while noting the opportunity for upside later in the year particularly on beneficial Virginia legislation. We reduce our estimates to reflect the updated guidance and management provided color and now forecast Jushi to report annual results of$307M in revenues and an adjusted EBITDA of $43M this year.

While disappointed to see the dramatic numbers cut, we chalk the underperformance up to a combination of growing pains and the macro headwinds that Jushi’s peers are also reporting. Our positive outlook for Jushi does not change in the slightest as we continue to view Jushi as much more of a ’23 and ’24 story and our confident that outperforming growth and margin expansion will occur on the continued development of the company’s assets and given the company’s leading positions in Pennsylvania and Virginia and to a lesser extent Ohio. Furthermore, even as management noted a near term pause in M&A activity, we expect expansion through acquisition looms given the company’s background and capital position. We note that yesterday’s Cresco (OTCQX:CRLBF)/Columbia Care (OTCQX:CCHWF) transaction could ease some current challenges in completing deals as two well-capitalized peers are now less likely to be seeking new assets for the foreseeable future and any equity positions they may offer in transactions could seem riskier today for would-be sellers. Additionally, the sale of redundant licenses for Cresco/Columbia Care may open up new opportunities for Jushi to acquire additional assets in existing markets where the company can still expand (namely Illinois and Massachusetts) or in new states where the company’s TAM could be meaningfully expanding (Florida or New York). Furthermore, as referenced in a prior research note, the continued consolidation trend in US cannabis could in fact make Jushi an attractive takeout partner for a larger or similarly sized peer particularly given the company’s unique position in Virginia.

We maintain our Buy rating and $5.25 price target.

We revise our estimates and reiterate our price target.

• Revenues: Q1/22 from $88M to $62M; 2022E from $400M to $307M; 2023E from $500M to $460M.
• Adjusted EBITDA Q1/22 from $23.6M to $2.6M; 2022E from $111M to $42.6M; 2023E from $151M to $125M.

	2020	2021					2022					2023
	2020 Dec-20	Q1 ’21 Mar-21	Q2 ’21 Jun-21	Q3 ’21 Sep-21	Q4 ’21 Dec-21	2021 Dec-21	Q1 ’22E Mar-22	Q2 ’22E Jun-22	Q3 ’22E Sep-22	Q4 ’22E Dec-22	2022 Dec-22	2023 Dec-23
Revenues	80 .8	41 .7	47 .7	54 .0	65 .9	209 .3	62 .0	70 .0	80 .0	95 .0	307 .0	460 .0
COGS	43.5	22.9	26.1	30.7	45.0	124.7	37.2	40.6	45.6	53.2	176.6	237.8
Gross Profit	43.1	20.1	21.9	24.5	20.9	87.4	24.8	29.4	34.4	41.8	130.4	222.2
Opex	52.30	21.2	25.8	24.6	38.3	109.9	38.4	37.4	38.4	38.4	152.6	161.6
Operating Income	(9.23)	(1.1)	(3.8)	(0.2)	(17.5)	(22.6)	(13.6)	(8.0)	(4.0)	3.4	(22.2)	60.6
Other Income	(192.2)	(19.3)	14.7	47.3	36.2	79.0	0.1	0.1	0.1	0.1	0.4	0.4
Pre-tax Income	(201.5)	(20.4)	10.9	47.1	18.8	56.4	(13.7)	(8.1)	(4.1)	3.3	(22.6)	60.2
Current Tax	14.4	6.5	6.2	7.6	9.7	29.9	6.2	6.2	6.2	6.2	24.7	24.7
Net Income	(211.9)	(26.8)	4.8	38.2	9.1	25.3	(19.9)	(14.3)	(10.3)	(2.9)	(47.3)	35.5
EPS	(1.8)	(0.2)	0.0	0.2	0.0	0.1	(0.1)	(0.0)	(0.0)	0.0	(0.1)	0.3
Shares	120.5	149.9	188.1	205.8	211.1	188.7	212.1	213.2	214.3	215.3	213.7	218.0
Adjusted EBITDA	( 2 .6 )	4 .5	4 .6	6 .4	1 .5	16 .9	2 .6	8 .2	12 .2	19 .6	42 .6	125 .4
% Revenues
Gross Margin	46%	45%	45%	43%	42%	40%	40%	42%	43%	44%	42%	48%
Opex	65%	51%	54%	46%	58%	53%	62%	53%	48%	40%	50%	35%
Operating Income	-11%	-3%	-8%	0%	-27%	-11%	-22%	-11%	-5%	4%	-7%	13%
Net Income	-265%	-64%	10%	71%	14%	12%	-22%	-12%	-5%	3%	-7%	13%
Adjusted EBITDA	-3%	11%	10%	12%	2%	8%	4%	12%	15%	21%	14%	27%
Growth Rates
Revenues
Y/Y		84%	220%	393%	104%	159%	49%	47%	48%	44%	47%	50%
Q/Q		29%	15%	13%	22%		-6%	13%	14%	19%

Source: Company Reports, Viridian Capital Estimates

Required Research Disclosures

Distribution of Ratings/IB Services
			IB Services in Past 12 months
Rating	Count	Percent	Count	Percent
Buy (Buy)	14	100%	0	0%
Hold (Hold)	0	0%	0	0%
Sell (Sell)	0	0%	0	0%
Not Rated (NR)	0	0%	0	0%

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