A Top Vertically Integrated Multi-State Operator
US cannabis stocks, as represented by the MSOS ETF, have been in a 1,015-day drawdown and fallen more than 90% from the peak on February 10, 2021. Valuations are compressed and there are a series of potential catalysts ahead. These include cannabis being moved from Schedule I to Schedule III, and Virginia, Pennsylvania, Ohio, and Florida transitioning to adult-use sales. Jushi is a top multi-state operator (MSO) in the US cannabis industry. Its footprint spans seven states: Pennsylvania, Virginia, Massachusetts, Nevada, Ohio, Illinois, and California. Jushi is vertically integrated in every state except Illinois and California. Vertical integration often leads to higher margins and greater control of the supply chain. Jushi is focused on limited-license markets moving toward adult-use sales. We consider this the cannabis-investing sweet spot, as sales often more than double when markets move from medical to adult-use. With 16 active 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. Jushi has a strong and growing suite of brands that span flower, pre-rolls, vape carts, concentrates, edibles, and topicals. Wholesale revenues from these products have grown more than $1 million Y/Y and in-house brands represented ~52% of Jushi’s total retail sales in 3Q23. The stock is relatively cheap. At just 1.0x 2023 EV/sales, Jushi is below the 1.3x average for the basket. Jushi trades at 8.3x consensus 2023 EV/adjusted EBITDA forecasts, which is slightly higher than the 7.7x average for the basket. The firm continues to focus on streamlining costs and improving operational efficiencies both in retail and cultivation. For the quarter ending September 30, 2023, Jushi reduced operating expenses by 5.5% Q/Q and Y/Y operating expenses fell 67.1%.
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