Canaccord Genuity has initiated coverage on Jushi Holdings Inc. (JUSHF) with a speculative Buy rating and a $7.50 price target. The stock closed Tuesday at $5.74.
Analyst Bobby Burleson cited Jushi's planned store growth for 2021 and its exposure to the Illinois and Pennsylvania markets for the rating. The analyst also noted the potential for the Virginia market, although it is early to know whether this market will be as promising as others.
While other brick-and-mortar stores are closing right and left, cannabis dispensaries are proving that physical retail isn't dead. Jushi is expected to operate 23 stores by the end of the year. It currently has 13 stores, mostly located in Pennsylvania and Illinois, with a slight presence in California and a small location in Virginia. Virginia is too early to call but could be like Arizona and Pennsylvania based on approved conditions. It is also a limited license state, which bodes well for companies that receive approval early. Burleson wrote that Jushi "is the only operator licensed for the densely populated, affluent metro area of Northern Virginia just outside of Washington, D.C."
Expansion is planned for California, Nevada and Ohio. The company has a modest market share in the Golden State but looks to increase that footprint. Jushi's current business in Nevada is as a cultivator and producer, but Burleson said there could be a retail opportunity there in the future. Ohio is a cultivation business at this time and will be operational in 2021.
Jushi has eight dispensaries in Pennsylvania, which is a medical-use-only state. The company has plans for another seven and Burleson estimates Pennsylvania will account for 45% of Jushi's 2021 revenue. The state has more than 100 active dispensaries with 500,000 registered patients and caregivers. Retail sales have hit roughly $1.1 billion since the program was established. Traffic and retail sales have jumped as a result of the Covid-19 pandemic due to anxiety and disruptions in the illegal markets.
While all this sounds great, Pennsylvania could see sales decline if New Jersey legalizes recreational use Those consumers who are really recreational users but are using medical cards may be motivated to cross the state line to make purchases. However, support for full legalization in Pennsylvania is growing, and state budget shortfalls due to the pandemic could serve as the tipping point for such legalization. Burleson said full legalization could happen in Pennsylvania by 2023 and it is estimated the state could bring in $580 million in annual tax revenues.
Jushi has six stores in the Philadelphia metro area and a modest but growing presence in Pittsburgh. The company also has a store in downtown Scranton and a future location in Hazleton, where the next closest dispensary will be 40 minutes away.
Illinois is Jushi's second-largest market and makes up roughly 32% of Burleson's 2021 revenue forecast for the company. The state has been crushing it when it comes to sales. There are 110 licensed dispensaries in the state and Illinois clocked $87 million in sales in December. Burleson wrote that a study by Freedman and Kolski suggested the state could generate up to $2.6 billion in annual sales. The company has two operational dispensaries that are already bringing in $50 million a year. Jushi plans on opening two more stores early this year.
Jushi's best-performing store is in Sauget, which is known as a Midwestern entertainment location. It is connected by a bridge to St. Louis and is considered to be Las Vegas-like for its party atmosphere. Jushi just opened a second Sauget store at the end of December and plans another Bloomington store in January. The company also has a craft grow license, which the analyst believes would allow the company to go vertical if it chooses.
Virginia is a new medical-only state with high barriers to entry. The state set up five Health Service Areas (HSA) and each permit holder must be vertically integrated. The holders can then open an additional five stores. Jushi said it believes the Virginia store could bring in $20 million by midyear. The real bet is on the future. The location Jushi snagged is the most densely populated HAS and is located outside of Washington, D.C. The population is known to have high incomes and is home to many millennials, which is a strong demographic for customers.
"We expect a healthy multiple for Jushi to persist in coming quarters, with the stock catalyzed in large part by new store openings (we anticipate 10 new stores in 2021)," Burleson wrote. The company is sitting on a cushion of $121 million in cash and its growth is fully funded. In addition to more stores, Jushi could make acquisitions. This company has grown quickly but in a methodical way.
