Pennsylvania And Virginia Retail And Canopy Expansion Will Open Markets

Key Takeaways

• Expanding retail and canopy space aims to enhance revenue, anticipating market growth from potential adult-use cannabis legalization.
  
• Improved product mix and operational efficiencies are set to increase profitability and support earnings growth.
  
• Increased market competition, regulatory uncertainties, and operational inefficiencies could hinder Jushi Holdings' revenue growth and profitability.

Catalysts

A vertically integrated cannabis company, engages in the cultivation, processing, retail, and distribution of cannabis for the medical and adult-use markets in the United States.

• Jushi Holdings plans to expand its retail footprint by 40% by mid-2026 through the 7 and 7 strategy, expecting to open 14 new store locations. This expansion is likely to boost top-line revenue and overall profitability.
  
• The company is focused on increasing canopy space in Pennsylvania and Virginia, anticipating a potential adult-use legalization, which would significantly grow market size and revenues.
  
• Jushi's private label products and new high-margin SKUs are gaining traction, which can increase both revenue and net margins due to improved product mix with higher profitability.
  
• Continued operational improvements in Ohio, including successful cultivation results and cost-saving initiatives, are enhancing productivity and margins, supporting higher earnings.
  
• Potential regulatory changes in key markets like Pennsylvania and Virginia, including adult-use cannabis legalization, could expand market opportunities, significantly impacting revenue growth.

Jushi Holdings Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Jushi Holdings's revenue will grow by 6.3% annually over the next 3 years.
• Analysts are not forecasting that Jushi Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Jushi Holdings's profit margin will increase from -18.9% to the average US Pharmaceuticals industry of 20.0% in 3 years.
• If Jushi Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $62.0 million (and earnings per share of $0.32) by about May 2028, up from $-48.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 4.2x on those 2028 earnings, up from -1.4x today. This future PE is lower than the current PE for the US Pharmaceuticals industry at 17.2x.
• Analysts expect the number of shares outstanding to remain consistent over the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 10.17%, as per the Simply Wall St company report.

Jushi Holdings Future Earnings Per Share Growth

Risks

• The decline in retail sales in Illinois, Massachusetts, Nevada, and Pennsylvania due to increased market competition and pricing pressure is a risk that could negatively impact future revenues and profit margins.
  
• The efficiency challenges faced at cultivation and processing facilities in Pennsylvania and Massachusetts, resulting in higher per unit product costs, could constrain future gross profits and net margins.
  
• The reliance on anticipated regulatory changes in Pennsylvania and Virginia for potential market expansion presents significant uncertainty that could affect future growth and earnings if legalization does not proceed as expected.
  
• Continued pricing pressure and increased holiday promotional activity contributed to lower gross profit margins year-over-year, which could further compress earnings if these trends persist.
  
• The financial performance heavily depends on the successful execution of the 7 and 7 retail store strategy and obtaining regulatory approvals, posing execution risks that could impact overall revenues and profitability if not achieved.

Valuation

• The analysts have a consensus price target of $1.0 for Jushi Holdings based on their expectations of its future earnings growth, profit margins and other risk factors.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $309.6 million, earnings will come to $62.0 million, and it would be trading on a PE ratio of 4.2x, assuming you use a discount rate of 10.2%.
• Given the current share price of $0.35, the analyst price target of $1.0 is 65.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.