Jushi Holdings Inc.'s (JUSH:CSE; JUSHF:OTCQX) Q4/22 financials were notable for a "steep step-up in profitability" and otherwise "met expectations," reported Echelon Capital Markets analyst Andrew Semple in a March 31 research note. Florida-based Jushi is a U.S.-focused producer and retailer of branded cannabis products.
"Jushi reported Q4/22 results that we view as solid in the context of soft earnings reports from other U.S. cannabis companies," Semple commented.
Review of Results
Semple presented the key points about Jushi's Q4/22 financials.
During this quarter, Jushi generated US$76.8 million (US$76.8M) of revenue, which beat Echelon and the Street's forecasts of US$76.1M and US$77.1M, respectively. Q4/22 revenue reflected a 16.6% year-over-year increase and a 5.5% quarter-over-quarter rise.
What was a surprise, Semple noted, was Jushi's wholesale revenues, which came in at nearly US$8M. Not only did this surpass Echelon's expected US$6.5M, but also it was a 38% quarter-over-quarter increase.
"We believe these wholesale gains can be held and built further upon in 2023 as Jushi brings online additional capacity in Virginia and Pennsylvania, upgrades its genetic mix, and finetunes operations," wrote Semple.
Gross margin in Q4/22 was 28.6%, but this was impacted by about US$5.5M in nonrecurring inventory adjustments. Without these, Semple wrote, Echelon believes adjusted gross margin would have been around 35.8%, but even this percentage fell short of Echelon's 41.1% projection and consensus' 40.5% estimate.
Jushi's Q4/44 EBITDA was US$6M, above Echelon and the Street's forecasts of US$4.2M and US$4.3M, respectively.
"This was a marked improvement toward Jushi beginning to demonstrate a pathway towards break-even free cash flow," wrote Semple.
Jushi ended 2022 with US$27.1M in cash.
Need To Raise Capital
Despite Jushi recently refinancing about US$76M in senior secured notes, Semple wrote, it will need to raise capital sometime this year. Echelon estimates the company will need US$20M before year-end 2023 and another US$20M for 2024. This US$40M total is down from Echelon's previous forecast of US$75M, the US$35M drop reflecting Jushi's efforts to quickly reduce its opex and capex spending.
Echelon believes a US$40M capital raise over the next 18 months should get Jushi to a break-even, levered free cash flow status. To raise funds, management is in discussions with commercial lenders and considering divesting its California retail stores that are not generating cash flow.
Hold Rating Reiterated
Echelon updated its financial model on Jushi, slightly increasing 2023 forecasts but lowering longer-term forecasts. Echelon reiterated its Hold rating but reduced its price target on the cannabis firm to CA$0.70 per share, about which it is currently trading, from CA$1.20.
"We believe the business is likely to sustain itself, but over the next two years we see little levered free cash flow accruing that would be available for shareholders, and Jushi's leverage ratios will remain above our coverage average, leading us to remain on the sidelines with a Hold rating," Semple explained.
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Disclosures For Echelon Capital Markets, Jushi Holdings Inc., March 31, 2023
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ANALYST CERTIFICATION Company: Jushi Holdings Inc. | CSE:JUSH
I, Andrew Semple, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.