This Cannabis Stock Is Undervalued, Says Top Analyst: Why Jushi Has An Edge In The Market – Curaleaf Holdings (OTC:CURLF)

Zuanic & Associates gave Jushi Holdings Inc. (CSE:JUSH) (OTC:JUSHF) an Overweight rating as the firm begins its coverage of the marijuana company. The analysis underscores Jushi’s substantial potential within the cannabis sector, spotlighting its strategic footprint across seven states and its advantageous position for the shift to recreational weed sales in pivotal markets.

Overweight Valuation

According to senior analyst Pablo Zuanic, the Overweight rating for Jushi Holdings is rooted in a combination of undervaluation and strategic positioning.

He notes that Jushi’s current valuation at 1.5x sales starkly contrasts with the MSO average of 2.2x, signaling a significant undervaluation given the company’s expansive operational footprint and strategic advantages. This valuation gap, Zuanic argues, does not fully account for the company’s potential revenue growth driven by its readiness to seize the recreational cannabis market opportunities in states like Pennsylvania and Virginia.

Zuanic forecasts that the transition to recreational sales in these states could notably expand Jushi’s EBITDA, potentially by close to 6x and position the company for as much as 16x upside for its stock, underpinning the rationale behind the Overweight rating.

Strategic Market Position

Zuanic highlights Jushi’s valuation at 1.5x sales, which is notably below the multi-state operator’s (MSO) average of 2.2x, suggesting an unjustified discount given its considerable growth potential.

He emphasizes the company’s exceptional “market cap torque” within the MSO group, especially with PA’s potential shift to adult-use sales, reinforced by Jushi’s exclusive licensing in Virginia.

Zuanic’s report also scrutinizes the broader competitive landscape of the cannabis industry, shedding light on key players that vie alongside Jushi. Green Thumb Industries (OTC:GTBIF) and The Cannabist (OTC:CBSTF) are specifically recognized for their strategic advantage in Virginia.

The analysis further includes Curaleaf Holdings (OTC:CURLF), Trulieve Cannabis Corp. (OTC:TCNNF) and Verano Holdings (OTC:VRNOF) for their widespread operational networks and dynamic growth strategies, marking them as influential competitors in the evolving market.

Additionally, Zuanic elaborates on Cresco Labs (OTC:CRLBF), Acreage Holdings (OTC:ACRHF), Ascend Wellness (OTC:AAWH), AYR Wellness (OTC:AYRWF), TerrAscend (OTC:TRSSF), TILT Holdings (OTC:TLLTF), MariMed (OTC:MRMD), and Planet 13 Holdings (OTC:PLTH), indicating their vital roles in diversifying the competitive dynamics of the cannabis sector

Expansion And Growth Potential

The anticipated move to recreational cannabis in PA and VA presents a substantial growth opportunity for Jushi. With PA’s medical market already valued at $1.5 billion, the shift could significantly increase the company’s earnings before interest, taxes, depreciation, and amortization (EBITDA), potentially by sixfold.

Jushi’s strategic positioning in these markets, coupled with its operational readiness, positions it for minimal additional capital expenditure to meet the rec demand.

M&A And Industry Consolidation

Zuanic also highlights the consolidation trend within the cannabis sector, suggesting Jushi as a prime candidate for acquisitions. Its unique footprint, along with a lack of ownership caps in certain states, makes Jushi an attractive proposition for larger MSOs looking to expand their market reach.

Financials And Valuation

Despite the industry’s challenging dynamics, Jushi has demonstrated resilience, with a notable improvement in its financial metrics.

The company’s sales have stabilized at around $65 million, with EBITDA margins improving significantly year-over-year. The report estimates Jushi’s enterprise value at $414 million, with potential for re-rating as regulatory clarity emerges in its key markets.

Zuanic’s calculation is based on the company’s share price of $0.66 and includes all outstanding shares and stock options, which total about 197.7 million. To this market value, Zuanic adds $183 million in net debt (what the company owes minus what it has in cash), the value of long-term lease commitments after accounting for the value of leased assets, and $103 million that the company might have to pay in taxes.

However, if two specific financial adjustments were undertaken – recognizing $99 million in tax benefits that haven’t been accounted for yet and getting rid of $25 million in debt through legal means -the company’s value would drop to $290 million.

Compared to its current sales, Jushi’s value is 1.5 times its sales revenue. If the adjustments were made, this ratio would drop to 1 times its sales revenue.

This is much lower than the average for companies like Jushi, which is 2.2 times sales.

Zuanic argues that this lower valuation does not account for the potential growth Jushi could experience from expanding its business in Pennsylvania and Virginia. He suggests that as the regulations and prospects for starting recreational cannabis sales in these states become clearer, Jushi’s stock value could increase to more accurately reflect its potential.

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