$514M Tax Breaks Await This Marijuana Company With Rescheduling, Market Cap Set To Soar

Jushi Holdings Inc. JUSHF is poised for substantial growth with potential adult-use cannabis legalization in Ohio and Pennsylvania as well as continuous expansion in Virginia’s medical market.

According to Zuanic & Associates, financial projections show significant improvements, including positive cash flow and increased margins, while rescheduling of cannabis could provide $514 million in tax breaks, nearly quadrupling the company's market cap.

“The potential for PA to legalize rec could be a significant catalyst for the stock. Jushi has the most valuation torque to PA flipping to rec among MSOs,” said senior analyst Pablo Zuanic.

Virginia Medical Market Growth

Jushi's medical cannabis sales in Virginia are projected to increase by 33% year-over-year in Q1 2024. The company anticipates continued growth driven by the positive response to its existing retail and wholesale operations. Despite the political uncertainty surrounding adult-use legalization in Virginia, Jushi's medical market performance remains strong.

Ohio And Pennsylvania Adult-Use Legalization

Ohio is expected to launch adult-use cannabis sales by July 2024, which could significantly enhance Jushi’s revenue. The company plans to open a second store in the state. “Ohio’s slated to begin rec sales as early as next month,” Zuanic stated, underscoring the imminent market expansion.

Pennsylvania could follow with adult-use legalization by mid-2025, providing substantial growth opportunity.

Jushi’s strategic moves, including additional store openings, are aimed at capturing the state market. Governor Josh Shapiro's inclusion of adult-use cannabis in the 2025 budget and bipartisan support bolsters this prospect.

Financial Performance And Projections

Jushi reported Q1 2024 sales of $65.5 million, slightly below expectations but marked by a 33% increase in Virginia. Despite a year-over-year sales decline of 6%, driven by retail challenges in Illinois, Nevada and Pennsylvania, the company’s wholesale segment grew by 7%.

Gross margins improved to 49%, and adjusted EBITDA margins doubled to 20.4%. Zuanic commented, “Profitability was up on production efficiencies, product mix, and more own product sold at company stores.”

The company’s free cash flow has turned positive, with $5 million in Q1 2024 compared to negative cash flows in previous years. Jushi’s net debt decreased to $179 million, and it expects to manage upcoming debt maturities with a combination of cash reserves, asset sales, and potential tax refunds.

Rescheduling And 280E Savings

Rescheduling cannabis from Schedule I to III could provide significant tax benefits under 280E.

Jushi has paid $22 million in income taxes between 2020 and 2023, with potential tax refund claims totaling $194 million if the rescheduling is retroactive.

This development could create substantial value, nearly four times the current market cap. “The 280E value creation would be $514 million, almost four times the stock’s current market cap,” Zuanic said.

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Valuation And Potential

Over the past 90 days, Jushi shares have declined by 4%, which aligns closely with the MSOS ETF's MSOS  6% decrease, while the S&P 500 gained 6%. The ETF holds approximately 10% of Jushi's stock.

Liquidity remains a challenge for many multi-state operators (MSOs), with Jushi trading only $220K per day, compared to Green Thumb's $8.2 million.

At Tuesday’s closing price of $0.67, Jushi’s enterprise value is calculated by Zuanic at $420 million.

This valuation includes net debt of $179 million, income tax liabilities of $117 million, and leases net of right-of-use assets of about $1 million. On this basis, Jushi trades at 1.5 times its projected 2024 sales, lower than the MSO average of 1.9 times, and at 7.9 times EBITDA, compared to peers like Green Thumb GTBIF at 9.2 times and Curaleaf CURLF at 15.2 times.

This means that Jushi's stock has a lower price relative to expected sales and earnings.

The report suggests despite these figures, the stock valuation does not fully capture the potential impact of adult-use legalization in Pennsylvania and Virginia, suggesting significant upside potential.

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