Firm Grows Revenue 38% in Q4/22
Source: Andrew Semple
April 5, 2023 (Investorideas.com Newswire) The company's material increase in profitability during the quarter is a healthy step toward reaching free cash flow break even status, noted an Echelon Capital Markets report.
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
Echelon Wealth Partners Inc. is a member of IIROC and CIPF. The documents on this website have been prepared for the viewer only as an example of strategy consistent with our recommendations; it is not an offer to buy or sell or a solicitation of an offer to buy or sell any security or instrument or to participate in any particular investing strategy. Any opinions or recommendations expressed herein do not necessarily reflect those of Echelon Wealth Partners Inc. Echelon Wealth Partners Inc. cannot accept any trading instructions via e-mail as the timely receipt of e-mail messages, or their integrity over the Internet, cannot be guaranteed. Dividend yields change as stock prices change, and companies may change or cancel dividend payments in the future. All securities involve varying amounts of risk, and their values will fluctuate, and the fluctuation of foreign currency exchange rates will also impact your investment returns if measured in Canadian Dollars. Past performance does not guarantee future returns, investments may increase or decrease in value and you may lose money. Data from various sources were used in the preparation of these documents; the information is believed but in no way warranted to be reliable, accurate and appropriate. Echelon Wealth Partners Inc. employees may buy and sell shares of the companies that are recommended for their own accounts and for the accounts of other clients. Echelon Wealth Partners compensates its Research Analysts from a variety of sources. The Research Department is a cost centre and is funded by the business activities of Echelon Wealth Partners including, Institutional Equity Sales and Trading, Retail Sales and Corporate and Investment Banking.
U.S. Disclosures: This research report was prepared by Echelon Wealth Partners Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein. Echelon Wealth Partners Inc. is not registered as a broker-dealer in the United States and is not be subject to U.S. rules regarding the preparation of research reports and the independence of research analysts. Any resulting transactions should be effected through a U.S. broker-dealer.
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.
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