Jushi Holdings (JUSHF -1.37%) is a newcomer to the U.S. cannabis market, but investors should probably keep an eye on it. While it has only a few dozen retail locations and fewer than 500 employees, Jushi just might be a powerhouse in the making thanks to its unique market strategy. Rather than entering cannabis markets haphazardly, Jushi targets regional markets with high barriers to entry, like Pennsylvania and Illinois. It also seeks to compete in distressed and highly competitive markets like Nevada and California, seeing an opportunity to succeed where other companies are failing.
There's a lot of work to do before Jushi proves that this strategy will pay off. Right now, it's essentially a penny stock. Its price is highly volatile, and it's unclear whether the company has what it takes to grow in the long term. Within a year, this picture is unlikely to be fully clarified, but investors will have significantly more data to judge whether the company is worth an investment for long-term growth. Let's take a peek at Jushi's future plans and compare them to where it is at the moment.
Geographical focus may become its moat
Jushi estimates that it will have at least $25 million in revenue in the fourth quarter of this year. In the second quarter, its revenue increased 73% quarter over quarter, an especially positive sign given that this was accomplished during the first wave of the coronavirus pandemic. Given that it started the year with only $9 million in revenue and reported $24 million in the third quarter, the company has exhibited impressive growth. Jushi made its revenue in states like Pennsylvania, where it has six dispensaries and several more under construction. The company claims that barriers to entry in Pennsylvania are high, which makes its possession of sales licenses all the more valuable.
One year from now, Jushi's market share in Pennsylvania will be starting to consolidate, which may create the foundation for long-term success if the regulatory barriers to entry remain persistent. Jushi is also expanding its distribution and cultivation footprints in Illinois, Ohio, Nevada, and California. Most of its new facilities in these markets will be online by the start of 2021. Jushi estimates that its market share in Illinois is currently about 4%, and it will likely expand once its new locations are operating.
Profitability may not be far off
Jushi aims to end 2020 with positive earnings before interest, taxes, depreciation, and amortization (EBITDA), and it predicts about $40 million in earnings for the entirety of 2021. Similarly, it estimates that its total revenue in 2021 will be between $205 million and $255 million. If the company can accomplish this goal, it will demonstrate that its operational expertise is superior to that of many of the other publicly traded cannabis companies that have struggled with profitability for years. It'll also be an extremely lucrative stock for its current shareholders because its revenue growth will be in the stratosphere.
One caveat that shareholders should be aware of is that Jushi will likely need to issue new stock to fund its growth over the next year. It had only $50.8 million in cash on hand in the most recent quarter, and its trailing cash outflow was $19.1 million. Given that the company already has $76 million in debt, there's certainly some pressure for it to start making a profit as soon as possible.
But if everything goes according to plan, Jushi will be in a significantly stronger position by the end of 2021. Keep a close watch on its quarterly earnings reports to see how much progress the company is making toward its ambitious estimates for revenue growth and new store openings, and then act accordingly.