As a general rule, large companies have a more difficult time growing than small companies do. So when an investor finds a small-cap stock with exciting growth prospects, it could be a recipe for multi-bagger gains.

These days, the U.S. marijuana industry is quite an interesting place to look for such stocks. There is greater support for marijuana legalization than ever before, with New Jersey, Montana, South Dakota, and Arizona approving adult recreational use, and Mississippi approving medical marijuana in the November election. Furthermore, during the pandemic, cannabis sales growth has proved resilient.

With regulatory hang-ups set to ease and marijuana sales growth among the hottest of any non-tech industry, cannabis stocks could be set to rise in the new year. Among many choices, this well-run but relatively small player in the U.S. could have significant upside ahead.

Cannabis plants viewed from below looking up to the sky.

Jushi Holdings is an intriguing small cap cannabis stock. Image source: Getty Images.

Jushi Holdings is rapidly expanding

Jushi Holdings (OTC:JUSHF) is relatively small U.S. cannabis company compared with other industry players that have been around longer, but it's clearly ambitious. Founded in just 2018 and having gone public in 2019, Jushi has already set up a presence in six different states: Pennsylvania, Illinois, Virginia, Ohio, Nevada, and California. As of last quarter, the company only has 11 stores open, including eight in Pennsylvania, two in Illinois, and one in California. However, the company has plans to open 19 more stores to supplement its three cultivation facilities -- one each in Pennsylvania, Virginia, and Nevada.

Last quarter, Jushi's growth impressed, as revenue surged 67% sequentially -- not year over year -- to $25 million. Same-store sales grew a whopping 45% sequentially, as traffic returned following the COVID-19-affected second quarter. For the first quarter ever, Jushi had positive adjusted EBITDA of $1.9 million.

But it's not just this impressive growth that should have investors excited. 

Founders have a clear strategy and skin in the game

Unlike some other U.S. and Canadian companies that have pursued a grow-at-all-costs strategy, Jushi's founders have a clear and disciplined strategy. Management seeks attractive markets with limited license availability (which lessens the prospect of future competition), as well as distressed assets that can be bought at attractive prices. This disciplined value investing ethos should pay off down the road with better profitability and a more resilient balance sheet. The U.S. cannabis market is still a bit unpredictable, so a disciplined capital allocation strategy is crucial in case there are hiccups on the way to full legalization.

Also helping reassure investors is the fact that founders and insiders have put $45 million of their own money into the company. That kind of skin in the game is a big factor in long-term investing, and gives public investors some assurance that management is risking their own capital alongside yours.

Perhaps because of this, management has been prudent about its capital structure. As of Oct. 31, the company had $73 million in cash and short-term investments against $99 million in total debt. That's a fairly conservative net debt position relative to the rest of the industry.

But realize this before jumping in

While Jushi's growth, strategy, and capital allocation all seem solid, there are a few risks to consider. The U.S. cannabis industry is still in a state of flux, and it's difficult to predict how the various state and federal regulations might evolve going forward.

Jushi is also still unprofitable, racking up net losses of $55.2 million in the first nine months of the year. While those losses are narrowing and could turn positive soon, Jushi also needs to invest in its new stores and cultivation facilities to ramp them up to scale, which will take capital.

Finally, there's a notable difference between Jushi's basic shares outstanding and its fully diluted share count. While there are currently around 124.9 million basic shares outstanding, when factoring in outstanding warrants owned by current equity and debt holders, as well as stock options, the fully diluted share count could be as high as 223.5 million. That dilution will likely occur, and should thus be factored into the stock price.

Using that diluted share count, Jushi is actually currently valued around 965 million Canadian dollars, or about $743 million. That's roughly three times Jushi's projected revenue for 2021. Depending on what happens with U.S. cannabis laws in the new presidential administration, that's not an unreasonable price -- it's just not quite the bargain it seems when only using basic outstanding shares.

In any case, Jushi is a name to watch in the marijuana space going forward.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium advisory service. We’re motley! Questioning an investing thesis -- even one of our own -- helps us all think critically about investing and make decisions that help us become smarter, happier, and richer.