For more than a year, stock market volatility has been well above its historic average. But when volatility rises, so does the opportunity for investors to scoop up great companies at bargain prices.
While there are no shortage of fast-growing industries for investors to choose from, one of the most surefire opportunities looks to be cannabis. According to New Frontier Data, legal weed sales in the U.S. are expected to grow by 21% annually between 2019 and 2025. At the high-end of estimates, annual pot sales could hit $41.5 billion by 2025. The relatively nascent cannabis industry may still be finding its legs, but it's packed with opportunity for investors.
Then again, we also know that not every marijuana stock is going to be a winner. Every single next-big-thing investment over the past quarter of a century has produced losers, and cannabis will be no different.
However, one company stands out as a must-own growth story, and the single best investment idea I can offer in the month of March. Ladies and gentlemen, say hello to U.S. multistate operator Jushi Holdings (JUSHF 2.86%).
Puff. Puff. Pass?
There's a long list of reasons for the investment community to be excited about Jushi. But before I tackle those reasons, it'd be prudent to first examine the hurdles and concerns investors should be aware of. Remember, even the most-promising investments have risks.
Perhaps one of the biggest concerns for Jushi is that it's a relatively small player in a large pond. It opened its 16th dispensary nationwide on Jan. 22. Although it does have licenses to open north of two dozen dispensaries, its retail store count pales in comparison to the likes of Curaleaf and Green Thumb Industries, which sport more than 130 dispensary licenses and 96 retail licenses, respectively. The point is, building up Jushi's brand at the national level could be difficult when other multistate operators have a huge head start.
Another concern to be aware of is Jushi's capital needs. Because marijuana isn't legal at the federal level, some banks and credit unions aren't willing to provide basic banking services to cannabis companies. For the relatively young Jushi, this means issuing shares to raise capital for acquisitions, product innovation, and other corporate activities. Any sort of share offering is going to be dilutive to existing investors.
Finally, the prospect of legalization could actually be bad news for Jushi. If the U.S. federal government waved the green flag on cannabis, a number of deep-pocketed Canadian producers would be free to enter the U.S. market. That would increase competition in select states and potentially threaten margins.
Here's why it's time to add Jushi to your portfolio
Now that we've had a closer look at Jushi's biggest concerns, let's dive into why this small-cap pot stock is the absolute best investment idea for March.
To begin with, Jushi is insulating its business and brands against an onslaught of new and existing competition by focusing on three limited license states (Pennsylvania, Illinois, and Virginia). By limited license, I mean states that either limit the number of retail licenses they'll issue, or those that issue licenses based on jurisdiction. Pennsylvania and Illinois cap the number of dispensaries that can open, whereas Virginia assigns retail licenses based on jurisdiction. The point is that operating in limited license states will allow Jushi the time and opportunity to build its brands without facing much, if any, competition. The company plans to open between 10 and 12 new dispensaries in 2021, many of which will be in these three states.
Also noteworthy is the loyalty program Jushi introduced last week. Hello Club (Jushi's retail brand is known as Beyond/Hello) will allow customers to earn rewards and net special deals on products. As a smaller and younger player in the U.S. cannabis space, retaining customers and driving repeat business is its key to long-term success.
Despite a lack of access to traditional banking services, Jushi looks to be well-capitalized. Though it has undertaken a couple of dilutive share offerings in recent months, it's worth pointing out that roughly $45 million of the first $250 million raised by the company came from executives and insiders. What this tells us is that the company's insiders have skin in the game. When management/insiders and investors have a vested interest in a company's success, good things usually happen.
The expectation is Jushi will use the money it's raised to open new dispensaries, as well as acquire new assets to expand its reach. For example, Jushi is tinkering with the idea of acquiring a 93,000-square-foot facility in Virginia that'll help it meet medical marijuana demand. In late January, it completed its acquisition of Agape Total Health Care, a medical marijuana dispensary permit holder in Pennsylvania. Although organic growth has been fantastic, acquisitions remain an important source of future expansion.
Jushi profiles as one of the fastest-growing pot stocks, too. Based on the company's estimate of $205 million to $255 million in full-year sales in 2021, it could triple last year's sales. By Wall Street's consensus, it should nearly double its sales again by 2023, and near $600 million in revenue by 2024. For some context here, Curaleaf and Green Thumb are valued at more than 3 times Wall Street's forecasted sales for 2024. Meanwhile, Jushi is valued at only 1.3 times 2024 sales.
Based on the company's guidance for adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) of $40 million to $50 million in 2021, it should turn the corner to recurring profitability this year.
With Jushi, investors are getting a strategically focused, high-growth business that's visibly cheaper than its peers. That makes it the perfect addition in March for opportunistic investors.