In our current era of meme stocks and the recurring insanity of retail trader-driven price movements, it can often feel like anything is possible. Businesses with strong fundamentals see their stocks languish, while the shares of garbage bin companies on the verge of bankruptcy inexplicably blast off to make their holders rich.
So far, the cannabis cultivator Jushi Holdings (JUSHF 5.46%) looks a lot more like the former than the latter. Despite its well-to-do track record of selling considerably more marijuana each quarter than it did the last, the company's stock is down 15% for the year. At the same time, it's making more money than it ever has before, and it looks like there's a lot more where that came from. Is 2021 the year Jushi gets noticed and breaks out of the doldrums?
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Momentum is building, but will it accelerate?
The biggest factor that could drive Jushi's stock to the moon before the end of the year is that its income is blowing up compared to 2020. In Q1, its quarterly revenue grew by 382.7% year over year. And if the company's ambitions to expand its operations across a slew of state-level markets proceed as planned, it could just be getting started.
Jushi's growth over the last year was powered by strong performance of its stores in Illinois and Pennsylvania as well as the first reporting of revenue from its Virginia locations. Its operations are expanding in all three of these states, as is its footprint in Massachusetts. In total, management expects to bring in as much as $48 million in the second quarter, which it claims should be the slowest revenue growth quarter of 2021. But, in the second quarter of 2020, the company had total revenue of $14.93 million. So, even a "slow" quarter will surely clock in massive year-over-year growth compared to its progress so far.
To drive that growth, the company plans to open as many as 12 new stores for the year, which could leave it with as many as 27 in total. That's in the ballpark of almost doubling its total retail footprint. And with the new sales trickling in from those openings over the first half of next year, it'd be quite surprising if Jushi's revenue growth slowed from its current pace. But, investors should beware that scaling up so quickly will push the prospect of eventually becoming profitable even further down the road.
It doesn't need to hit the moon to be a good stock to own
Barring exceptional circumstances like a horde of retail traders, most stocks aren't going to go to the moon over the course of a few months, no matter what happens. In that vein, the biggest barrier to Jushi's stock multiplying in value this year is that it isn't a meme among retail traders. So, it might struggle to get a huge influx in new shareholders even after reporting favorable financial results.
Still, that shouldn't dissuade you from investing. As Jushi's cannabis empire grows, there are no major issues that will stop its stock from rising accordingly in the near future. In the longer term, what could become a drag on its stock price is a sharp drop in its blistering revenue growth, provided the cannabis company is still unprofitable. Investors should, in other words, also keep an eye whether its bottom line is moving towards the black.
Nonetheless, there is one event which might combine with Jushi's expanding retail footprint and bursting revenue to make for a rocket in its price. If cannabis legalization occurs in the U.S. at the federal level, Jushi is well-positioned to benefit. Its existing network of retail locations already serves both recreational and medicinal consumers, so it could easily serve a wide range of customers.
And given that on July 14 a bill was introduced in the Senate to decriminalize marijuana nationwide, the prospects of legalization are closer than ever. While it's doubtful that bill will become law anytime soon, if it does, Jushi's shareholders better be strapped in for a trip outside of the stratosphere.
