Jushi Holdings (JUSHF 5.36%) is a thriving multi-state cannabis operator that was founded in 2018. Since its founding, Jushi has expanded to three dozen retail locations in key cannabis markets around the U.S., and management is in the early stages of executing the company's long-term growth strategy.

In this Motley Fool Live episode, aired on Oct. 21, Fool.com contributor Rachel Warren interviews Jim Cacioppo, the CEO and founder of Jushi. They talk about his experiences in the hedge fund industry, how the company was started, its rapid expansion in the competitive U.S. market, and his long-term vision for the company.

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Rachel Warren: Hello everyone, and welcome to Motley Fool Live. I'm Rachel Warren, healthcare writer and contributor here at The Motley Fool. Today, I'm delighted to be joined by the founder and CEO of Jushi Holdings, Jim Cacioppo. How are you doing today, Jim?

Jim Cacioppo: Great, Rachel. Fantastic. Thanks for having us.

Warren: Thank you so much. We're delighted to have you here. Jim, I'm just going to give our members a brief introduction of you and the company and then we will dive right in. Jim earned his Bachelor of Arts from Colgate University and his MBA from Harvard. He has an extensive background in the financial services industry, having spent more than two decades working in senior management at different hedge funds.

Then in 2018, Jim founded Jushi Holdings, a Florida-based multi-state operator in both the medical and adult-use cannabis markets. Since Jushi's founding just a few years ago, the company has expanded its national footprint at an incredibly rapid pace. Jushi now has 36 retail locations open across the country in seven states, including Pennsylvania, Illinois, and California.

Its most recent acquisition was in Las Vegas, Nevada, which established its fourth vertically integrated state-level operation. Jushi owns a variety of proprietary cannabis brands, including lines of edibles, vape products, and medicinal THC and CBD products. Beyond retail, the company also has cultivation and manufacturing licenses. Jim, what led you to start Jushi and what differentiates the company from other multi-state operators?

Cacioppo: Great, thank you, Rachel. So, I was a hedge fund manager, had a long career in the hedge fund business for about 25 years. In about 2014, I ran two big ones with multi-billion, partner started one multi-billion, you know, real good success. In 2014, I decided to move to Florida from New York and kind of take it easy, and in that process, I started getting pitched cannabis investments by various people and was really attracted to the sector. I had some experience with the products back in my college days and a little bit post-college as well. I was like, "Wow, this could be really interesting."

So I started investing in the sector and I think I invested through my hedge fund, One East Partners in about 25 different companies over the years and very successful. Then I was looking at the MSO space in the U.S. I had sold a couple of grow companies, was a founding investor in another one, to these public MSOs. I didn't particularly like my choices there in terms of the management teams, and I decided to just say, "Hey, this is an area that I could do better and I need a great investment, why don't we just start a business?"

I had run successfully two big hedge funds that got one of those, five and a half billion, two and a half billion so that put me in a great position to run businesses, being in the best and allocate our capital and start-up industry, where you're buying licenses and businesses as a very good background for them. I also hired and trained a lot of people, which is a great background.

Additionally, we had shifted our business to private equity so I had taken some companies out of bankruptcy and restructurings and put the whole board in place, went on the board many times and had a successful track record in running hands-on private businesses at that level. I thought I had a great experience for it, started the business, and what we did was, in 2017, we incubated it in my hedge fund, I had a couple of deals lined up so we had a very fast start.

In 2018, we hit the ground running, raised money in January, and we went our way, went public in May '19, and here we are. We're over a billion-dollar market cap company and we're in some of the most exciting states. I'll switch to your second question, which is what makes Jushi different and we've been getting that a lot and I think it's a great question. I think there's probably about 10 different, what I call, investable MSOs, which is why we're getting this question.

When I say investable, and I'm talking about the public ones, there's another 10 or so that I don't think they are investable because they just don't have the balance sheets of the management teams and they probably don't belong to be public for the next 10, in my view. Some of them are rather big, but I wouldn't touch them. There's 10 that are investable and I think we're definitely one of them. We're one of the smallest one of that 10. What makes us so interesting is, number 1, we're the fastest-growing cannabis company over the past three years.

In the second quarter of 2021, we grew revenue at a 220% annual rate, annualized, which is huge. Companies like Facebook are doing 25% and everybody loves those companies and Amazon, those kinds of companies. In a year, we're doing 220% and it's not just the law of small numbers, because our second-quarter numbers annualized at about a little over $190 million for the quarter. Obviously, that's super exciting.

We think that growth continues and I'll get into why. We have a very concentrated footprint and that my M&A background and some of the people that helped me start the company, we did a great job in assembling assets in great states.

I would say our top three assets that we'd like to focus on, in the great state of Pennsylvania, right now in the legislature, there's a cannabis bill to go adult-use. It's been a fantastic medical market. I believe it's been the best medical market in the country at the current time.

Arizona was a good one, it went adult-use and I think this has been really second best in terms of the rate of growth and the adoption by the patients and the consumers. We have the max footprint of 18 retail, they'll all be open by the end of the year, and then we have a grower processer of footprint that we're scaling to 190,000 by the end of next year, capable of producing about 70,000 pounds a year, which is a big number. It's about to go adult-use so that's super exciting. We're doing over $100 million revenues in Pennsylvania right now and when that goes adult-use, usually goes up by a multiple of two or three times.

Then we have the great state of Virginia and we probably have the most unique licenses in the whole industry and I would say most valuable license because we have an exclusive right to serve Northern Virginia. I know that your audience are bright, but Northern Virginia is one of the best metropolises to be in, in terms of growth and demographic and all that stuff. It ranks with probably Austin, Texas in terms of the growth and where people go and the amount of millennials and young professionals.

They're great cannabis consumers and we have exclusive right through six stores that were putting fantastic huge stores that are really top of the industry in terms of what they can do. What we're, again, putting in 190,000 square feet of capacity, that can do about 70,000 pounds a year again in Virginia, and Virginia has already adopted adult-use in 2024. We have the ability to scale that business up in anticipation of adult-use in what is the fastest-changing medical market. We were able to pick that license up at $33 million, which is a steal, companies would probably pay as well over a quarter billion dollars now.

We got that because it's a sleepy medical market and it transformed into a great medical market because it's a very progressive state from a political perspective and they just went quick, quicker than we've ever seen. It was a fantastic investment by Jushi, we have tons of future revenue growth just based on those two states. Our third state we won't go into is well-known is Illinois, and it is adult-use and we do about $80 million of sales there. We have fantastic quarters. Through M&A, we can take that to 10 which is the cap, and then add the grower processors. We have growth there as well.

That takes me to what makes Jushi different. Number 2 is our M&A skills, I think, are second to none. Remember my background, hedge fund, private equity. We have a private equity M&A team in Jushi that I think is the best in the industry, whether you're an investment bank or private equity firm investing, but they only have one client and that's Jushi. If you look at our track record of deals, the $33 million for Virginia is amazing.

We have acquired 18 dispensary licenses in Pennsylvania for $80 million in total. Those companies are paying $80 to $120 million these days. Every month, a couple happen. For three, they pay $80 to $120 million and we have 18. That was tremendous and then we picked up $80 million of revenues, which is now $80 million of revenues in Illinois for $12.5 million bucks. Those are three examples of deals that are just home runs. I would challenge anybody to produce better deals than those. I don't think you can.

More to come, we just did a deal in Massachusetts of under three times EBITDA for a great business, so we just continue to do that. I think those are the two things I'd really focus on. We have a fantastic management team as well to manage that. Does that make us different? Well, I think some of the top companies do, and I think we're a small company that has that. I'm really excited about Jushi.

Warren: Excellent. Thank you so much for sharing a bit about your growth strategy and I'll follow up on that here in a little bit. Just a follow-up question there. The story of Jushi's name is really interesting. Could you explain a little bit about that for me?

Cacioppo: That January of '18 when we started and we've taken all this money and I had to come up with a name, so I searched the web, super sophisticated, me searching the web. I was messing around and I came across the Jushi Kingdom, which is in thousands of years ago in China and it was the first documented medicinal use of cannabis, which makes sense that it would be in China. They had this shaman type, we would call him a shaman today, who really believed in the product and recommended it to his followers medicinally and he actually buried with urns. When they found this tomb, the urns still smelled wonderful and you'd almost want to go in and try the product. They documented the number of ounces, it's all documented history. it's really cool and I was lucky to have found that name.

Warren: That is very cool and creative. Jushi went public in June 2019, which is about a year and a half after its founding. It trades on the Canadian Securities Exchange under ticker JUSH, and on the U.S. over-the-counter exchange under ticker JUSHF. You've already shared with us a bit about the story of starting the company. But I was wondering what specifically led management to decide to take Jushi public so early on in its growth story?

Cacioppo: We had this big need for capital based on our M&A capabilities and we lined up some great deals. We needed the capital. We had been very successful before we went public in that short period of time of 18 months. I don't know if we raised maybe it was $70 million, which is a lot. We had some deals contingent upon the IPO, which was another about $70 million of capital raise. Then we actually need to do as a public company because in Pennsylvania and Illinois, it's much easier to become license holders as a public company, there's a public company exception.

If now you had to get every shareholder to get fingerprinted in Pennsylvania, for example, and that wasn't possible. We had over 100 shareholders. They would not have been too happy with me. We would've been forced to go public and we did that and it's worked out well fits to our skills. Remember, I've had a tremendous experience in the public markets through managing hedge funds.

Warren: Absolutely. I'm going to delve back into your growth strategy that you were discussing just a little bit ago. As you were explaining, Jushi has rapidly expanded into emerging markets, applying for new licenses, opening new dispensaries, and acquiring existing ones. Can you just give us a look into your decision-making process as you continue to build upon Jushi, rapidly expanding retail presence nationwide?

Cacioppo: In terms of the M&A and building out. Rachel is that the question?

Warren: Yes.

Cacioppo: In the retail side in terms of the M&A, we go where the deals are. It's like I love Jerry Maguire movie. There's a couple of great lines one very romantic, "You had me at hello" or something like that. [laughs] And the other one by Cuba Gooding Jr was "show me the money." Basically show me the money means, where is the best deal for Jushi shareholders. We're very good at that.

Like I told you, we acquired 18 dispensary licenses for $80 million. The big companies are paying $80 million to $120 million in that range for just three. That's a huge thing. We feel tremendously proud of these accomplishments of buying these licenses, including retail. In terms of opening the stores and operating the stores, we have our retail store outlets are called Beyond Hello.

It was a primarily women-run business in Pennsylvania who had really nice vibe in the store because research shows that it's not that hard to get like a 25-year-old male into a store to buy some weed. It just comes natural to them. But the older generation, maybe the boomers or some Gen Xers and women will come in slower. It's got this stigma, the head shops are just unattractive places. This management team we had built these really cool dispensaries and hired a really diverse workforce. We've taken that and moved that around the country. I would say that's what we're doing and then we optimize it.

In Pennsylvania, the average store is between 3,500 to 5,000 square feet, and in Virginia because we have the exclusive right. I mean, we're the only provider in Northern Virginia with 2.5 million people, we're doing 7,500 to 10,000 and freestanding stores, which are very unusual in the cannabis market. Think about gas stations and foods, freestanding, you come in and out. We're doing those -- restaurants would be a lot of freestanding -- they have 50 to 75 parking spots. People want to go in and out. That's what they want, that's what they value the most.

Some people who wanted to buy, so we have these express lanes and we have, I think one of the industry, if not the industry-leading online presence. We do 70% of our transactions are touched online. Of course, we have that data because we're going online. In most of those are purchases, but not all. They just come in and pick them up and they go to express lane or maybe they don't go the express lane. They go in and add to it because they had an inspiration in the store, but that's 70% of the transactions. Going back to this Virginia setup where they were optimizing the quick in and out. Having 50 to 75 parking spots.

We're about $200 million revenue company in Q2. Now we're bringing stores that are capable of producing 50 million a pop in Virginia, and we'll have six of them. We're super excited about what we're doing there on the retail front. Of course on the M&A side just touching on that in the future. We're going to be buying like I mentioned, there's two states where we have operations and not vertically integrated that we want to vertically integrate. One is Illinois and two is Ohio. Ohio is great because it's a very early medical market. We'll go adult-use because, believe me, it will all be adult-use basically. Unless you have some really crazy conservative states that just don't do anything in a slightly moderate way, that could happen, but it's going adult-use around the country.

In Ohio, there's a five cap meaning going on five dispensaries. Most of the well-funded MSOs are at the cap. And now they're issuing 73 more licenses. There's going to be a great seller-buyer imbalance, too many sellers for the buyers in my view. I think we'll pick up a great deal on those. That's the next focus. In Illinois, there's a 10-cap on the dispensaries.

Again, most of the well-funded top MSOs are capped. They're issuing even more licenses it's in the 100s of what they're issuing. We have four. We know the state super well. We won one in that lottery system. We have now five, that fifth isn't open yet, and then we'll buy five more. We think at great value because they'll have that imbalance between sellers and buyers. Again, the 'show me the money' philosophy, where's the value, that's our next moves. I can actually sit there and just tell everybody what we're doing because there's a seller-buyer imbalance.

Great. Go see what you can get. Jushi is here, we have great stock. We have some cash we can give you if you're a seller. If you want to join this family and I think being the best stock in the industry: come sell to us. That's a pitch and we explain it to them.

Warren: Excellent, well, thank you so much for sharing more about that growth strategy. We've been talking about these emerging medical use as well as recreational use markets. Despite some states being slow to change cannabis laws, U.S. cannabis sales are hitting record highs and the legal cannabis market is admittedly bigger than ever before.

At the same time, this has been a historically volatile industry to invest in. Particularly as laws vary so widely state-by-state and hopes for federal legalization rise and fall with time. I'm curious, what is Jushi's approach been to managing this uncertainty and even being opportunistic about the legal landscape as it stands now.

Cacioppo: Jushi has been super opportunistic. Again, going back to my background, one of my co-founders who worked for me in the hedge fund Jon Barack is president. We came out of the hedge fund industry. We're used to investing in very volatile environments and saying, how do you manage through this? Managing risks out in capital, and that's key.

What's one of the most important things in managing risk is focusing on your balance sheet. Having a strong balance sheet. We know at the end of the second quarter last time we reported our figures, we had $126 million in cash, $80 million of debt. We have debt facilities to do some of the capex in these large core processors that I told you about that we're building out. We have some very attractive assets that we could borrow against in Virginia, part of the best collateral in whole industry. Our grower processes that we own fully in Virginia.

We have lots of ways to raise capital. We stay ahead of the curve, and that's risk management. We don't wait until we need it. We take it on when it's available and we stay ahead of the curve. We're very credible and we have all this great pedigree out of corporate America and Wall Street and places like that. We have very good pedigree. That's one of the primary goals. Then on the M&A side, I think we know this is true. We do because we hear from the sellers and we've had some people look at us as well. We do the most amount of due diligence by far of anybody. We go through and we understand the licenses.

We understand how they got the licenses. The regulations in the state. What approvals you need, because that could be a big risk if you can't figure that part out. Then an active business, we go in and understand what they have and we understand the operations. We send our operations people in to look at the business. We really dive in deep. Then we have a lot of experience now. Each time you do it, you might make some errors here and there. Then you improve upon that process so the track record is tremendous.

Then you keep improving upon the diligence and process of M&A. I think that's important. There's a lot of companies have done, before the cannabis market is volatile and crashed. A while back in '19, we were public, in the '20 it was at low point in COVID. A lot of companies had to ditch acquisitions and we really didn't have to do that. Because a lot of companies were cutting costs, they were announcing massive layoffs, which by the way was very popular with their investors in the public securities. Because "Hey, cut costs."

But we didn't have to do that because we had a very cost-effective business. We managed our balance sheet well and we didn't overextend ourselves with bad M&A deals because we always buy value. I think that's one of the reasons why we've been able to raise money and attract good sellers at good prices because they want to join the Jushi family because that's what we're known for.

Warren: Excellent. Cannabis investors have seen marijuana retailers struggle to attract customers from the black market. There's really been no shortage of cannabis companies operating in this space that have overextended themselves too soon and that's backfired. What could you say has been the biggest challenge so far that Jushi has faced in its growth story today?

Cacioppo: First of all, if you look at the vast amount of our footprint, we pick great states. That's important. The big challenge, and as you pick the great states, you close these deals. We bought mostly licenses. What does that mean? We had built business, we had the license. The biggest challenge I think has been in doing that, raising the money in the tougher times in the capital market, which we've done. Again, which is the credibility of the management team and the pedigree, and all this stuff, our track record, we've raised over $400 million.That really helped us.

We announced, documented, and closed the only deal that was done in the height of COVID in the summer of 2020. We bought a grower processer for Pennsylvania. Obviously we got a great price. But the reason why we are able to do that was our creditability in the capital markets. We did this great deal, our stock went way up after we did the deal, and then a few months later other people started to do deals. It was incredible deal for our shareholders, and because the company was out of money who we bought from. Literally, they were running on fumes, we'd like to say at Wall Street meaning your gas tank is empty and you're running on fumes. Raising the money at the opportune times was always a challenge, and can be in that volatile time, we've been ahead of the curve. I think that the other equal challenge is just executing on the operations, and we've gotten very good at that. 

Retail wise, we've built this great team. That was our lead asset, was retail, and we keep adding to the team. We hired a fellow named Brendon Lynch, who spent 17 years at Anthropologie. He was there when they had two stores. He sort of ran it when they had 175 stores and 6,000 employees, and he is a fantastic gentlemen and people are just super excited that we brought in that kind of level there. In the grower processor side we have a Chief Operating Officer named Leo Garcia-Berg, out of AB InBEV, which is Anheuser-Busch. Which is the largest beer company in the world, and known to be super acquisitive, super-focused costs, and efficiencies, and just running a top-notch, industrial products that by the way is beer. Very similar to cannabis, and was highly regulated in the beer you have the Brewmaster special potions that make it tastes good. We have our long-standing cannabis people. We have Leo, we paired him with a group of people we have out of Colorado, which we acquired an IP and management team. That has been doing cannabis since 2010 because that was the first legal market. We have a great team led by a guy named Ryan Cook.

That group is executing on these licenses, and we learned a lot, we keep doing it and getting better, and that's been the second biggest challenge for us. I would say if I was investing in cannabis, I'd watch those two things. I'd watch companies, are they able to raise the capital at the right time? Because you want to keep growing. We're going to be as big as anybody, sooner or later, which if you look at Jushi and the investment opportunity.

Hitting these challenges are key to us, getting our investors. They traded at about a 50% discount to the bigger folks. I think it's primarily because they're just bigger and more even stocks seems safer. But also, they have this diversity and they also have a much better liquidity in their stocks. Ours is pretty liquid for a billion-dollar market cap company.

But us being able to execute upon this and getting big, and doing all these M&A in very accretive prices, and being one of the cheaper companies that's fastest-growing, the fastest-growing. That's just a really good formula to generate a lot of alpha, to make a lot of money in the stock of Jushi. Managing those challenges to me are the key to investing in cannabis for your investors.

Warren: Yeah, excellent. That actually leads me into my final question here. As more states are reforming their marijuana laws, plenty of new operators have been popping up to meet the surging demand. For investors with so many marijuana stocks to pick from, what can you share about your long-term vision for Jushi and how you plan to execute it?

Cacioppo: Yes. Exactly. I think that it's a good follow-on to the last question. We're in seven states. Six of those states are, I talked about the big three, Pennsylvania, Illinois, and Virginia. The next three or four that are now moving at a rapid case as we close out. Massachusetts, we have a store there that that's $25 million. We did a great acquisition at three times cash flow, and then we have Ohio, which I explained to you with the growth in the retail. Illinois, the growth in the retail and will go vertical, and then Nevada, we just announced going vertical, but we have more growth there.

We have built-in bolt-on acquisitions which some are the best acquisitions. Why are those the best acquisitions? We already have the overhead in the state, you know the state, it's less risky and you get the best prices, and you know people. That's the best M&A and that's pretty much an academic thing. This is not an original thought,  and so it's a great thing. Then we'll pick up these other states, one at a time, maybe one or two a year, if we see the deals that worked for us, that we like the sellers, because they're going to be shareholders. If we want them into our stock, do they want to be in our stock? It's like joining the family.

That's our vision, is to get like-minded people, take out these single-state operators. Very unlikely we do a multi-state deal or big deal quickly. We've looked at everybody, we've talked to almost everybody, and there's just a lot of cultural issues. There's a lot of overlap issues at this point with Jushi, and I think our shareholders, most importantly, are going to get a better deal if we do it in this fashion that I'm explaining. It's a classic, great business, growing like no pun intended, the industry growing like a weed.

That's going to continue. Think of the beer industry, $200 billion of sales. The alcohol industry, tobacco industry. Cannabis industry will be there. It will continue growing like a weed, and then you have this company's that's adding all these value through taking a less liquid company. I think liquidity is pretty good and taking it to the top five or six, whatever it is, it doesn't matter. We're one billion, we'd like to be 10 billion. The investors are going to get a lot of accretion and a lot of liquidity, and we'll get that uptake overpriced as high or higher than anybody else, and now we're trading at a steep discount. That's the vision.

Warren: Well, Jim, thank you so much for coming on the show today and for sharing your insights and companies story with our members. It has truly been a pleasure to have you on.

Cacioppo: Thanks Rachel. Happy to do it.

Warren: Thank you.