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How Jushi Is Taking Advantage of the Complex U.S. Legal Landscape for Cannabis

By Rachel Warren – Nov 2, 2021 at 8:15AM

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This is how Jushi Holdings has managed to navigate the volatility and legal unpredictability of the U.S. cannabis industry.

It's no secret that the marijuana industry continues to face significant legal headwinds. Pot legalization remains inconsistent across the country, and the likelihood of federal legalization is uncertain. In this Motley Fool Live segment, aired on Oct. 21, Fool.com contributor Rachel Warren interviews Jim Cacioppo, the CEO and founder of Jushi Holdings (JUSHF 3.95%). They talk about how the company has navigated this tough legal landscape while managing to achieve significant growth after just a few years in business. 

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Rachel Warren: 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 has Jushi's approach been to managing this uncertainty and even being opportunistic about the legal landscape as it stands now.

Jim 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. It's 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 [capital expenditures] 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 processors 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; 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 [mergers and acquisitions] 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. And 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.

Rachel Warren has no position in any of the stocks mentioned. The Motley Fool owns shares of and recommends Jushi Holdings. The Motley Fool has a disclosure policy.

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