Jushi Holdings (JUSHF 0.89%) isn't one of the big names in the cannabis industry just yet. But with growth on its mind and some ambitious targets in the future, it may not be too long until its valuation rises in value.
The company reported its fourth-quarter earnings in March, and it continued to show strong numbers, although there were some caveats. Below, I'll use three charts to show how well Jushi has been growing its business in recent years and whether the stock is worth investing in right now.
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Sequential revenue growth has been slowing down but remains strong at 22% in Q4
Year-over-year growth rates in the cannabis industry can be misleading, and that's because many pot producers are expanding and are bigger than they were a year ago. It's not unlike businesses that grow via recent acquisitions where compared to the previous year their performances can easily look impressive. Quarter-over-quarter growth can give investors a better and more up-to-date snapshot of how a cannabis business is doing. And in Jushi Holding's case, the results look good:
Many of the top marijuana companies have been struggling of late to generate good quarter-over-quarter growth. In its latest earnings report, multi-state marijuana operator Curaleaf Holdings reported sales numbers that were just 2% higher than the previous period.
Jushi's positive adjusted EBITDA streak is at six straight quarters
Few marijuana companies are profitable when looking at net income. And so it's common to see adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) take more of a priority in the industry. And not only did Jushi report a positive adjusted EBITDA number in Q4, this past quarter marked the six straight time it did so.
The Q4 numbers were down from previous periods, but the company notes that was because operating expenses were up as Jushi was spending more on investments to drive longer-term growth.
Margins dipped this past quarter
Another key area in cannabis is margins. In particular, gross margins can be crucial because as competition intensifies in the industry, that will put downward pressure on prices and make it more difficult for marijuana companies to post adjusted EBITDA profits. A declining gross margin, which takes into accounts costs of good sold, can be a sign of trouble on the way.
Jushi's gross margin remains strong, although in Q4 there was a noticeable drop. The company blamed this on price compression in multiple markets plus an increase in promotional activity. This is an area where investors will want to keep a close eye on Jushi's financials as worsening gross margins is bad news regardless of whether you're looking at EBITDA or net income.
Is Jushi Holdings a buy?
There's a lot to like about Jushi's stock. The marijuana company has been growing its presence across the country, with management noting that it nearly doubled its retail store count during the past year. It has a presence in seven states, including hot markets such as Illinois and Pennsylvania. And compared with other pot stocks, Jushi is one of the cheaper ones out there with respect to sales:
JUSHF PS Ratio data by YCharts.
Although there's lots of potential for the business in the future, investors may be better off taking a wait-and-see approach for now in light of its declining margins. It's important to assess how Jushi does in future periods and how strong its gross margins will hold up, as 2022 could be a challenging year for the industry with oversupply of cannabis being a problem and inflation still soaring across the country.
