After Jushi Holdings’ ($JUSH) delayed financial statements last time, they were able to put this one out ahead of schedule, although had already ‘pre-announced’ these earnings a few weeks ago.
Subscribers will know our general disdain for this type of action…I won’t belabour. But it does provide a great example of communications management. Their conference call yesterday was <ahem> interesting. In one of the cutest phrases of all, CEO Jim Cacioppo stated flatly: “we like to get the bad news out fully (in) all at once“. Perhaps he meant when the auditors were ready to let them get the bad news out (heh).
We’ll return to this conference call below, its’ more useful than most I’ve ever heard in legal cannabis for several reasons.
No time like the present. Our last analysis (Q1F2021) saw us ponder how $JUSH will be able manage SG&A rates over the next few quarters, and if they’ll ever get around to addressing their capital structure.
To the financials!
- Cash down $42MM to $120MM. Inventory continuing to expand, up $7MM to $25MM.
- Cash burn related to acquisition (2 dispos), but primarily PP&E. Bulk likely PENN. More below.
- Given sales of $47MM – which are up $6MM this quarter – inventory no concern and looks managed. Immaterial, but I’ll keep an eye on this for harvest timing and drawdown as its’ doubled in 2 quarters.
- 45% margin, trailing the ~=50% we see in most Tier 1’s. Sales up $6MM, SG&A up $4MM. $JUSH has indicated ramp costs are higher than expected…more below.
- Share price decline has trimmed $21MM off of the derivative liability (reported as a gain), the liability is sitting at $190MM on the balance sheet.
- Ignoring that gain, they report a loss of $17MM in this quarter. $6.2MM in taxes, ouch. All in, they’ve reported losses of $22MM so far this year.
- Share count burgeoning, and had doubled to 188MM shares as of June 30th. This will increase another 15MM for the next as $0 rated conversions were made on Aug 9th, and another 16MM warrants were birthed. More below.
We’ve done some extensive coverage on these guys of late, I’m going to leave it at that for now. This quarter has two main themes: it’s a bridge quarter during ramp, and a capital plan gut check. We’ll come back to this in a moment.
One thing these say to me is that $JUSH is going to need to raise, or get financing. That supposes their sales don’t blow out (they’ve been showing steady growth, but no hockey stick), and, that they can get SG&A to a manageable (ie: profitable) level. Neither is looking to occur in the next 2 quarters. $JUSH been investing heavily, and this is seen in PP&E – which has grown from $76MM at the beginning of this year to $164MM now. But. $50MM of that growth is ROU.
A useful table is presented in the MD&A regarding sales splits. Wholesaling is immaterial for $JUSH, dropping sequentially over the past 3 quarters from ~=8% of total sales to 5% during the last 2. It does surface heavy reliance on verticality and retail :
They re-issued the financials (twice) on Aug 25th, after having uploaded them a day earlier, because the initial upload “had not been reviewed by the auditor“. I don’t believe interims need to be, this might be a hangover (auditor ask) from delays experienced earlier this year. Why there’s a 9 minutes gap on the 2 uploaded on the 25th…somebody might have had a quick hand on the mouse. I did a quick automated compare, and found $JUSH did add a reference to a close made on the 25th in ‘Subsequent Events’:
Regarding communications management, these financials proper don’t mention revision to their 2021 guidance, nor delays in start-up. The plethora of press releases and announcements during this year – winding stakeholders up around assets acquired in PENN and VA – $JUSH’ CEO tells us on the conference call that there’s been some reality walking into the room:
Nothing earth-shattering to myself, although in any mature sector a 20-25% drop in EBITDA guidance might be seen as something. Ramps aren’t easy to execute, and realistically, some companies in legal cannabis have managed this well overall (generally). I’m surprised we don’t see this more often to be honest. The market doesn’t appear to care (or maybe they just haven’t listened to the conference call yet.
As to that conference call – it’s a treasure trove of insight into several states, and we see $JUSH CEO Jim Cacioppo oscillate between providing direct answers…..to sucking and blowing on others. He meanders around questions on CAPEX, craps on California, lays out expectations on NE wholesale pricing, and much more. I highly recommend the interested reader peruse the transcript.
I’ve been a bit dour on this outfit, mainly because of my reflexiveness around companies that ‘pre-announce’ earnings, and what I see as a really shitty capital structure. If I was a shareholder, my main concern from that call (which provides more insight than pretty much any of their past 4 sets of financials) would be how capable they are in strategy, and strategic thinking.
As it is – and as I’d mused about last time – they began addressing the capital structure, which was detailed in an announcement occurring post quarter (Aug 9th). The entirety of all Super and Multiple Voting Shares/Warrants were collapsed, resulting in 15MM new subordinates being created, and another 16MM warrants on subordinates born (I am looking forward to seeing the strike price on these).
The CEO states the obvious (to TheCannalysts anyway), that capital structures with inordinate amounts of overhang and voting control won’t be tolerated at the Institutional level. The quote by the CEO: “Institutional capital is increasingly evaluating investment opportunities in the legal cannabis market ahead of potential federal legalization. To facilitate their investment, we are taking the appropriate steps….”.
Good. Along with Columbia Care ($CCHV) and Cresco Labs ($CL) pulling the pin on proportionates…… and one of Trulieve’s ($TRUL) founders checking out back in January…….. I believe we’re seeing the emergence of a trend that’ll widen.
The market apparently doesn’t see much in these earnings, or perhaps they simply haven’t listened to the call yet <snicker>.
Seriously, $JUSH will face challenges to gross margin over the next while, and they didn’t lay out much of a clear path regarding go-forward expansion. My instinct suggests they’re dolling the place up to be a takeout target, and that those PENN assets they acquired from Goodness Growth ($GDNS, formerly $VREO) were relatively cheap for a reason.
If you like retail concentration in a story that’s not been able to show the bolt tightening we’ve seen in several others….$JUSH fits that bill. There’s still $13 price targets littering the analysts desks on this thing, which with it’s new float would make it a $3B company. I have a hard time contemplating that – let alone envisioning that in any reality.
Next time we’ll go through their ‘new and improved’ capital structure, and see if PENN’s enhancements will lead them to wholesale glory.
The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $JUSH