Don’t make this another “I wish I would have bought this stock” moment…
Josh Slocum‘s Sailing Around the World Alone is a bit of a cult classic in sailing circles.
Published in 1900, it recounts his experiences – both fantastic and mundane – while sailing solo around the world in his sloop Spray.
It also details how he prepared for the journey, including when he first bought Spray.
One line that always stuck out to me was, “Will it pay?”
An old, salty sea dog asked Josh that right after he took ownership of his boat. And what he was saying was basically this: OK, so you invested your money in a boat. That boat is now your capital. Now, you need to make money so you can you earn your investment back, plus some, so that your capital pays off.
The sea dog was more parsimonious with his words, but that’s what his question implied.
Well, Josh had no intention of putting the boat to work to make money. His payoff was adventure, which makes for some complicated math.
But the sea dog’s point is one that every CEO should keep top of mind.
Every single dollar they invest in forming the foundation of their company needs to pay back more than they invested. And for that more to be enough to send a company’s stock price soaring it needs to exceed how much can earned anywhere else.
And for this up-and-coming cannabis company, the CEO has built a foundation that will “make it pay” 10 times more for investors over the coming 12 months…
Welcome to the Best Cannabis Stock to Own in 2021
Over the last year and some change, Jushi Holding Inc. (OTC: JUSHF) has invested $168 million building cultivation and extraction facilities, dispensaries, and creating a brand.
Three separate catalysts will spark an inferno-like rally to make cannabis the single-hottest slice of the stock market in 2021. Here’s how to play this for your own massive wealth.
But to turn those investments into a financial windfall for investors, Jim Cacioppo and Erich Mauff, Jushi’s co-founders and CEO and President, respectively, must do two things.
First, they must drive revenues higher.
Second, they must keep expenses in control.
Well, the revenues are coming.
Sales soared 45% in the most recent quarter. And that’s not counting the revenue boost from stores Jushi acquired. That means that every store the company owned at the beginning of the quarter sold nearly 50% more product than the quarter before.
As impressive is that is, things are just getting started.
Revenue in the cannabis industry is growing incredibly fast – it could easily pass the $100 billion mark in 5 years in the United States. And as quickly as Jushi is shooting up the ranks of the top players in cannabis, it’s no stretch to expect them to capture at least $1 billion for themselves.
No other industry offers that type of growth. And it’s this growth that will play a big role sending stock prices higher than any other industry in the coming year.
But the expense part is just as important. In fact, for an early-stage, hyper-growth company, getting expenses in line with revenues is the key to making all that capital pay today.
Having a good sense of what those expenses will be over the coming years tells us a lot about what the company’s stock is worth today.
And for that, we need to look at companies in other industries with business models similar to cannabis.
The Cost of Doing Great Business
Walk into any cannabis dispensary and you’ll see a wide selection of products.
You’ll see pre-rolls and packets of whole flower for the traditional crowd. Vapes for everyone looking to be more discrete, tinctures for those who don’t want to smoke, and edibles – which can give you an entirely different (and intense) experience.
At the end of the day, these are all consumer packaged goods, or CPGs. And when you want clues as to how a cannabis company should look in the future, you can look to other consumer packaged goods for guidance.
CPG companies give us the brands we see every day that speak directly to the consumer. I’m talking soft drink companies like Coca-Cola and PepsiCo, alcoholic beverage companies like Anheuser-Busch InBev (NYSE: BUD) and Constellation Brands (NYSE: STZ), and tobacco companies like Altria Group Inc. (NYSE: MO) and Philip Morris International.
When you look at the expense structures of these CPG titans, you get a good sense of how the expenses for well-run cannabis companies, like Jushi, will look.
Below I’ve plotted out the two major expense categories for these companies as a percent of sales.
The first is cost of goods sold, and the second is general and administrative sales expenses. We call them COGS and SG&A for short.
COGS is the cost of creating the product. For cannabis companies, this is the cost of growing and processing cannabis. SG&A is basically all the overhead; salaries of the management team and other overhead costs fall here.
Typically, this also includes research and development costs and marketing expenses. But I treat those expenses like investment in capital because that’s what they really are.
As a percent of sales, you can see that COGS runs between 30% and 40% for a well-run CPG company, and SG&A runs between 9% and 35%.
As I mentioned earlier, Jushi has invested $168 million in building its foundation. It has positioned assets across the cannabis playing field. And as sales continue their incredible trajectory for Jushi, those investments will pay off in spectacular fashion.
The Math to Profits
Using the CPG companies above as a guide, I expect Jushi will ultimately be able to drive COGS down to the 30% range and SG&A expenses to 20%.
I also think they could easily generate $1 billion in sales in 5 years. I consider that conservative, but let’s stick with that for now.
When I model out these figures – the projections highlighted in yellow below – I get a price target of $41 for JUSHF.
Jushi currently trades at $4. And $4 into $40 is an incredible return. That’s 10-times its current price. And it’s 10X opportunities like these that I’m constantly on the hunt for YOU.
10X, 20X, 30X – these are the returns that can build fantastic levels of wealth.
Now, while this projects revenues and expenses over the next five years, it’s important to know that it won’t take the Jushi stock price 5 years to get there.
The markets are forward looking.
They anticipate the growth and will react long before any of these numbers are realized.
By this time next year, the market will realize this is where Jushi is headed.
And I suspect they’ll be paying $41 to get it.
So, for those of you that own Jushi and the other top players that know how to “Make It Pay” in cannabis, you’ll be there selling your $4 Jushi stock to them for $41 – plus a whole lot of other big cannabis gains along the way.
But don’t stop there. For five of the best stocks to buy before 2021 (and dozens of popular stocks to avoid at all costs), go here now for a special stock picking lightning round.
Executive Director, National Institute for Cannabis Investors
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December 10 2020