Planet 13 Holdings, Inc. (OTCQX:PLNH) Q1 2024 Earnings Conference Call May 9, 2024 6:00 PM ET
Company Participants
Mark Kuindersma – Head, Investor Relations
Larry Scheffler – Co-Chairman, Co-Chief Executive Officer
Dennis Logan – CFO
Robert Groesbeck – Co-Chairman, Co-Chief Executive Officer
Conference Call Participants
Pablo Zuanic – Zuanic and Associates
Operator
Greetings and welcome to today’s Planet 13 First Quarter 2024 Conference Call. [Operator Instructions]. It is now my pleasure to turn the call over to your host for today, Mark Kuindersma, Head of Investor Relations. Mark, the floor is yours.
Mark Kuindersma
Thank you. Good afternoon, everyone, and thanks for joining us today. Planet 13 Holdings’ first-quarter 2024 financial results were released today. The press release, the company’s quarterly report 10-K, including the MD&A and financial statements are available on the SEC’s website, EDGAR, and SEDAR plus, as well as on our website planet13holdings.com.
Before I pass the call over to management, we’d like to remind listeners that portions of today’s discussion include forward-looking statements. The forward-looking statements in this conference call are made as of the date of this call. There can be no assurances that such information will prove to be accurate or that management’s expectations or estimates of future developments, circumstances or results will materialize.
Risk factors that could affect results are detailed in the company’s public filings that are made available with the United States Securities and Exchange Commission and on SEDAR plus. We encourage listeners to read those statements in conjunction with today’s call. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.
In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliation to the most directly comparable GAAP measures, please refer to today’s press release posted on our website. Planet 13’s financial statements are presented in US dollars and the results discussed during this call are in US dollars unless otherwise indicated. On the call today, we have Larry Scheffler, Co-Chairman and Co-CEO; Robert Groesbeck, Co-Chairman and Co-CEO; and Dennis Logan, CFO. I’ll now pass the call over to Larry Scheffler. Larry, the floor is yours.
Larry Scheffler
Good afternoon, everyone, and thanks all for participating in our first quarter call. This is an incredibly exciting call. It comes at a critical junction for multiple important milestones for Planet 13 in our industry. Within the next few weeks, we’ve opened DAZED! consumption lounge, a truly unique cannabis entertainment venue.
We’re on the verge of closing the acquisition of VidaCann, having 26 stores in one of the most exciting potential adult-use states in our portfolio. And on the federal level, we’re getting closer to federal reform. The biggest and most likely or possible reforms is rescheduling that could bring cannabis from a Schedule I controlled substance to a Schedule III. This would remove the unfair impact of 280e and allow us to be taxed the same way as every other US company. This change would be transformational, have an impact on our net income, operating cash flow, balance sheet, and cost of capital.
To give an idea, last year, we paid over $10 million more in taxes under 280e regulations than we would have normally. That money could have been invested — reinvested in our business to further growth and profitability initiatives. The changes that are coming over the next few quarters and years, we fundamentally will fundamentally change Planet 13’s growth trajectory, profitability, and valuation.
Turning to our performance in the first quarter, we are shifting how we talk about our operation going forward to reflect the upcoming acquisition of VidaCann and our growth plans. The three categories are in the Las Vegas SuperStore and its attractions, our Neighborhood store network, which includes Illinois, Nevada, California and soon to be Florida and wholesale and lifestyle.
In Q1 2024, the SuperStore generated $13.6 million. This is roughly on par with the percent of state revenue we generated last year, during the seasonably slower tourist period. As we move past a seasonably slow part of the year and with the opening of our lounge, we will continue to see incremental gains from the SuperStore.
Revenue from our neighborhood store network grew 20% from Q1 2023 to $5.1 million. This was driven by the opening of our Illinois dispensary in late Q4 and the combined strong performance and the Neighborhood store. Bob will talk about it more, but this will be the biggest area of growth with the upcoming addition of VidaCann.
Based on the last publicly available data for VidaCann, which is their nine months ended September 30, 2023, they average $8 million per quarter. That under sales where they are today. Over the last year, they have seen a 60% increase in the volume of flower sales. And so those are sold per Florida as state data.
We will continue to build on this momentum with additional stores, our brands cultivation and product improvement. Between the SuperStore and our Neighborhood network, we generated total retail revenue of $18.7 million, 1% sequential decline. On the wholesale side, we generated $4.2 million, a 2% sequential increase. This is driven by continued strength to our Neighborhood wholesale position and are sought after branded products.
According to BDSA., we had the fifth most branded sales of any company in Nevada during the Q1 and the second highest selling edible portfolio. This continued success is a testament to the brand equity we built with customers, consumers. With that, I’ll pass it over to Dennis to discuss our financials.
Dennis Logan
Thank you, Larry. Before I begin, I’d just like to remind everyone that all of the numbers on today’s call are in US dollars unless specifically stated otherwise. In Q1, Planet 13 generated $22.9 million in revenue compared to $23 million in revenue in Q4 of ’23. This is essentially flat quarter, sequentially was driven by increased revenue from our Neighborhood store network and wholesale, which was offset by seasonally — by seasonal and Nevada-wide market decline to the SuperStore.
Looking at next quarter, we will see growth primarily driven by our Neighborhood stores with the acquisition of VidaCann, which we expect to close in May and contribute a month of revenue in Q2. We also expect our Illinois dispensary to continue to grow sequentially. Along with the Neighborhood stores, we are seeing — the SuperStore generate month-over-month improvement with the addition of Dazed Consumption Lounge and the recent opening of the Breakfast Junkies inside the SuperStore complex.
Gross profit was $10.5 million in Q1 2024 compared to $11 million in Q4 2023 and $10.9 million in Q1 2023. This translates into a gross margin of 45.8% in the quarter, compared to 47.8% in the fourth quarter of ’23 and 43.7% in the previous year’s comparable period. The lower sequential gross margin was driven by a lower share of total revenue from the SuperStore, which traditionally had higher margin and more revenue from our wholesale business that typically has a lower margin.
We maintained our sales and marketing expense at $1.3 million during the quarter consistent with all of last year. During the quarter, we directed more of the spending to support the newly launched Illinois dispensary. And the end of Q1, we are focused more of our spend towards supporting the opening of our data consumption lounge at the SuperStore and supporting our house branded products.
The Company spent $10 million on G&A during Q1, up from $8.8 million spent in Q4 2023. As part of that, we had to spend $2.2 million in legal audit and professional fees associated with our year end with VidaCann, our capital raise, and ongoing litigation against our capital.
Excluding that, we’ve been able to maintain consistent G&A spend even with the addition of another dispensary and staffing increases for the launch of the lounge. Both G&A and sales and marketing will improve as a percent of total revenue once we close and integrate VidaCann and benefit from the significant operating leverage generated from higher revenue.
While we’ve demonstrated good cost control, we suffer from lower operating leverage in the quarter, resulting in a $0 adjusted EBITDA in the quarter. We expect adjusted EBITDA to improve throughout the year as we realize more and more of the benefits of increased operating leverage from our growing revenue.
As of March 31, 2024, the company had a cash balance of $22.8 million. In the quarter, we used $1.45 million in operating cash flow and $2.9 million in CapEx for the finishing of Dazed Consumption Lounge upgrades at the SuperStore and some final payments on the Illinois dispensary build-out. We have approximately $9 million of CapEx plan for the rest of 2024, focused on upgrades to the cultivation manufacturing in Florida, along with the additional Florida Neighborhood store rollouts that we plan to add.
Turning to our tax strategy. In light of the recent news around rescheduling, we have filed protecting claims for the past three years and allow us to go back and refile amended returns. For this year, we will be accruing our taxes as before on the income statement, but we’ll be paying based on estimated tax liability under a normalized non=280e tax treatment. This will have a significant positive impact on our cash flow over the course of the year. And with that, I’ll turn the call over to Bob to discuss our multiyear growth plan.
Robert Groesbeck
Thank you, Dennis, and good afternoon, everyone. The last few years we’ve dealt with the shrinking Nevada market that has weighed on our top line growth and operating leverage. Despite the strong performance of our team, we haven’t been able to outgrow the topline decline in the statewide as a whole.
What we’ve learned is that scale is becoming more and more important to drive the necessary cash flow and the importance of being in markets with growth tailwinds. We have a growth plan that checks those box boxes and has the potential to significantly increase our revenue over the next couple of years. We will do that by growing our retail revenue from an $80 million base in ’23 and our wholesale revenue from a $17 million base.
On the retail side, comes from closing, integrating, and then growing VidaCann in our new Florida business. We are on the verge of closing VidaCann, adding 26 stores to our network. Their team has been doing amazing work. Over the last year, they’ve increased the volume of flower. They’re selling by 60% based on improving cultivation and dispensary operations.
The management team there has absolutely proven their operating chops and are a great addition to the Planet 13 team. Their operations today exceed the $8 million quarterly run rate achieved through Q3 of 2023, posting significant growth over the last few quarters.
The addition of Florida is incredibly exciting as it is a state where we see multiyear-growth tailwinds. Adult uses is on the ballot this November and the state is setting up for potentially over $2 billion in additional demand, including Planet 13 special, the 120 million annual tourists to Florida who can’t purchase cannabis today.
The second pillar of the retail growth is increasing the size of our neighborhood store network. Beyond the 26 new stores from VidaCann, we have an additional four Planet 13 stores currently under construction or in final permitting, bringing the total store network to 30 stores in the near term.
The third pillar of our retail growth plan is the continued leveraging of the SuperStore as a one-of-a-kind lifestyle experience and brand-building platform. As indicated, we opened our Dallas facility on April 5.
The reception by our guests has been outstanding. They love the ability to interact with the products in a unique space designed to elevate the experience. Along with so much else about the SuperStore, this is an incredible opportunity for us to build brand equity with cannabis consumers from across the United States.
In addition to the lounge, food junkies, and the recent opening of our Plaza at Planet 13, we have Cannabition opening soon along with Koolsville, the tattoo parlor following shortly thereafter, it falls in line with our goal to continually build out the SuperStore as an entertainment venue. Additionally, I think there is mentioning that these three of these three additional attractions are all third party operators and those three respective operations will generate significant or rent revenues for the company going forward.
Second, part of the growth plan is growing our wholesale business. We’ve seen the success of our brands in the Nevada market, where we are a top player, including the second largest brand at edibles portfolio in Q1. We are also unique in knowing that our products have made positive impressions across the US. Thanks to the brand-building power of the SuperStore.
Over the course of this year, we will be expanding distribution of our products to bring Planet 13 brands to more states and more customers. A couple of weeks ago, we launched our Medizin Branded Topicals powered by Planet 13 in our store, wholesale, and online. This is the first of many plans we will talk about throughout the year to get our brands into more states and in front of more Planet, 13 fans in a capital-light manner. Likewise, we anticipate rolling out our Planet 13 lifestyles brand in the next 30 to 60 days.
Between the retail, wholesale, and lifestyle brands. We have an exciting pathway to drive future growth and bring Planet 13 from a local brand with a national following to a truly national brand. Our growth plan, combined with the exciting upcoming federal reform, positions Planet 13 for better revenue and cash flow growth over the next couple of years, all supported by a strong balance sheet and an experienced management team. And with that, I’ll open the call for questions from the covering analysts.
Question-and-Answer Session
Operator
[Operator Instructions]. The first question comes from Pablo Zuanic with Zuanic and Associates.
Pablo Zuanic
Thank you. Afternoon, everyone. Just regarding Florida, in terms of that 60% volume growth that Viacom has seen, can you talk about what drove that? Was — these become more price, competitive, loyalty, the improved capacity. It’s still the same number of stores, right? So a significant torque in terms of revenue per store, but just talk about what drove that.
And second, related to Florida you talked about adding four more stores, from 26 to 30, not sure if you need to add more capacity here? And how are handicapping the decision in terms of how much more to invest in Florida, ahead of the ballot or wait for the ballot and then maybe not be ready by May 1 next year, but you know, at least have some optionality and flexibility there. Thank you.
Robert Groesbeck
Pablo. I’ll pick a start and Dennis can follow on. I think the pickup on flowers, obviously, operational efficiencies. They’ve done a fantastic job of bringing in new technology, increased lighting, significant upgrades to cooling. So the quality of the product has been greatly enhanced. That coupled with the fact that we’ll now be moving our product lines into Florida. We think we’ll just provide an additive for both quality and for options for customers.
And at the storefront, they’ve done a fantastic job. Really increasing traffic and awareness to the customers with respect to the increased quality. And that’s really what’s driving all of this. It’s been a fantastic increase in not only quantity, but the quality material they’re producing, out of both the growth facility in the production operation.
Larry Scheffler
Yeah, this is this is Larry shuffler. The thing I’ll say to that, I know we’ve talked with them. We have talked to them about marketing, also on what we do here. They’ve also taken the position of a steady and set of matching other people in Florida and having high prices and then giving discounts off and on, they will want to have one single unit price, no discounts at the same price every day. The people have really grabbed hold of that idea. They like it, and they have also given a money back guarantee, if you don’t like the product with. Those two initiatives, it’s again another big part of why they’re doing so well right now.
Dennis Logan
And then, Pablo, it’s tenants. With respect to your question on add additional capacity, there’s enough capacity there, as we’ve mentioned in the past, to expand the store network significantly, specifically with the upgrades that the VidaCann team has started on with that were mentioned by Bob as well as what we plan to do once we once we close this transaction. So we see the ability to take the store count to almost double where it is, today, with the existing footprint and their cultivation and production.
So not a not a huge lift there. Most of the CapEx in Florida will be build out of that store network as well as some upgrades to the greenhouses that we talked about before.
And then your comment on the ballot. I’ll take a first stab and then Bob can way in — Bob, can make the both way in But our view, and I think it’s shared by the VidaCann team, we’re happy. It’s on the ballot, excited about it being on $1, but we don’t really see adult coming into effect until 2026 at the earliest.
No we’re not really planning for 2025 buildout. We’ll focus on building out the balance of ’24 and part of ’25 with a medical-only that will then be turning to the neighborhood adult use stores on on adult use adoption. And then at that point in time, we’ll start looking at SuperStore locations in and potential build out the SuperStores in Florida where it makes sense.
Pablo Zuanic
Understood. And then, of course, the investment focus is obviously on Florida, but in the past, despite your concerns on the Nevada market, I think you also talked about adding more Neighborhood stores in Nevada through acquisitions or that’s really just off the cards? That’s not the plan.
Dennis Logan
No, we still would like to see that. Yeah, go ahead, Bob
Robert Groesbeck
No, I was going to say you, that’s still on the table. We’ve taken a look at a couple opportunities recently. We just haven’t been able to comment, but we’re still moving ahead with that. We think one or two more stores would fit nicely within the portfolio.
Pablo Zuanic
Thank you. And one last one. Regarding California, I’m just trying to understand how much of a cash drain is the Santa Ana. store. Of course, you’ll go in public and say if you’re planning to close it at some point, but I’m just trying to understand how should the investors think about that store in terms of cash drain and where we are in terms of its recovery?
Dennis Logan
Yeah. I’ll take I’ll take the first cut. Pablo, I think, the plans we have in place, specifically with consumption events that we hold there, and we have applied for consumption lounge, license outside in the atrium, with the addition of that, we will be able to get that store to a breakeven positive cash flow by the end of ’24. So I don’t think there’s huge drain on that on that store through the balance of ’24, where we’ve got our hope set on consumption license and turning that thing into a cash neutral, cash positive and really using it and leveraging the Planet 13 brand in the California market.
Pablo Zuanic
Right. Thank you. Look, I want to add one more. The first time I hear you talking about on the CPG side of things, making Planet 13 a national brand, which of course makes a lot of sense. So I guess a two-part question remind me in theevenues case of Florida. Are all the stores going to be rebranded Planet 13 or will they remain and as VidaCann.
But then more on the CPG side of things, in terms of wholesale and building a national brand, would you consider getting into hemp derivatives, [indiscernible] just earlier today. Talked about some of your initiatives there and the operational scale advantages that you have off selling in many states, right, not just where cannabis is legal.
Is that a way to build the Planet 13 brand? Is that something you’re looking at hemp derivatives? I know you complain about that in Nevada in the past as a source of competition. But just you know, just like to hear how you’re thinking of our hemp and how will it help the Planet 13 brand, if in any way? Thank you.
Robert Groesbeck
So on the first part, all of the VidaCann stores will be rebranded to Planet 13. And of course, that won’t happen overnight. It’s probably six-to-nine month process. With respect to hemp, that’s an interesting option.
We’re taking a hard look at that. Again, we have to be cognizant of what’s going on in the Delta 8, Delta 9 space as well. There are a lot of issues there. There is a concerted effort in margin and close those loopholes. We’re going to continue to monitor that and see if it makes sense for us.
We think in the short term, Pablo, as we mentioned right now, it’s important for us just to get the Planet 13 name out into the marketplace across the country. And that’s really what our lifestyle brand will do. It allows us to really do business in all 50 states and offshore for that matter.
And we think that that’s one avenue. And we think that makes the most sense right now for us, but we’ll continue to look at other options to sell products. Again, hemp is not as clean as a lot of people think it is. There’re certainly obstacles, pitfalls in going down that path as well.
Operator
Okay, gentlemen, we have no further questions in the queue. This concludes today’s conference and you may disconnect your lines at this time. Thank you for your participation.
