Planet 13 Hldgs Inc Nev

Greetings and welcome to today's Planet 13 first quarter 2024 conference call. At this time, all participants have been placed on a listen-only mode, and we will be conducting a question and answer session with the covering analyst after the presentation. It is now my pleasure to turn the call over to your host for today, Mark Kundersma, Head of Investor Relations. Mark, the floor is yours.

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 10Q, including the MD&A and financial statements are available on the SEC's website, EDGAR, and CDAR 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 with the company's public filings that are made available to the United States Securities and Exchange Commission and on CDR+. 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 reconciliations to the most directly comparable GAAP measures, please refer to today's press release posted on our website. My 13 financial statements are presented in U.S. dollars, and the results discussed during this call are in U.S. dollars unless otherwise indicated. On the call today, we have Larry Scheffler, co-chairman and co-CEO, Bob Grosbeck, co-chairman and co-CEO, and Dennis Logan, CFO. I will now pass the call over to Larry Scheffler. Larry LaForge, yours.

Good afternoon, everyone, and thanks for participating in our first quarter call. This is an incredibly exciting call that comes at the critical junction for multiple important milestones for Planet 13 and our industry. Within the next few weeks, we've opened Day's Consumption Lounge, a truly unique cannabis entertainment venue. We're on the verge of closing the acquisition of Vitacan, adding 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 of 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 280 regulations than we would have normally. That money could have been reinvested in our business to further growth and profitability initiatives. The changes that are coming over the next few quarters and years 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 operations going forward to reflect the upcoming acquisition of Vitacan 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 SuperShore 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 the 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 is driven by the opening of our Illinois dispensary in late Q4 in the combined strong performance and the Nevada neighborhood store. Bob will talk about it more, but this will be the biggest area of growth with the upcoming addition of Vitacams. Based on the last publicly available data provided by the CAN, which is their nine months ended September 30, 2023, they averaged $8 million per quarter. That undersells where they are today. Over the last year, they have seen a 60% increase in the volume of flour sales that are sold per Florida state data. Excuse me. We'll 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 our 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 consumers. With that, I'll pass it over to Dennis to discuss our financials.

Thank you, Larry. Before I begin, I'd just like to remind everyone that all of the numbers on today's call are in U.S. 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, it was driven by increased revenue from our neighborhood store network and wholesale, which was offset by a 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 Vitacan, 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 Dave's 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 has higher margin and more revenue from our wholesale business that typically has a lower margin. We've 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 following the end of Q1, we have focused more of our spend towards supporting the opening of our Dave's Consumption Lounge at the Superstore, and supporting our house brand of 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 audit, the VitaCan, our capital raise, and ongoing litigation against El Capitan. 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 Vitacran 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 31st, 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 finishing the day's consumption lounge, upgrades at the Superstore, and some final payments on the Illinois dispensary build-out. We have approximately $9 million of CapEx planned for the rest of 2024, focused on upgrades to the cultivation and 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 protective claims for the past three years that 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 remit. 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 multi-year growth plan.

Thank you, Dennis, and good afternoon, everyone. The last few years, we've dealt with a 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 top-line 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 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 2023 and our wholesale revenue from a $17 million base. On the retail side, it comes from closing, integrating, and then growing Vitacan in our new Florida business. We are on the verge of closing Vitacan, adding 26 stores to our network. Their team has been doing amazing work. Over the last year, they've increased the volume of flour they are 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 in 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 the state where we see multi-year growth tailwinds. Adult use is on the ballot this November, and the state is setting up for potentially over $2 billion in additional demand, including Planet 13 specialties. 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 Vitacan, we have an additional four Planet 13 stores that are 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 day's facility on April 5th. 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 at Food Junkies, and the recent opening of our plaza at Planet 13. We have Cannabition opening soon, along with Coolsville, the tattoo parlor, following shortly thereafter. It follows in line with our goal to continually build out the Superstore as a true entertainment venue. Additionally, I think it bears mentioning that these three additional attractions are all third-party operators and Those three respective operations will generate significant rent revenues for the company going forward. The 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 branded edible portfolio in Q1. We are also unique in knowing that our products have made positive impressions across the U.S. thanks to the brand building power of the Superstore. Over the course of this year, 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 medicine 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, will position 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.

Thank you. At this time, we will be conducting a question and answer session with the covering analysts. If you would like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. One moment, please, while we poll for questions. Once again, please press star 1 if you have a question or a comment. And the first question comes from Pablo Zuanek with Zuanek and Associates. Please proceed.

Thank you. Good afternoon, everyone. Just regarding Florida, in terms of that 60% volume growth of Viaducan-Hassin, can you talk about what drove that? Was it, you know, did it become more price competitive, loyalty, did they improve capacity? I mean, it's still the same number of stores, right? So a significant... 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, I think, from 26 to 30. Not sure if you need to add more capacity here. And how are you 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 next year, but at least have some optionality and flexibility there? Thank you.

Pablo, I'll take a start, and then Dennis can follow. I think the pickup on flour is obviously operational efficiencies. You know, they've done a fantastic job at bringing a 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, you know, our product lines into Florida, we think we'll, you know, just... provide an additive for both quality and for options for customers. And at the storefront, they've done a fantastic job at really increasing traffic and awareness to the customers with respect to the increase in quality. And that's really what's driving all of this. It's been a fantastic increase in not only quantity, but the quality of material they're producing. out of both the growth facility and the production operation.

This is Larry Scheffler. The thing I'll say, too, that I know we've talked with him, we have talked to them about marketing, also on what we do here. They've also taken the position of instead of matching other people in Florida and having high prices and then giving discounts off and on, they've went to a one single unit price, no discounts, the same price every day. The people have really grabbed hold of that idea. They like it. And they've 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.

And then, Pablo, with respect to your question on 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 they've that the Vitacan team has started on that were mentioned by Bob, as well as what we plan to do 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 on the cultivation and production. So not a huge lift there. Most of the CapEx in Florida will be on the 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 mean, I'll take a first stab and then Bob can weigh in. Bob and Larry can both weigh in. But our view, and I think it's shared by the Vitacan team, we're happy it's on the ballot, excited about it being on the ballot, but we don't really see adult use coming into effect until 2026 at the earliest. And so we're not really planning for 2025 We will focus on building out the balance of 24 and part of 25 with the medical-only that will then turn into the neighborhood adult-use stores on adult-use adoption. And then at that point in time, we'll start looking at superstore locations and potential build-outs of superstores in Florida where it makes sense.

Understood. And then, of course, the investment focus is going to be on Florida. But in the past, despite your concerns about the Nevada market, I think you also talked about adding more stores, neighborhood stores in Nevada through acquisitions, or that's really just off the cards. That's not the plan.

No, no. We still would like to do that. Yeah. Go ahead, Bob.

No, I was going to say, yeah, that's still on the table. We've taken a look at a couple opportunities recently. We just haven't been able to come to terms, but we're still moving ahead with that. We think one or two more stores would fit nicely within a portfolio.

Thank you. And one last one. Regarding California, I'm just trying to understand how much of a cash drain is the Santana store? Of course, you went publicly safe and planning to close it at some point, but I'm just trying to understand how should investors think about that store in terms of cash drain and where we are in terms of its recovery?

Yeah, I'll take the first cut. Pablo, I think the plans that we have in place specifically with consumption events that we hold there. And we have applied for a consumption lounge license outside in the atrium. We think with the addition of that, we will be able to get that store to a break-even positive cash flow, you know, by the end of 24. So I don't think there's huge drain on that store through the balance of 24, but, you know, we've got our hopes set on that 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.

Right. Thank you. Look, I'm going to add one more. It's the first time I think I hear you talk 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 the case of Florida, are all the stores going to be rebranded Planet 13, or will they remain as Vida can be? 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, right? I mean, Curaleaf on their call just earlier today talked about some of their initiatives there and the operational scale advantages that you have of 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 complained about that in Nevada in the past as a source of competition. But just to hear what you're thinking about hemp and how will that help the Planet 13 brand, if in any way. Thank you.

So on the first part, all the Vitakian stores will be rebranded to Planet 13. Of course, that won't happen overnight. It's probably a 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's a concerted effort in Washington to close those loopholes. So 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 Lifestyles brand will do. It'll allow us to really do business in all 50 states and offshore, for that matter. And we think 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 product. Again, hemp's not as clean as a lot of people think it is. There are certainly obstacles and pitfalls going down that path as well.

Thank you.

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.