Planet 13 Hldgs Inc Nev

Good afternoon, ladies and gentlemen, and welcome to the Planet 13 fourth quarter 2024 earnings conference call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require immediate assistance, please press star zero for the operator. This call is being recorded on Wednesday, March 26, 2025. I would now like to turn the conference over to Mark Kindersma. Please go ahead.

Thank you. Good afternoon, everyone, and thanks for joining us today. Plan 13 Holdings' fourth quarter 2024 financial results were released today. The press release, the company's annual report 10-K, including the NDNA and financial statements, are available on the SEC website, EDGAR, and CDAR+, as well as on our website, plan13.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. 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, and 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 CDAR+. 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 four listed 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. Plan 13's 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'll now pass the call over to Larry Scheffler, co-chairman and co-CEO. Larry, go ahead.

Good afternoon, everyone, and thanks for being with us today. I'll start with a look at performance in Q4 before handing things over to Dennis for a deeper dive into our financials. Bob will then walk you through how we are executing on our strategy and positioning ourselves for success in 2020 and beyond. In Q4 2020, North Shore delivered 12.8 million in revenue, contributing to a full year of 55.7 million. While we navigate the typical seasonal trends in Q4 and broader economic pressures affecting consumer spending, our commitment to offering premium products and unique shopping experience allowed us to maintain our leadership position. This resilience reinforces our brand strength in the attractiveness of the superstore, shopping, entertainment, and first destination. Revenue from our neighborhood store network came in at 14.1 million, reflecting the 1.3 million sequential decline in 2003. We saw encouraging growth in Nevada and California, demonstrating the resilience of our model in those markets and the value of having owned brands and vertical operations to help protect margin. Florida presented short term challenges, primarily due to the failure of amendment three for adult use and the subsequent relinquishment of inventories being pushed out into the marketplace, causing significant price compression along with the impact of selling to lower quality products from the summer growing season. A challenge we addressed last quarter. The good news is that our two newly upgraded greenhouses are already showing strong early results, positioning us for improved quality and supply going forward. While we anticipate continued price and pressure, the market recalibrate under medical regulations We remain confident in our ability to adapt and capture long-term opportunities. Across the Superstore and our neighborhood network, total retail revenue reached 26.9 million compared to 29 million in Q3 2024 and 19.2 million in Q4 of 2023. While substantial performance reflected temporary headwinds, our year-over-year growth underscores the significant progress We've made an expanding our footprint. With a strong foundation in place, we remain focused on delivering value to our customers and shareholders. We generated $3.4 million from wholesale, lifestyles, and other revenue in Q4, up from $3.2 million in Q3. According to BDSA, we ranked as the fourth highest branded sales in Nevada during the quarter, demonstrating the strength of our portfolio. We secured the number two spot in edible sales, led to the continued success of Ha Ha Gummies, and ranked three in concentrates. Additionally, we remain a top player in both flour and bakes. Despite increasing competition in our product portfolio and sales performance, we remain resilient. Our ability to drive higher sales volumes has helped mitigate pricing pressure, leveraging our skilled operational expertise to maintain a strong market position. Despite our industry-wide environment of pricing compression, we continue to navigate challenges with competence and focus. Our deep retail expertise, commitment to product quality, and strong brand billing capability set us apart in the evolving market. Excuse me. making decisive steps to adapt, innovate, and defend our leadership positions. With that, I'll turn it over to Dennis to walk through our financials.

Thank you, Larry. Before I begin, I'd like to remind everyone that all the numbers on today's call are in U.S. dollars, unless specifically stated otherwise. In Q4, Planet 13 generated $30.3 million in revenue, up from $23 million a year ago. and down from 32.2 million in Q3, 2024. The sequential decline was in line with expected seasonal trends in Nevada and broader pricing compressions across key markets, including Florida, following the failure of the adult use initiative in November. The year-over-the-year increase was the result of the inclusion of revenue from our acquisition of Lake Canada closed in May of 2024. The prior year Q4 2023 did not include any results for Vitacan. For the full year, revenue grew 18% year-over-year to $116.4 million. The increase was, as mentioned previously, driven by the expansion of our state footprint to include Florida. This helped offset some of the softness we saw in Nevada. Looking ahead into 2025, we anticipate continued competitive pressure and pricing headwinds impacting top-line revenue. The increasing presence of intoxicating hemp and the illicit market activity, particularly in California, Nevada, and in Florida, is creating challenges across the industry. However, our focus remains on differentiation through product quality, strategic brand positioning, and driving scale in our core markets to help us navigate these market dynamics more effectively. Gross profit was $13.1 million in Q4 2024 compared to $16.7 million in Q3 2024. This translates into a gross margin of 43.2% in the quarter compared to 51.9% in Q3. The decline in gross margin was driven by two main factors. One was the ongoing industry-wide price compression across all our markets, and the second was discounting and sell-through of lower-quality flour in Florida that we spoke about on last quarter's call. We expect to see a bounce back in future quarters, specifically Q2 and Q3 of 2025, as our product quality and consistency continue improving. Pricing pressure will remain a factor, and it is imperative that we continue to optimize our costs and drive efficiency to maintain healthy margins moving forward. Sales and marketing expenses declined to $1.4 million in Q4, down from $1.6 million in Q3. As we continue to optimize our cost structure, we are taking a disciplined approach to this area, aiming to keep spending both as a percentage of revenue and on an absolute basis. A key component of this strategy is our Lifestyles brand, which as a non-cannabis-touching business enables us to advertise Planet 13 through more traditional, higher ROI channels. This initiative is already helping us extend our brand reach while improving marketing efficiency. G&A was down approximately $700,000 in the quarter to $14.1 million from $14.8 million in Q3. This decline underplays our progress that we've made in the quarter where salaries and wages were down almost $2 million. This marks the first step in a broader effort to streamline our cost structure. We're taking targeted action to reduce corporate overhead while improving efficiencies in our retail operations. While Q1 will reflect higher legal costs associated with the recovery of funds in the El Capitan matter, we expect these improvements to be evident as the year progresses. We delivered breakeven adjusted EBITDA in Q4 compared to 1.3 million in positive EBITDA in Q3 2024, as lower operating leverage impacted our results. However, for the full year, adjusted EBITDA increased 49% year-over-year to $3.5 million, reflecting our ongoing focus on our operational efficiency and the benefit of additional operating leverage from Florida. Looking ahead, we are committed to enhancing our productivity in both our Nevada and Florida operations and driving cost savings across the organization to strengthen adjusted EBITDA margins. Turning to the balance sheet, as of December 31st, 2024, the company had an unrestricted cash balance of $23.4 million. During Q4, we used approximately $1.4 million in operating cash flow, and for the full year, we generated $5.2 million in operating cash flow. Since the end of the year, we have spent approximately $3 million in CapEx, largely on new store openings in Florida, and have an additional $3 to $5 million planned for the next 12 months for targeted upgrades to manufacturing in Florida and additional store openings in that market. We've also paid off in February of 2025, $3 million in bank debt that we assumed as part of the Vitacan acquisition. And in March, we reached a settlement and recovery of $2.1 million of funds held by the Orange County Sheriff that were reflected in the balance sheet as restricted cash. And we've obtained real estate value at approximately $5 million that we are in the process of listing for sale. In total, including the expected value of the sale of the real estate, we have now recovered approximately $10.5 million related to the El Capitan matter. We have an additional $5 million in notes payable due April 1st under the terms of the Vitacan acquisition and another $1.5 million in notes payable at Vitacan that mature in 2029. Other than these debt instruments, our balance sheet is clean, an advantageous position compared to the rest of the cannabis industry that faces over a billion dollars in debt refinancing and refunding over the next two years. With our lower future capex needs and a strong balance sheet, we're well positioned for sustainable execution. With respect to 280E and income tax payable, we have adopted the position of many of our peers. and have filed or will imminently file amended income tax returns for 2020, 2021, 2022, and 2023 seeking a recovery of excess taxes paid. Since September of 2023, we have taken the position that 280E does not apply, and we have been making estimated tax payments as such. From an income statement perspective, we are still recording the tax provision as if 280E applies, but since we are no longer paying 280E income tax, you will continue to see the uncertain tax position balances on our balance sheet increase quarter over quarter until we have a resolution on this matter. There are several pending income tax cases ahead of us, and we anticipate that we will have a better understanding of the potential outcome of the position we have taken in the near future. The uncertain tax balances as of December 31st 2024 stood at $19.3 million and is included as a separate line item in long-term liabilities on our balance sheet. With that, I'll turn the call over to Bob to discuss the execution of our growth plan.

Thank you, Dennis. Good afternoon, everyone, and greetings from sunny Florida. While 2024 presented industry-wide challenges, including competition from the illicit market, the rise in intoxicating hemp products and significant price compression putting pressure on margins, The plan of 13 was a year defined by strategic execution. We remained focused on a few key priorities that have positioned us for long-term success, both in 24 and now as we head into 2025. Our first priority was expanding our retail footprint to deliver greater scale and help navigate ongoing margin pressures. We were thrilled to bring Florida into our state mix, significantly enhancing our growth potential. Over the course of the year, we added 30 new dispensaries, bringing our total, including a superstore, to 34. This expansion provides a solid foundation for long-term success. With a strong retail presence now in place, both in Florida and Nevada, we are well-positioned to drive sustainable economics. While we've had a few more dispensary openings planned for this year, including one this week, we are intentionally slowing the pace of new openings for the balance of the year. We feel confident in the size and coverage of our footprint and are now shifting focus to maximizing the performance of our existing operations on a store-by-store basis. In 2025, our focus is on increasing productivity of our footprint, particularly here in Florida. A key step in the strategy has been the expansion and upgrades to our cultivation facilities. These enhancements are designed to improve yields, potency, and overall product quality, especially for high-end flour. ensuring we deliver the premium products that our customers demand. Early harvests are underway and the results are quite encouraging. I'm excited about the impact this higher quality and more diverse product selection will have on store productivity starting in Q2. This improvement continues downstream. We're making investments in automation, especially in post-harvest functions like packaging and trim room efficiencies, while at the same time addressing gaps in our SKU lineup, particularly in a variety of sizes for pre-rolls and cartridges. Another important piece is strengthening our manufacturing capabilities by making investments in our kitchen and lab here in Florida to expand product variety. We are also looking to extend the successful strategy we've utilized in Nevada by partnering with celebrities and third-party brands to further diversify our offerings. This approach will fully leverage our cultivation assets while driving greater consumer engagement and brand loyalty. That dovetails nicely with our second key priority, our wholesale business. In addition to our Nevada market-leading brands like Ha Ha Gummies, we are a contract manufacturer and wholesaler of choice for brands like Wiz Khalifa's Khalifa Kusha in Nevada. Similar to the plan in Florida, adding new stores with established followings and built-in marketing support is an efficient way to drive better utilization in our cultivation facilities. We're also leveraging our Lifestyles brand to expand national marketing efforts. As mentioned earlier, the non-cannabis platform allows us to promote Planet 13 through traditional marketing channels, increasing brand awareness efficiently. Throughout the year, we'll use this platform, along with our award-winning product brands, to forge partnerships and expand into new states. The third priority is enhancing efficiency across the corporate side of our business. As we improve productivity in both retail and wholesale, We're also taking a very disciplined approach to streamlining operations, reducing costs, and ensuring we're operating as lean and as effectively as possible. To summarize, 2025 will be a year of productivity and efficiency. While the impact of these initiatives will take a few quarters to fully materialize, we are making meaningful strides to increase revenue per store in Florida, strengthen and diversify our wholesale business, and drive efficiencies at every level. from corporate to cultivation to retail. These actions position us for stronger financial performance and long-term success. And with that, I'll open the call for questions from covering analysts.

Thank you. Ladies and gentlemen, we will now begin the question and answer session. Should you have a question, please press the star followed by the number one on your touchtone phone. you will hear a prompt that your hand has been raised. Should you wish to decline from the polling process, please press the star followed by the number two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question is from Matt Bottomley from Canaccord Genuity. Please go ahead.

Good afternoon, everyone. Thanks for taking the questions and all the comments so far. I'm just wondering if we could get a little more commentary on the change in the margin profile quarter per quarter. So I know you gave the characteristics of what's been happening in the market as well as some targeted discounts in Florida. Can you just give us, unless I missed it in the prepared remarks, which I apologize, but just a little bit of an update on exactly what you guys were working through when it comes to some of this quality product in Florida that needed to be discounted versus what we can expect in Q2, Q3, and Q4? And just trying to get an idea, you know, where the steady state margin profile is outside of that issue.

Sure. Sorry, Matt. As we mentioned on our Q3 call, we hadn't opened our new greenhouses yet. We had two upgraded houses with HVAC, you know, lighting. We're not going to do greenhouse ground flower. And we had in Q4 an excess amount of lower testing THC product that we needed to sell through at steeper discounts than otherwise would have had to had we had the flower that we're now getting out of our upgraded greenhouses that came online. One of them came online that we've seen product come in testing in the high 20s. The second one was approved and it's got plants in it. We should see a harvest come out here in Q2 with that one. So both those houses are up and running and should be fully operational and supplying quality flour to the store network in Q2, Q3 over the summer. We are seeing pricing headwinds, as we mentioned on the call, in Florida continue, although we are mitigating some of that by introducing new brands. We're taking our Plant 13 products. brands from Nevada down to Florida. We have the strains down there. We're going for a more tiered pricing, you know, moving away from the old everyday best pricing model that Vitacan had prior to our acquisition. And, you know, we're seeing and expecting, you know, kind of mid to low 50%, like kind of 50 to 53% gross margins coming out of Florida. We are, you know, we are seeing, you know, high 50s, out of our retail operations in Nevada. That gets pared down a little bit with some of the wholesale in Nevada and California that we have. Obviously wholesale, you know, carries a much lower margin than retail. So, you know, go forward. We're still targeting that, you know, 50 plus percent across the board and especially across our retail network.

Got it. Thank you for that. And so maybe just moving, you know, one line lower to, to overall free cashflow. So, you know, you guys have the benefit, you know, one of the only, uh, You know, MSO is certainly that that doesn't have any debt overhang to speak of or meaningful maturities, you know, in really any sort of time frame. But, you know, still working towards free cash flow positivity. So just your continued expansion in Florida relative to, you know, maybe closing that gap. I'm just curious, you know, where maybe you can speak to where CapEx might be this year more specifically or just the overall strategic outlook. uh, initiative to, to kind of inflect into positivity versus, um, you know, still trying to carve out, um, you know, what will certainly be, um, you know, a higher market share in Florida in the years to come.

Yeah. And as we mentioned, and I'll take the first part, Bob, you can, you can talk the different, we, we mentioned on our call, like, so we've spent in 25, we've spent 3 million to date, uh, you know, opening new stores, open four new stores in the Florida market. have a couple more on the go. We're looking at between $3 million to $5 million in total CapEx across the company for the balance of the year. And then, as we pointed out in the remarks, working diligently and aggressively to bring down our costs, both on an SG&A level, a salary and wages level at the retail end of the spectrum, getting our costs back in line with where the current revenue run rate is so we can achieve that cash flow positive and at the same time is complementing that growth in the footprint. But, you know, Bob is in Florida, and he's much closer to the Florida expansion than I am. So over to you, Bob.

Yeah. So, Matt, what we're trying to do, as Dennis indicated, we're going to slow out the new store openings, as I mentioned in my remarks. You know, we'll probably get by the tail end of the year, probably 38, 39 stores open. But what we're really doing now is just kind of getting – completely refocused on, you know, store over store growth. And so, you know, the neighborhoods we're in, the new locations we think are ideally suited, we've just got to do a better job, you know, creating awareness. And so that's really going to be the focus here going forward this year to, you know, drive revenue per store up considerably, you know, versus where we stand currently, you know, in the hierarchy of the other operators.

Got it. Okay, thanks. Sorry, I'd missed some of those metrics you provided, so thanks for repeating. I'll leave it there and get back in queue. Thanks, all.

Thanks, Matt.

Your next question is from Pablo Zvanek from Zvanek & Associates. Please go ahead.

Thank you. I'm good afternoon, everyone. Look, this is a general question, but you know, given the challenges in Florida, you made a buy the gun deal, you know, assuming that we would have wreck, right? Although, of course, you knew it wasn't necessarily a certainty. So given the challenges and the fact that you have a very strong balance sheet and that supposedly private valuations have come down, would you look to expand in other states and add to the portfolio? Or that would not make sense in the current environment? It's more about executing based on what you have. Well, Hey, Pablo.

It's Bob. Good to chat with you. Look, we'll take a look at anything. We've got inbounds on a fairly regular basis in other jurisdictions, but really right now our focus has to be Florida. And as indicated, we're disappointed with the vote in November, but we still have close to a million cardholders here in Florida. And, you know, it's a challenging market right now, and I think it requires our complete focus, you know, to really, you know, build these stores up and, you know, drive revenue and, of course, you know, get to the margins that we need. So that's our focus. But if we can backfill in Nevada, we'll take a look at that. If a great opportunity should present itself in Illinois, we'd consider that as well. But, you know, it's a tough market to buy right now. And it's incredibly dilutive given our current stock value. So it'd have to be a fantastic deal. And we just haven't seen anything come across the desk yet that meets that credit.

Yeah, and to add to that, Pablo, as well, we don't want to spend cash on any of that stuff. So to the extent that the share price continues where it is, I don't see us using stock to make an acquisition at these levels. And we certainly do not want to spend spend cash on an acquisition in any market and just focus that cash more strategically on our existing network.

Yeah, I understood. I understand. Logan, just in the case of Florida, particularly at the store level, you know, is there an image problem with the Vidagant network in terms of weather locations, the fact that the chain in the past had been very promotional, the fact that you, you know, recently had to dump some of these lower quality products? I mean, is that part of the struggle, or am I exaggerating that concern? No, I think that's a legitimate issue.

You know, Vitacan, you know, it's a good operation. I'm really glad that we're able to do the deal. The problem was, as Dennis kind of alluded to in his comments, the product consistency has been a real issue for the company for quite some time, and that seasonal degradation has And, you know, it's impacted sales, particularly as we move into the summer months. Historically, it's been a very, very real issue. And, you know, that's why we made the commitment to, you know, to put CapEx into the improvements in Jacksonville. And, you know, I'm glad we did because we are seeing, you know, some significant improvements there, as I said. But it's going to take a bit of time and. Ultimately, in my perfect world, if an indoor grow came along that met the criteria that we're looking for, we'd probably try to grab that too just to augment and supplement the seasonality. We're comfortable moving forward, Pablo. The integration has taken a lot of time. It's been very difficult to deal with the state. It's a very slow process. When it's taken two and three months to get a store approved, that puts some pressures on the operators. But, you know, we're navigating as best we can, and, you know, we're comfortable we're going to make the turn here and, you know, really start to grow the business in Florida.

Thank you. And just one last one, Dennis. You know, regarding 280E understood in terms of your amended filings, what I'm hearing is that there could be some concern with the statute of limitation in some cases, but, you know, after the three-year period, you no longer can ask for a refund, say, on 2020. But correct me if I'm wrong. Is that a concern or it hasn't come up as an issue yet?

In my comments where I say we have filed or are about to file imminently, we filed 2020 to 2022 and they're in the process of filing 2023. So we've filed what we've needed to and we've not had any issues with that statute of limitations, Pablo. So that part of it's not an issue for us.

All right. Thank you. That's all.

Ladies and gentlemen, as a reminder, should you have any questions, please press the star followed by the number one. We'll pause a moment for questions. Your next question, oh, we had a question and then they backed out. So there are no further questions at this time. Please proceed with closing remarks.

Thanks, everyone, for participating. I don't think we have any other closing remarks. Operator, you can end the call. Thanks very much.

Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.