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spk02: Hi, everyone. Welcome to Planet 13 Holdings 2021 Third Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded on November 23, 2021. At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question and answer session. Instructions will be provided at that time for research analysts to queue up for questions. If anyone has any difficulty hearing the conference, please press star followed by the zero for operator assistance at any time. I will now turn the call over to Mark Kendersma, head of investor relations for Planet 13.
spk06: Thank you. Good afternoon, everyone, and thank you for joining us today. Planet 13 Holdings' third quarter 2021 financial results were released today. The press release, financial statements, and MD&A are available on CDAR as well as on our website, planet13holdings.com. Before I pass the call over to management, we'd like to remind listeners that a portion of today's discussion include forward-looking statements. 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. As a result of these risks and uncertainties, results or events predicted in these forward-looking statements may differ materially from actual results or events. Risk factors that could affect results are detailed in the company's public filings that are made available on CDAR. I encourage listeners to read those statements in conjunction with today's call. The forward-looking statements in this conference call are made as of the date of this call. Plan 13 disclaims any intention or obligation to update or revise such information, except as required by applicable law, and does not assume any liability for disclosure relating to any company mentioned herein. 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 Bob Grusbeck, co-chairman and co-CEO, Larry Scheffler, co-chairman and co-CEO, and Dennis Logan, CFO. I will now pass the call over to Larry Scheffler, co-chairman and co-CEO of Plan 13 Holdings.
spk03: Larry Scheffler Good afternoon, everybody, and thank you for participating in our third quarter call. Today I'm going to discuss our performance in Nevada and California, and then Bob will provide an update on our other growth initiatives later in the call. Q3 was a solid quarter in Nevada. although one marked with some sales headwinds from COVID resurfacing and changes in seasonal trends. Nevertheless, we continue to maintain a market share north of 10% in Nevada. Across Nevada, each aspect of our business performed well. In Q3, we generated $22.6 million from the Superstore, $2.7 million from curbside and delivery, $3.5 million from medicines, and 1.6 million from wholesale and other, a 33% increase over Q3 2020. September results at the Superstore were impacted slightly as we're putting the finishing touches on our expanded floor space, which meant some construction taking place during the month that affected customer experience. The new and expanded area opened on September 21st, and the results were clear, especially during MJ BizCon, and some of the busier weekend days. On completion of expansion of the Superstore, customer traffic increased as did sales on the busiest days. In October, we had multiple days which exceeded $400,000 in sales. The improved customer flow and experience meant we're able to service more customers in a timely manner on those busy days. We expect this to really pay dividends as large conventions return, more entertainments events take place, and we get back to seasonably strong spring through summer months. Our own brands continue to perform well, with Trendy seeing 110% dollar sales growth year over year, according to Headset. It now makes up about 5% of vape sales and 7% of concentrate sales in the state of Nevada. HaHa Edibles claimed 14.4% of edible sales in Nevada. making it the second highest selling brand in the state. Bob will talk about it a little later, and we are extremely pleased with the quality, consistency of our manufactured products, and we're very excited about the opportunity to bring them to other markets. Turning to California, we opened our new store on June 24th. During the quarter, it generated $2.4 million. Sales have been impacted by continued absence of out-of-state tourist activity due to COVID. and significant freeway construction in the nearby vicinity. Upon completion of the construction, we expect a boost for the store as it will make it significantly easier to get on and off the highway at our location, but currently is a major obstacle. These numbers have been disappointing to us, and while there is some consolation knowing that our customer reviews are some of the highest in the state and sales are in the state, and sales are artificially low due to obstacles that are outside of our control, it is one of the key focus areas. Based on what it costs us to acquire and build the store and current run rate, it is approximately two times sales. And while this might be in line with the rest of the industry, it is not a number we're happy with. We are continuing to try new advertising methods and growing the delivery business to better optimize this location. Looking ahead to Q4, October was a very strong month for us, but we are aware that traditionally both November and December are a seasonably lower as there's less tourist activity and party traffic in Las Vegas. Furthermore, the conventions that typically help us make up the volume during these months are still not fully back. With that, I'll pass it over to Dennis to discuss our financials.
spk01: Thank you, Larry. And before I begin, I would just like to remind everyone that all numbers discussed on today's call are stated in U.S. dollars, unless specifically noted otherwise. As Larry mentioned, in Q3 was a strong quarter in Nevada and a first step for us in California. The company generated $32.8 million of revenue in Q3 2021, a 45% improvement over the same quarter last year. Revenue growth was driven by a continued improvement in Las Vegas, as COVID restrictions eased and tourists returned. We had increased sales volume at our medicine dispensary, increased wholesale operations in Nevada, and the opening of the company's Orange County location. Gross margin before the impact of biological assets declined to 53.4%, down from 56.9% in Q2 2021. The decline in gross margin was primarily driven by a lower mix of in-store sales at the company's Nevada superstore location in Q3 when compared to Q2 2021. Gross margins in Nevada were consistent from Q2 to Q3 as we saw a relatively stable mix of tourists to local customers and a strong return of third-party product slotting fees and cross-promotion opportunities in the quarter. Across our business, we continue to target gross margins in excess of 50% for the long term. Sales and marketing expense was $1.9 million in Q3 up marginally over Q2 2021 as we ramp marketing activity in both California and Nevada. We expect this to be at or near the high-water mark as we are starting to optimize spending in California based on the return on investment we are seeing from each marketing channel. The company spent $13.1 million on G&A in the quarter, up from $10.9 million during Q2 2021. Mayor Mrakas, As we alluded to on the last quarterly call we expect Q3 2021 to be the high watermark for gina expenses, a percentage of revenue. Mayor Mrakas, primarily driven by the opening costs related to California and a one time spike in Labor costs in Las Vegas from one time retention bonuses that were paid to new hires and existing employees. Mayor Mrakas, In order to maintain and attract high quality people during during the covert related issues in Nevada. The company is in the process of transitioning to becoming a U.S. domestic corporation and registering with the SEC. This involves the company switching to U.S. GAAP effective January 1, 2022, implementing Sarbanes-Oxley compliance, and becoming an SEC registrant by preparing and filing a Form 10 registration statement. During Q3 2021, we incurred approximately $400,000 in fees as a result of costs related to these initiatives. Burt Lazarin- This this sets the company up though for potential up listing to recognize us exchange and broadening of our shareholder base if the existing federal rules are changed through either a safe act or similar federal reforms. Burt Lazarin- As of September 30 2021 the company had a cash balance of 74 million the company spent 55 million in the quarter to acquire the Florida license which as of September 30th was listed as restricted cash on our balance sheet. Final payment for the Florida license occurred on closing on October 1, 2021. As Bob will discuss further in his comments, the company is actively looking for a Chicago location for a superstore, as well as expansion in Florida for our neighborhood dispensaries. Once we have plans in place, we will update our shareholders on the expected CapEx requirement, but we expect to have enough cash on hand for the initial build-outs in both states. Looking ahead to the transition to US GAAP reporting, The main differences in our financial statements will be the accounting for warrants, which are priced in Canadian dollars and which will entail them to be treated as a derivative liability as opposed to equity, where changes in the underlying warrant values are recognized through the income statement as opposed to the statement of changes in equity, as well as the treatment of biological assets and leases. So with that, I'll pass the call over to Bob.
spk05: Thank you, Dennis, and good afternoon, everyone. The Q3 was all about setting Planet 13 up for future growth. We won an Illinois dispensary license lottery through a social equity partnership. Illinois has long been one of our targeted expansion areas. It has a large population, significant tourist counts, and a robust adult use market. We expect the license to be issued in the first half of next year and are in the process of identifying a strategic location for our first Planet 13 superstore there. We've acquired a vertically integrated license in Florida, arguably the best medical market in the nation, and one with adult use upside. Our plan over the next year is to open a network of neighborhood stores modeled off of our highly productive and successful medicine store, supported by cultivation and manufacturing. We expect this to be followed by two to three superstores as we get closer to adult use and have the ability to supply and support a wider variety of products. We are aggressively working to meet the OOMU requirements of six open dispensaries and cultivation within the first 12 months, and we feel confident about meeting and beating those timelines. We're moving forward with our cultivation and production facility modeled off of our Las Vegas operations. On the dispensary side, we have our team in place scouting our priority markets for locations that fit with our vision. We have proven our ability to build, open, and operate retail. we've excelled in the growing and manufacturing of cannabis products. The one thing we haven't done as good a job as some of our peers is acquiring multiple licenses. This has historically slowed our growth and is why the Florida license is such a great fit. It allows us to open as many stores as we want, unrestricted by licensing issues. One of the big differentiators for us in Florida is that we have strong relationships with a lot of popular West Coast brands through store-in-store and premium branding and product placement relationships. We anticipate bringing some of those brands with us into Florida, along with our extremely popular Trendy, Dreamland, and Ahaha brands, giving us a competitive edge in both diversity and quality of products. I'm extremely excited about the Florida opportunity, and I plan to personally move to the state full-time in the near term to oversee and guide our expectations. expansion expectations in the market. In Nevada, we expect the lounge regulations to be finalized by the end of this year or early next year. We started on the back end design, but we are waiting for the final regulations to be adopted before we really dive into construction in earnest. We also expect to receive approval for the next phase of our cultivation expansion here in Nevada and plan to start construction on that facility in early Q1 of next year. It would be great to be able to offer more of our popular medicine branded flowers in both the superstore and our neighborhood locations. At the start of the year, we had operations in only Nevada. By the end of this year, we will have secured licenses in four states and expect to have a meaningful presence in all four by the end of 2022. We are well on our way to achieving our five-year objective of having eight or more superstores and strategic Tier 1 markets supported by networks of neighborhood stores and cultivation. We also still have over $70 million in cash to pursue cost-effective M&A that increases our vertical integration in California, our build-out in Florida, both on local dispensaries and our cultivation assets in Nevada, and pursue opportunities for new superstores. The next one planned for Chicago was mentioned earlier. We have an incredibly solid base of operations in Nevada and are growing multi-state in a significant way as mentioned. This positions us for a very exciting 2022 and beyond. And with that said, I again would like to thank everybody for participating at today's call. And I would now ask the operator to open the line for questions. Thank you.
spk02: Absolutely. Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, Please indicate so by pressing star 1 on your touchtone phone. Pressing star 2 will remove you from the queue should your question be answered. And lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. And your first question is coming from Doug Cooper from Beacon Securities. Your line is live.
spk07: Hi, good evening, everybody. Why don't we start off in Nevada? Larry, I just want to make sure I heard you right. I think it was $22.3 million from the Superstore in the quarter. Is that right?
spk09: Yes.
spk07: Okay. So that was down slightly from Q2 by my notes, $24.3 million. You mentioned, obviously, the reasons. As you look into 2022, if everything comes back as expected, with the increased floor space, you know, increased the number of cash orders and so forth. What do you think this asset can do in 2022?
spk03: Well, of course, and it was 22.6. I think it said 22.3. Okay. 22.6, okay. Right, yeah. Well, again, if you remember, I don't know if we have – We talked this a while ago. August, we saw 100,000 people through the store in one month. September, we hit 120,000. October, we hit 130,000. So I guess if you want to do the math on that, it's continuing to grow. We get the conventions back. We're expecting a significant increase. But even with COVID here in Las Vegas, only back 75% during those three months at the most with the tourists coming back to Vegas. we're still increasing by that much. We're still expecting a lot.
spk05: Well, Doug, and if I can add to Larry's point, one of the things that has changed considerably here, you know, we weren't allowed to cater to international tours until the last few weeks. So, you know, for most of the year, we've seen zero international tours. So we see some significant upside there as we, close out the year and start moving into early next year. Okay.
spk07: And Bob, you mentioned the lounge. You know, we'll see what the regulations are finalized. Let's assume they're finalized in Q1. And then you can start immediately constructing. Is that the plan? What's the budget on that? And what's the timeline? So that would be sort of finished construction the end of 2022 and then open 2023? Is that the sort of idea?
spk05: Yeah, so as far as the capex required to build that, I'm going to kind of hold off on that now, Doug, because we're designing it now. So we really don't, I don't want to guess. We'll certainly update shareholders when we get that finalized. But timing-wise, again, we're hopeful, as I said, that we get adoption of the final regs here by the end of the year or in Q1. Let's assume that happens by the end of Q1. You know, the... The construction timeline we're estimating is probably going to be six to nine months at least. As we experienced here in the expansion of the Superstore, the latest expansion, we had significant delays due to COVID and supply chain issues. So we don't see that improving here in the near term. So we could anticipate that going upwards into Q3, maybe in Q4 of next year before it's finally open. But again, we're going to move it as aggressively as we can. We're designing the facility now. in anticipation of the regs being finalized. So we're going to move as quickly as we possibly can.
spk07: Okay. And just before I leave Nevada, there's a new owner of your facility across the street. Any comments or ideas what their plans are for what it might mean for increased competition or just any thoughts?
spk03: And also, Larry, I'll just add, too, that we welcome them, like Bobby said, and we'd like to have this corridor as the Amsterdam of cannabis for Las Vegas. It'll drive even more.
spk07: Okay, thanks for that, Larry. California, so 2.4 million of sales in the quarter. That was open the entire quarter, I guess. Are you seeing, you know, how did that ramp from... July through September? How has it been, you know, in the first month and a half of Q4?
spk05: So, Dennis, we'll let you speak directly to that, please.
spk01: Yeah, so, Doug, it's been pretty consistent. There's been some small growth, kind of 3%, 4% growth month over month, and that is continuing into October and November, like Vegas is a bit softer. So, I think it's going to come in between, you know, $800, $850 a month for Q4.
spk07: $800, $850 a month for Q4. Okay. And then you think, like, what is going to be the sort of to bust it open in terms of, you know, in terms of people, I guess, you know, the locals have to know it's there. They've got to, you know, get there. So what... what is your expectation and how quickly this can ramp? I mean, it's obviously, as you said, it's starting off slower than expected. So maybe you can give us some indication of your expectations for this in 2022.
spk05: Well, Bob, obviously it's still very bullish on Santa Ana. It's, you know, COVID has a greater, had a greater impact, particularly on the tourist market in Southern California than even here in Vegas. So, um, Again, I don't like to use that as an excuse, but it's just a reality. And it's had a meaningful impact to everyone down there. And, of course, now with the seasonality, we're out of the beach season. So there's really not a lot of play there. We're just going to keep plugging. We're trying to build the delivery platform. I think that's important. And as Larry mentioned in his comments, I think once the freeway improvements are completed down there, I think it's going to open things up quite a bit as well. But it's just a function of identifying those markets and targeting them. The other thing we're combating in California, of course, is just there are a lot of stores there, and there's still a lot of legal operators. So some of that's out of our control. But I think our philosophy is still true. Once we get you to the store, you're going to be coming back again. And we're excited about that. People like it. Of course.
spk07: Just moving on to Florida then. So you have to have a six dispensaries open in the cultivation within 12 months. Does the clock start ticking on that since you closed it October 1st? Is that the sort of deadline date? And I guess when can you give us a bit firmer timeline on when you think you'll be producing revenue in Florida?
spk05: So Dennis, why don't you jump in on that, please?
spk01: Yeah, so Doug, the clock started ticking on closing October Uh, you know, the first piece of that is obviously getting the cultivation up and running, which we are in process with now. Uh, and then finding as Bob mentioned, we've got a team on the ground, you know, scouting out locations. I know Bob is Bob and Larry and the team has been down there several times. We do have some locations lined up meaningfully. It's gonna, it takes, you know, 12 weeks to get a crop off. So I was looking at probably no earlier than Q3, uh, most likely probably won't see revenue until Q4. I do have to guess on that one. That's sort of on the timeline.
spk07: Okay. And then just finally on Illinois, you expected a license, I think you said, in the first half. I think that's what you said, guys. I did. So you're looking, you think, can you get the location prior to receiving the license and start building? And then would you expect that to be open in the in Q4 as well, or is that a 23 thing?
spk05: No, no, we're hopeful it'll be a 22 thing, and a mid-year projection obviously can move up considerably. The reason we've referenced that timetable, Doug, is just because of the outstanding litigation. We've got pending cases, so everything's kind of bottlenecked until that's resolved. That being said, we've moved forward. We're aggressively looking at multiple locations, and we intend to secure one for the superstore here shortly. So, you know, that obviously, you know, that relationship will be contingent upon the licenses issuing from both the city of Chicago and the state. But, again, it's a process, and we'll get there, and we're comfortable that, you know, once those final approvals are issued, we'll be well on our way to getting a store open. Okay.
spk07: And this is my final one, and then I'll jump back in the queue. $70 million in cash. remains to, I guess, open Florida, open California, excuse me, open Florida, open Illinois, and continue to fund some losses in California. So you think you have sufficient cash? I guess that's the question.
spk01: Yes, Doug, it's Dennis. Yeah, we do have sufficient cash, and I would also point out we are looking at right-sizing California for the current you know, revenue run rate until that freeway, you know, gets revamped and we can ramp up the distribution. So I don't expect to, you know, continue to lose the money that we lost in Q3, go forward in California. Hey, Doug.
spk05: Let me just go back and clarify one thing. With respect to Chicago, you know, Our license is not encumbered by litigation right now. I just want to be clear with that. Our license is clean. It's the process that's being held up. The state's not permitting or approving applications until that litigation is cleaned up. So it's really a function of the state getting that resolved. We're moving forward in all other respects.
spk07: Great. Thanks very much, guys.
spk02: Yep. Once again, if there are any remaining questions or comments, please indicate so by pressing star one on your touchtone phone. The next question is coming from Greg Gibbous from Northland Securities. Your line is live.
spk08: Hey, good afternoon, guys. Thanks for taking the questions. You mentioned G&A being a high watermark in Q3 here. How should we expect that to trend maybe as a percentage of revenue going forward?
spk01: uh well greg it's dennis so you know the dollar value is going to come down uh quarter over quarter and then it's just going to depend on how how quickly we can ramp the revenue to get that percentage so you know we have had one-time costs as we indicated in this quarter to the tune of about a million related to the you know the u.s domestic corp conversion and the stay bonuses that we had to pay had to pay people and again we are going through um optimizing our spend and, you know, making judicious cuts where we can to continue to enhance that margin profile at the EBITDA level in Nevada as well as California. So, you know, I think you'll see the overall G&A come down and then the percentage of revenue, you know, depends on where revenue goes.
spk08: Okay, got it. And, you know, did you, do you guys have a sense of when the freeway construction issue will be complete or subside?
spk05: Yeah, Greg, hi, it's Bob. Yeah, we were told, well, about several months ago when we contacted the state that they were looking between 14 and 18 months for that project until it was completed or substantially completed. But they said that that can move. So, that's really the best we had from Caltrans. Okay, got it.
spk08: And if I could follow up on Florida, given that state's kind of in land grab mode right now, are you seeing a lot of attractive opportunities there? Just wondering if you can provide some color on maybe what markets are attractive and how many opportunities are still available. I guess maybe when we would see your first location being announced.
spk05: Okay. Well, let me take a stab at that. The entire state looks attractive to us. We're obviously longer term on the super stores, probably going to focus in on three of the larger metro areas, that being Miami, Dade County, the Tampa Bay region, and, of course, Orlando. But as far as the traditional neighborhood store goes, the medicine model that we referenced, we can see that fitting well in 15 or 20 of the larger cities in the state. I mean, the beauty of Florida is it's just got a very large population. And so we're real excited about that. We've looked at already probably 10, 15 sites, potential sites. From a timing standpoint, I'm guessing we'll We'll be able to announce something here soon. We've identified a couple that we think are very, very attractive. It's just now a function of getting the paperwork in place. But we're excited. And we think when we do make the announcement, our shareholders will be very pleased.
spk03: And the only thing I'll add, this is Larry, is that we're looking at everything. We're being approached by a lot of people also. In Florida, private operators like to do a merger, possibly, with Planet 13. So if that happens, of course, they give us a jump start on that. But everything has to be checked out. But it looks very promising on a number of fronts. So whether we do that or nothing really works out that we think is a good buy and good fit for Planet 13, then we'll still always move ahead with the stores, like Bob said, or the grow and then the stores.
spk08: Okay, great. I look forward to updates there, and thanks, guys.
spk02: Yep, thanks, Greg. Once again, if there are any final questions or comments, please indicate so by pressing star 1 on your touchtone phone.
spk00: Once again, that's star one if you have a question or a comment. Okay, the next question is coming from Robert DeSanti, private investor.
spk02: Robert, your line is live.
spk05: Hey, how's it going?
spk04: I wanted to congratulate you on the quarter and everything that you've been doing. I had a quick question regarding Vegas' expansion. I know you have the option, I believe, to buy the lot next door, which would double the space. And I saw recently that you have plans to make a cannabis museum, which I think is a fantastic idea to bring in other types of possibly maybe an older generation that doesn't possibly get into marijuana as much when they go to Vegas, but you also have the lounge. And I'm curious if you have anything else in the works that's, you know, sort of to build out that and make it this massive marijuana complex beyond what you already have going.
spk05: Robert, this is Bob. Thanks for the call. So with respect to the lounge and the museum, they're basically going to fill out the balance of our facility here, the main facility, 112,000 square feet. So as I said earlier, we're working on the lounge regulations now and doing our design work. Same with the museum. That'll be a third-party space. And they are working very diligently with their architects and designers to put something together. So we're going to label those as phases four and five, respectively. And my guess is they'll both probably commence construction within a very short window of one another. So that will comprise the balance of the complex, as I said. Now with respect to the location next door, That isn't a purchase option. If we secure that property, it will be a lease. But, yeah, we are looking at that to incorporate into the complex. And it will be a valuable addition to what we want to do. But, again, we've got to finish out phases four and five here in the main building first.
spk04: Awesome. And then one follow-up on the lounge. You probably – I'm assuming you're not going to be able to answer this – you as a company seem to have the building or the makings of sort of like really cornering you. I like, you know, you have the, uh, the Ricky thing and OC, you obviously have like little Wayne, you have Mike Tyson, you're cornering a lot of this market already in sort of the sports entertainment world with, with, uh, sort of brand partnerships and exclusivity. I'm curious if you have any plans to, or if there's anything you can, uh, expand upon and, uh, maybe how you plan on utilizing those connections and exclusive deals with like these people that have massive followings maybe in the lounge aspect or like a concert aspect for in any regard to that moving forward?
spk05: Well, again, this is Bob. Good question. I do think we'll obviously leverage those relationships to the extent we can to drive traffic to the lounge. So there's been a lot of interest and I can't go into much more detail on that right now, Robert, but stay tuned because it's pretty exciting.
spk00: It's going to be an amazing venue. Okay.
spk02: There are no further questions in queue. That is all the questions we have time for today. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.
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