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spk00: Greetings, and welcome to today's Planet 13 first quarter 2023 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 floor over to your host, Mark Kunishma, Head of Investor Relations. Mark, the floor is yours.
spk01: Thank you. Good afternoon, everyone, and thanks for joining us today. Plan 13 Holdings first quarter 2023 financial results were released today. The press release, the company's quarterly report 10Q, including NB&A and financial statements are available on the SEC website, EDGAR, and CDAR, as well as on our website, plan13holdings.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. There can be no assurances that such information will prove to be accurate or that management's expectations or estimates but future developments, circumstances, or results will materialize. 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. Risk factors that could affect the results are detailed in the company's public filings that are made available with the United States Securities and Exchange Commission and on CEDAR. We 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 claims any intention or obligation to update or revise such information, except as required by applicable law, does not assume any liability for disclosure related to any comment mentioned herein. 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 the call are in U.S. dollars unless otherwise indicated. On the call today, we have Larry Scheffler, co-chairman and co-CEO, and Dennis Logan, CFO. I'll now pass the call over to Larry Scheffler of Plan 13 Holdings.
spk04: Good afternoon, everyone, and thank you for participating in our first quarter call. We'll keep this call brief since it wasn't that long ago that we last did this. On our Q4 call, we identified that we're starting to see price stabilize in Nevada. Those early signs have carried on throughout the quarter, and they're continuing into Q2. After multiple quarters with sequential declines, we saw sales increase at the Superstore. This has almost all been driven by pricing dynamics, as the number of tickets has been relatively consistent or growing throughout that time, even with new dispensaries opening. We're optimistic that Q4 marks the low point for pricing and that we've reached the supply and demand equilibrium. We expect demand to continue to grow at a steady pace and supply to be either flat or decline based on the tough funding requirements and some smaller, sub-scale competitors growing liabilities and tax bills. In Q1 in Nevada, we generated $14.3 million in revenue from the Superstore, $1.7 million from curbside and delivery, and $1.9 million from medicine. Once again, we've been able to maintain our share of Nevada retail sales above 8% for the quarter. This is in line with our long-term goals. In addition to the $17.9 million in retail sales, we generated $2.3 million from Nevada wholesale and others. Total Nevada revenue was $20.2 million in Q1 2023 compared to $20 million in Q4 2024. The largest area of growth in Nevada quarter over quarter is once again our wholesale business, which grew 13% sequentially. Our cultivation and wholesale teams continue to execute at a high level. We're consistently creating new products, getting them into shelves across the state, and delighting both local and tourist customers. Through the first quarter, our brand kept the prominent position in Nevada. Herb BDSA Medicine was the number five flower brand in Q1. HaHa moved up to the number three candy brand. And Dreamland was the number one chocolate brand and trending the number five brand in the state. These statistics account for products sold at our stores or on third-party shelves, demonstrating the immense brand-building value of the superstore. It is the reason why partner brands and celebrities like Mike Tyson, Lil' Kim, and Stizzy continue to launch their products in Nevada with us. Looking ahead in Nevada, we expect to see our incremental growth as pricing remains consistent and demand and unit volume continues to grow. We also expect traditional seasonality this year with Q2 and Q3 being stronger than Q1 and Q4. The one caution is that there is still significant risk in the economy, with consumers clearly struggling with an increased cost of living and uncertainty about how the continued rise in interest rates will impact consumers over the remainder of the year. Turning to California, in Q1, we generated $4.7 million in revenue compared to $4.9 million in Q4 2022. This breaks down to $2.1 million from retail, $2.6 million from wholesale, compared to $2.4 million from retail and $2.5 million from wholesale in Q4 2022. Looking ahead, we believe this is a good base in California. We will see incremental improvement in our wholesale business. In terms of the remainder of 2023 and beyond, we've outlined these three key deliverables we want to achieve this year to be successful. Number one, maintain and build the core. This means continuing to generate north of 8% of Nevada's retail sales. grow wholesale revenue in Nevada and California, and generally improve the quality of our standalone operations in both states. Number two, increase sale, excuse me, increase scale. Significantly, we want to finish and open our Illinois dispensary this year and start to demonstrate why we think this might be the best dispensary in our portfolio after the Las Vegas Superstore. We're also focused on progressing the build-out of our Florida cultivation. to set us up for success in 2024 and continue to evaluate and, when appropriate, pursue accretive M&A. And three, improve profitability and cash flow and preserve capital. This will be particularly accomplished as we get more scale and are able to spread our corporate costs out over a higher revenue base. The other key piece is the continued streamlining of operations and the efficiency improvements. If we can execute those three goals, 2023 will be a successful year for Planet 13. Taking a look at how we are doing so far, the corporate operations remain strong. We are a dominant player in Nevada, maintaining, again, market share north of 8%. Nevada wholesale revenue is up 13%, with the number of wholesale accounts up 3%, meaning each account is becoming more productive. Our cultivation expansion is improving yield and potency, now that we've gotten a couple of harvests through, and fine-tuned our operation. Overall, the core of our business remains strong, giving us a solid base to grow on. We are leveraging that base to add scale and more markets to improve our financials and ensure we are a long-term industry winner. In Illinois, we're making significant progress. We've purchased a dispensary location and started renovations. We've also purchased the remaining 51% of the Illinois dispensary. It's now 100% owned by Planet 13. Overall, we have paid less than $10 million for this dispensary, which will project at less than one times the sale if we assume the average revenue for a dispensary in Illinois. And given the quality of our location, we expect to be well above that average. We are thrilled about the potential of the dispensary and think it might ultimately be the second, again, best location in our portfolio. It is in a prime shopping area adjacent to a massive casino project, guaranteeing a steady flow of customers. Although the store has a smaller footprint, will have lower operating cost expenses than Superstore, it will still provide the distinctive customer experience that Planet 13 is renowned for. We're aiming to launch the dispensary later this year. In Florida, progress has been slower than we would like on our build-outs, and some of the opportunities we thought we had to speed up our time to market fell through. We're continuing to explore all options of cultivation online by the end of the year in a cost-effective way. In addition to potential M&A in Florida to speed up time to market, we're exploring other accretive M&A opportunities with an eye on scale, profitability, and overall attractiveness. Ultimately, none of the deals we explored in the quarter met our criteria after going through our extensive due diligence process. The deals available in the market continue to get more attractive, but due diligence is critical and crucial. We will remain disciplined to ensure every deal is in the interest of shareholders. This pursuit of growth and scale hindered our profitability in the quarter, but operationally, excluding fees associated with M&A, we would have been cash flow positive again. Even including the one-time M&A costs, while excluding the reduction in share-based compensation included in SG&A, we've lowered our general and administrative expenses by 10.5% in the last year, demonstrating our commitment to finding efficiencies and lowering our fixed costs. Overall, we're off to a solid start on our goals for 2023. The Corps remains strong, and outside of Florida, we are making rapid progress on our growth initiatives and improving profitability. Before I pass the call on to Dennis, I'd like to take a minute to recognize Mike Harmon, our board member and audit chair, who passed away in April. Mike was the plan of 13 since we went public in 2018. He helped us with important projects like our conversion to U.S. GAAP and SEC registration. He was a valuable source of advice and a steady presence on the board. Joining the board as the new audit chair is Lee Frazier. Lee has over 20 years of experience at publicly traded companies and private businesses, overseeing financial reporting, large-scale construction projects, and real estate portfolios. He has done this for world-famous companies like Warner Brothers and Fox Corporation. He has a look at our goals for 2023 and our ongoing expansion projects. Couldn't think of a better board member or one of more relevant experience for us to lean on. With that, I'll pass it over to Dennis to discuss our financials.
spk02: Thank you, Larry. Before I begin, I'd just like to remind everyone that all numbers on today's call are stated in U.S. dollars unless specifically stated otherwise. In Q1 2023, we generated $24.9 million in revenue. This compared to $24.8 million in Q4 2022, essentially flat sequentially and down 3% year over year. Overall wholesale growth offset a slight decline in sales at the retail level in California. This is consistent with what we talked about on our Q4 2022 call, where we expected revenue to be relatively flat for the first half of the year, with growth towards the end of the year driven by the opening of our Illinois dispensary. In Q1 2023, gross margin increased sequentially to 43.7%, up from 43% in Q4 2022. The sequential increase was a result of higher utilization rates at our cultivation facility. and we think there's still some room for incremental improvement, especially with price compression slowing. Having said that, we don't expect gross profit to reach north of 50% again because of the diluted impact on margins from our growing wholesale operations. Gross margins at our retail operations continue to be in the high 50% range in Las Vegas and in the low 50s in California. We continue to target 50% or higher gross margins for our retail operations, and we expect gains from vertical integration to offset some of the pricing pressure at the retail level. Sales and marketing expense for the quarter was $1.3 million, up from $1 million in Q4 2022. We've ramped up our marketing spend ahead of the traditionally busier tourist season to capture a higher share of total sales. That includes activities like more cab advertising, celebrity partnerships, and direct drive referrals. Excluding share-based compensation expense, the company spent $10.2 million on SG&A expense in the quarter, down from $11.4 million in Q1 2022, a 10.5% decrease from Q1 2022. During the quarter, we spent approximately $1 million on fees and expenses incurred on potential M&A opportunities that did not materialize during the quarter. We do not expect that this level of spend should be repeated in future quarters. However, we will continue to explore creative M&A, and other paths for value creation for our shareholders. These one-time fees and expenses significantly impacted our profitability and cash flow in the quarter. Excluding these one-time items, operating cash flow before changes in working capital would have essentially been breakeven. We expect lower one-time costs in future quarters and better operating cash flow. As an organization, we recognize that this is the metric cannabis companies are being judged on, and that aligns with our long-term internal rubrics. As of March 31st, 2023, the company had a cash balance of $42.7 million and no debt. During the quarter, we used $5.2 million in operating cash flow. $1 million of that was used for the one-time fees and expenses as discussed previously. Another $3.9 million in cash was used for working capital as we increased some inventory ahead of the 4-20 day and paid down some outstanding liabilities. We used $4.5 million in investing cash flow approximately 0.9 million to buy the remaining 51% of Planet 13 Illinois and spent 2.5 million to buy the building for our Illinois dispensary and begin construction. We plan to enter into a sale lease back on this building when it is finished to continue with our asset light approach. We also spent 1.1 million approximately on facility upgrades at the Las Vegas Superstore. As Larry indicated earlier, our priorities as we look ahead to 2023 are to build scale and increase profitability and operating cash flow. Everything we're doing is aimed at building the strongest Planet 13 possible without the need for any additional outside capital. With that, I want to thank everyone for participating on the call. We'll now ask the operator to open the line for questions. Thank you.
spk00: 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 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you would 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. Okay, the first question is from Doug Cooper with Beacon Securities. Please proceed.
spk03: Good afternoon everybody. Just sort of a quick one off the top. Just on the press release it says Q1 2023 adjusted EBITDA loss of $680,000 and then if I scroll down the actual I think it's a $680,000 positive EBITDA. I just want to make sure I've got everything right here.
spk02: Let me take a look at that Doug. Enough of us have looked at it, so I'm positive it's right. Give me a sec. Keep going with your questions. We'll get back to you.
spk03: Yeah, I guess my only question is on the balance sheet you guys talked about, obviously preservation of capital as much as possible. Can you just talk about the remaining committed CapEx, I guess for Illinois and Florida and maybe Nevada, to, we'll call it from an adjusted cash perspective, how much should we think you have left after those committed CapEx requirements?
spk02: Yeah, so we'll start with Illinois. We are budgeting another $2.5 million on the build out of that location and hope to have it open before the end of this year. I think the plan is to have it open sometime in early Q4. And so that should take care of the CapEx there, and they'll obviously have some working capital that we need to spend to ramp up prior to that opening. But not CapEx. The Superstore, we have a few more upgrades we're going to have to do at that facility to facilitate some additional tenants that may be moving in and talking about the potential for that consumption lounge at some point as well as part of that. So I think we're budging to make sure we have $3 million for that. Sorry, how much? $2.5 to $3 million for that. $2.5 to $3, okay. And then Florida, you know, our target is probably, you know, $750,000 per store, retail store that we're going to open. You know, obviously we have six under or approximately six. I can't remember if we've announced all six or not. You know, under lease right now that we're working on to build out of those. And then it comes down to the cultivation facility in order to feed those stores. Again, we are looking at alternatives to make sure we can get to market quicker and without spending any cash if we can on it, but it's failing that, you know, we will have to spend, you know, I want to say, you know, near term, probably between five and 10 million. And if we do a full build out of the, of the, The building that we have on site there that will give us sort of, I think, 45,000, 50,000 square foot facility, we could be in the 15 to 20 million in total. We hope not to spend that, and my goal is not to spend that cash. Worst case scenario, in order to comply with our commitments to the MMU, we might have to spend that.
spk04: If I can, let me just add on to the money spent on Phase 4 at Planet 13 Las Vegas. It is to extend the hallway down another 100 feet to the other end of the building with another grand entrance and do the gray shell for the, we've announced, that cannabis museum. They will start work here in a week. And in about six months, they'll be open for it. It's a 14,000-square-foot, two-story interactive museum. Along with that, we'll have two retail centers that we'll be able to lease out in the new hallway also. So all of that will add even more traffic as the museum opens, along with the retail centers and the added income of minimum of $200,000 a year just in lease space to the museum.
spk03: Okay. So just in a worst-case scenario, if I can call it that, Dennis, between Illinois and Nevada, let's call it five, plus the build out of the Florida, plus that's four and a half, that gets me to nine and a half, call it 10. And then at the upper end of 20 million for the wholesale or for the cultivation, 20, let's call it 30 million. It's kind of worst case scenario.
spk02: Yeah, worst case scenario, Doug, for sure. I expect it to be much less than that, significantly less than that. As we go forward here. Okay.
spk04: Let me just say one other thing that's positive. We have our site in Coalinga, the main grow, listed now for just under $9 million. Even when we sold between $8 or $9 million. And if we've got interested people looking at it right now, that's just one more added thing that will go into our bank account.
spk02: And the same thing with the Illinois dispensary. We'll have spent $5 million on it. and we'll do a sell lease back on that so we can recapture a bunch of that capital as well.
spk03: And sorry, Larry, just that site you just referred to, that's the site in Nevada, that's for sale?
spk04: No, that's the one in Coalinga, Coalinga.
spk03: California Cultivation, yes. Sorry, where's that? Where's that? Coalinga?
spk04: That's in Coalinga, California, about an hour and a half southwest of Fresno.
spk03: And sorry, what is there?
spk04: That is a 35,000-square-foot indoor grow facility.
spk02: And that's our California cultivation.
spk03: Okay. And you're doing a sale leaseback on that?
spk04: Yes. Yes, we are. We're doing a sale leaseback.
spk03: Okay, got it.
spk04: Again, same as Chicago, that he said.
spk03: Got it. Okay. And so the Illinois, what should we expect – breakeven EBITDA level? How long do you think to ramp up to sort of 15% EBITDA margin? What level of sales would you need to get to that, and when could you expect that in your budget?
spk02: Well, we've had a lot of internal debates on what that store will do, Doug. I mean, we're closer to the Wisconsin Illinois border than any of our competitors and closer to the highway than some of the best performing stores in that state. When we initially put the plan together, we were forecasting in the 10 to 15 million in revenue annually. We think that's a very, very conservative number, likely be triple that. To the extent it'll take us to ramp up, I think we should have that store ramped up and ready, you know, rubbing on all engines sort of by April, May of 24, assuming we can get it open in early to mid Q4. So call it three to three to four months to, to get it open and stabilize. And then by that point in April, I think we're, we're getting to the down margins you're talking about and the revenue run rate, you know, north of 15 million annually. Okay.
spk03: And, uh, gross margin do you think it would be sort of similar to California, low 50% range?
spk02: Yeah. Yeah. Because it is a pure retail play. There's no vertical integration there. So yeah.
spk03: Yeah. Okay. Okay. So that's it for me, except just to confirm the EBITDA in the quarter was positive 680 after the adjustments. Is that correct? Yeah.
spk02: I'm going to pull it up back up here. Let me get, let me come back to you, Doug. I've been answering your question. So give me a, give me an a,
spk03: Well, I'm just looking at the press release. Total revenue, 24.9, gross profit. Yeah, whatever is in the press release. Yeah, the press release is correct, yeah.
spk04: Except for the headline. Well, he's looking that up. Except for the headline. I guess, Dennis, it's what? Hoping for $15 million in Chicago?
spk02: Well, I tell you, conservatively, you know, we... Yeah, yeah.
spk04: And that's what I wanted to say, Dennis. I agree with you, conservatively. You got to remember the number one dispensary in Illinois is seven miles farther south of us on the freeway and seven miles away from the freeway, which is rise. And they are supposedly our inside information about $104 million last year. So that is very conservative in my mind. Also, I'm much more positive on how close, how much closer we are to the Milwaukee metro area. And, uh, and the lack of competitiveness of other dispensaries where we decided to put ours right on the freeway at a cloverleaf.
spk03: And, Larry, where did you say that RISE dispensary was?
spk04: That's seven miles farther south of us in Waukegan, seven miles south of Waukegan on the freeway, and seven miles west of the freeway in Mundelein, owned by GTI.
spk02: Okay. Okay.
spk03: I think that's it for me.
spk02: Yeah, Doug, that bullet point in the press release, it disagrees with what's in the table. The table is correct. Okay. Okay. Perfect. Thanks, guys.
spk04: Yeah.
spk00: Okay. We have no further questions in queue. We have reached the end of the question and answer session. This concludes today's conference, and you may disconnect your lines at this time. Thank you.
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