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spk04: Greetings. Welcome to the Planet 13 second quarter 2023 financial results conference call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. Please note this conference is being recorded. I will now turn the conference over to your host, Mark Quindersma. You may begin.
spk03: Thank you. Good afternoon, everyone, and thanks for joining us today. Plan 13 Holdings second quarter 2023 financial results were released today. The press release, company's quarterly report 10Q, including the MD&A and financial statements, are available on the SEC website, ADGAR, 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. The forward-looking statements in this conference call are made as of the date of this call. There can be no assurances that such information will prove to be accurate, or that management's expectations or estimates of future developments, circumstances, or results will materialize. Risk factors that could affect results are detailed in the company's public filings that are made available with the United States Securities and Exchange Commission and on CEDA. 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 the forward-looking statements may differ materially from actual results or events. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliation to the most directly comparable GAAP measure, please refer to today's press release posted on our website. 913'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 Sheffer, co-chairman and co-CEO, Bob Grosek, co-chairman and co-CEO, and Dennis Logan, CFO. I'll now pass the call over to Larry Shuffler, Co-CEO of Plan 13 Holdings.
spk01: Good afternoon, everyone, and thanks for participating in our second quarter call. Overall, we had a solid second quarter with sequential growth driven by our core Nevada business. As pricing stabilized and we generated incremental revenue from improvements we've made to our business. In Q2, in Nevada, we generated $15 million in revenue from the Superstore. $1.8 million from curbside and delivery, and $2.1 million from medicine. This is a 6% sequential growth rate over Q1 2023 for Nevada retail, driven by an improvement in pricing, traditional seasonality, and Planet 13's strong competitive position in the market. From the data we have so far, we picked up market share in the quarter, and continue to exceed our long-term goal of maintaining above 8% of the total Nevada market. In addition to the $18.9 million in retail sales, we generated $2.4 million from Nevada wholesale and other, a 6% increase sequentially. Total Nevada revenue was $21.3 million in Q2 2023, compared to $20.2 million in Q1 of 2023. This was our third consecutive quarter of growth for Nevada wholesale, with Q2 a year-over-year growth of 37%. This is especially impressive when you consider statewide sales are down approximately 5% year-over-year. The growth in wholesale has been driven by a mix of our products continuing to build a reputation in the rest of the state and our Bell Drive facility. which completed its expansion in September 2022, improving yield and potency as we go through more planning cycles in the new rooms. The additional yields from this facility has given us the ability to expand the presence of our premium medicine flour outside of our own owned shelves. In Q2, our brands continue to be top performers across all major categories in Nevada. Per BDSA, Madison moved up one spot to be the number four flower brand in Q2. HaHa maintained its position as the number three candy brand behind only large national brands like Wild and Juana. Dreamland was the number one chocolate brand by a wide margin, and Trendy was the top 10 vape and concentrate brands. We're successfully playing across every major product category and between retail and wholesale, continue to be one of the largest cannabis sellers in the state. Looking ahead in Nevada, we just launched our new Planet 13 app, which will help with online ordering, delivering, and proactive marketing prompts for loyalty customers. We expect the main benefit of this to be in improving order times and throughput for regular customers, reducing staffing needs. This will be especially helpful as more and more huge events like F1 in November and the Super Bowl in February are hosted in Las Vegas. These large events are massive traffic drivers with forecasted economic impacts for Southern Nevada of 1.2 billion and 0.6 billion respectively. And we're constantly working to improve our ability to service more customers faster during these spikes. Overall, we expect Q3 to be roughly in line with Q2, with traffic expected to decrease in October as we head into seasonality slower Q4. We are cautiously optimistic that the current uncertain macro environment won't deteriorate further and that consumers are successfully coping with the higher interest rates and inflation. Turn into California. In Q2, we generated $4.5 million in revenue compared to $4.7 million in Q1 2023. This breaks down into $2 million from retail, $2.5 million from wholesale compared to $2.1 million from retail and $2.6 million from wholesale in Q1 2023. Wholesale revenue declined primarily due to the price and trends. during the quarter with overall sales volume for Q2 2023 in line with Q1 2023. California will continue to see top-line fluctuations driven by macro market dynamics and statewide pricing. Our focus in California is on improving variable costs through efficiency gain to both retail and wholesale operations. 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 the numbers on today's call are stated in U.S. dollars, unless specifically stated otherwise. In Q2-23, we generated $25.8 million in revenue compared to $24.9 million in revenue in Q1-23, a 3.7% growth sequentially, but still down 9% year-over-year as we continue to deal with significant price compression and lower overall sales volume in our core Nevada markets. For comparison, the entire state of Nevada sales were down 5% year over year and California statewide sales were down 14%. Our results for Q2 23 are in line with our expectations of a relatively flat performance sequentially with some increased sales due to seasonality. We expect a relatively flat performance through the end of the year in 2023 with further growth driven by the opening of our Illinois dispensary near the end of the year. that will have a greater impact on operations and results in 2024. In Q2 2023, we increased gross margins again, reaching 46%, up from 43.7% in Q1 of 23. The sequential increase was a result of higher utilization rates at our cultivation facility, yield improvements, and good cost control for both our own brands and products purchased. We've also improved on our purchasing, which has helped with gross profit in our retail operations, And we see this as a continuous battle between price compression and productivity gains, which will cause some fluctuations quarter to quarter in gross margins. We continue to target gross margins at our retail operations to be in the high fifties in Las Vegas and the low fifties in California. Sales and marketing expense for the quarter was consistent with Q1, 2023 at 1.3 million. This is a modest improvement in the sales to marketing expense ratio. a sign of improved efficiency of our marketing activities. We expect to continue running sales and marketing at this level through Q3, and we'll evaluate further in Q4 after assessing the impact from new events and conventions on our tourist traffic in the quarter. The company spent $11.3 million on G&A compared to $11 million on G&A in Q1 of 2022. Of the $11.3 million, approximately $280,000 was related to our planning for the U.S. domestication, which was approved by shareholders at the AGM. This is a one-time event. We also spent approximately $900,000 for continued pursuit of accretive M&A activities that would speed our time to market in Florida in a cost-effective manner and increase our scale in Nevada. While this is not strictly a one-time item, it is not part of our regular operating cost structure. To be clear, we are not looking at adding new states through M&A, but only acquisitions advance our competitive position, profitability, and cash flow in our existing markets. This is consistent with our focus on prioritizing cash flow and the three company-wide strategic goals that we laid out at the beginning of the year. As of June 30, 2023, the company had a cash balance of $40.5 million and no debt, a healthy balance sheet position, especially compared to the distress we see across the rest of the sector. Through the first half of the year, we consumed $4.9 million in operating cash flow, with about $4 million of that used for changes in our working capital position, mainly related to income tax payments and inventory. We spent $4.1 million of cash on investing activities as we continue to build out of our Illinois dispensary and creating the gray shelf for our consumption lounge and cannabis. As a reminder, Ken addition will be run by third parties who will incur the majority of the costs of building and running the plan museum operations. This allows us to increase the utilization of the superstore drive additional traffic, while keeping fixed costs low and focusing on cash flow as the priority. Between the rebound and sales and our core markets, the completion of upcoming growth projects and our strong balance sheet we're in a good position heading into the second half of 2023. And with that, I'll turn the call over to Bob to discuss our ongoing growth initiatives and corporate strategy.
spk00: Thank you, Dennis, and good afternoon, everyone. I'd like to spend my time on the call providing an update on how we're delivering against the three deliverables we outlined at the beginning of the year. The first one was to maintain and build on the core. During Q2, we gained about 1% share of total market retail sales and kept our market share north of our 8% full-year targets. We also grew Nevada wholesale revenue as our cultivation expansion continues to become more productive. We just launched our new loyalty and e-commerce app and are in the process of completing the space where our lounge and cannabis museum will go. All three of these are exciting drivers of additional traffic and revenue per customer. We are very excited for Cannabition to be returning under the renowned Broadway creative director, David Korens. The plans they have produced will further establish Planet 13 as a one-of-a-kind immersive entertainment destination and help build the Planet 13 and name worldwide. The lounge will similarly expand Planet 13's appeal as a destination for both cannabis and entertainment. We were issued the first state license for a lounge, and to my knowledge, this will be the first legal space where you can consume cannabis while watching live entertainment or engaging in other immersive activities. Construction for both the lounge and Cannabition is expected to be completed in Q1 of 2024. with launches shortly thereafter, of course, depending on final approvals. The second goal was to increase scale and operating leverage. Our Illinois dispensary is on track for opening in late Q4 2023, and it's progressing on budget. We are extremely excited for this location. I think the robust adult use market in Illinois and our Waukegan location will be a great addition to our store portfolio. As Dennis touched on, We are pursuing cost-effective M&A to speed up our time to market in Florida and to increase scale in Nevada. All the M&A we are looking at is aimed at increasing scale, profitability, and overall attractiveness of the Planet 13 as an asset. In the current operating environment, it is crucial to conduct rigorous due diligence on the operations and financial position of any M&A target. We plan to take our time and be deliberative as we make sure any M&A opportunity is the right fit for our company. Third goal was to improve profitability and cash flow and preserve capital. During the second quarter, we saw some improvements in gross margin from the improvements we've made. We also saw an improvement in cash usage and excluding the professional fees paid, or essentially break even for cash flow in the quarter, while staying up to date on our cash payments. While our total revenue is smaller than some cannabis companies, There aren't many others that have a balance sheet that is debt-free, paid up on tax obligations, and isn't burning cash. Through the first half of the year, we are pleased with the stability we're seeing in Nevada, despite the uncertain macro environment, and are progressing well on most of our growth initiatives. While the back half of the year will be relatively status quo, we are excited for the end of year and 2024 when we'll launch our Illinois dispensary. followed by the expected completion and opening of the new consumption lounge and cannabis museum at the Superstore location. And with that, I'll open the call for questions from covering analysts. And again, thank you for participating.
spk04: At this time, we will be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate that your line is in the question queue. You may press star 2 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 key. One moment, please, while we poll for questions.
spk06: Again, a reminder, if you wish to ask a question, that is star 1 at this time.
spk05: One final moment for polling.
spk04: As we do not have any questions currently in the queue, this does conclude today's conference call, and you may disconnect your lines at this time. Thank you for your participation.
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