Planet 13 Holdings Inc. (PNK:PLNH) Q4 2023 Earnings Call Transcript

Planet 13 Holdings Inc. (PNK:PLNH) Q4 2023 Earnings Call Transcript March 14, 2024

Planet 13 Holdings Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).

Operator: Greetings, and welcome to today's Planet 13 Fourth 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 Kuindersma, Head of Investor Relations. Mark, the floor is yours.

Mark Kuindersma: Thank you. Good afternoon, everyone, and thanks for joining us today. Planet 13 Holdings' fourth quarter 2023 financial results were released today. The press release, the company's annual report 10-K, including the MD&A and financial statements are available on the SEC website, EDGAR and SEDAR+ as well as on our website, planet13holdings.com. Before I pass the call over to management, we'd like to remind listeners that portions of today's discussion include forward-looking statements. The forward-looking statements in this conference call are made as of the date of this call. There can be no assurances that such information will proved to be accurate 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 SEDAR+. We encourage listeners to read those statements in conjunction with today's call. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliation to the most directly comparable GAAP measures, please refer to today's press release posted on our website. Planet 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 Groesbeck, Co-Chairman and Co-CEO; and Dennis Logan, CFO. I will now pass the call over to Larry Scheffler. Larry?

A close-up shot of a cannabis leaf on a cannabis cultivation farm.

Larry Scheffler: Good afternoon, everyone, and thanks for participating in our fourth quarter call. The fourth quarter was challenging for Planet 13 driven primarily by non-operating and macro factors. In response, we focus on what we can control, performance is our core states -- in our core states, reinforcing our balance sheet and cost control and efficiency across the organization. Looking at our core states, in Nevada, we generated $16.7 million in retail revenue, approximately 9% of the state's total retail sales. This retail performance in Nevada compares to $18 million in Q3 2023 and $18 million in Q4 2022. The revenue decline is almost completely driven by reduction in total market sales and over 20% average unit price compression throughout the year.

In terms of market share, the fact that we have the best [control over] (ph) Q4 2023 was slightly higher than both of the other two comparative periods. In addition to the $16.7 million in retail sales, we generated $1.8 million from wholesale and other revenue in Nevada, compared to $2.2 million the previous quarter, and $2 million in Q4 2022. This came as we shifted more of our products towards vertical sales through our own dispensaries, where we capture better margins and have a faster cash conversion. We've also have taken a very disciplined approach to extending products on credit to dispensaries, restricting ourselves to other dispensaries with strong balance sheets. According to BDSA, we have [Indiscernible] most branded sales of any company in Nevada, and had top individual brands across almost every product category.

This includes the number one chocolate brand in Dreamland, a top four beverage brand in HaHa beverages, a top 10 candy brand in HaHa gummies and a top 10 brand -- a top 10 vape concentrate and flower brands. In total, Nevada’s combined retail and wholesale was $18.5 million in Q4 2023. Once again this is a 9% share of the retail market in a top five brand portfolio, representing a very strong competitive position in the state, great operating leverage and very valuable base that many MSOs would be envious of. Completing their operations in Nevada, California generated -- I'm sorry, complimenting operations in Nevada, California generated $4.1 million in revenue, with $2.3 million from retail and $1.8 million from wholesale. We also officially opened our Illinois dispensary on December 4.

We are seeing that dispensary turn to build its reputation following and sales with sequential growth every month since it has been open. It will take some time for us to fully ramp up that store to its full potential and optimize our operations in a new state. We now have active operations in three states generating a total of $23 million in revenue and a positive adjusted EBITDA. This is attractive foundation that we will build on in the coming quarters. Looking ahead, our goal is to maintain sales level and market share in Nevada and California in the face of continued pricing compression. In both markets, our primary focus is on efficiency and cost control to generate better profitability. In Illinois, we will continue to tweak our operations to drive increased sales.

With that, I'll pass it over to Dennis to discuss our financials.

Dennis Logan: Thank you, Larry. Before I begin, I'd like to remind everyone that all numbers on today's call are in U.S. dollars unless specifically stated otherwise. And I'm also confirming that there have been no changes to the numbers discussed on today's call from what we issued in our earnings prerelease on February 27, 2024. The company generated $23 million in revenue in Q4 2023, compared to $24.8 million in Q3 2023. This 7.5% decline was largely driven by a decline in the wider Nevada market, which was down 10% sequentially in Q4. Historically, we've seen a 7% to 10% seasonal sequential decline in Q4 when compared to Q3. In Q4 2023, we outperformed the wider market and we're able to expand our market share in Nevada, and benefited from the diversification of our portfolio to outperform single state Nevada operators.

Looking ahead, we expect mid-single-digit top line percentage revenue growth from our legacy assets as price compression continues to offset the efficiencies and market share gains we have made. We are seeing month over month growth from our Illinois dispensary, although it currently makes up a relatively small portion of our overall revenue. The larger growth opportunity both this year and longer term is the anticipated closing of the VidaCann transaction with their attractive position in the Florida market and the possibility of adult use legislation in Florida, which is expected to be on the ballot this November. Gross profit was $11 million in Q4 2023, compared to $11.1 million in Q3 2023 and $10.7 million in Q4 2022. Our ability to maintain gross profit in the face of price compression, lower -- and lower revenue is a testament to our overall focus on maintaining our target gross margins, which resulted in a 435 basis point improvement year-over-year with gross margin in Q4 2023 being 47.8%.

The improvement in gross margin came as a result of a targeted promotional activity that kept costs in check, a higher share of vertical sales and improved product procurement, leading to lower cost of goods sold. Sales and marketing expense for the quarter has been consistent quarter-over-quarter during the year at $1.3 million per quarter. We view this as the right level of marketing spend, but are always looking to optimize its value, which includes for the next couple of quarters, directing a higher portion of the marketing spend to Illinois, where we're building our reputation and further targeting our efforts in Nevada, as we opened our lounge and drive additional traffic to the superstore. The company spent $8.8 million on G&A during Q4, down from $11.3 million spent in Q3 2023.

Within that $8.8 million, we spent approximately $1 million in one-time costs related to M&A, the divestment of our Florida license and legal proceedings related to the El Capitan matter. We continue to focus on cost control and operating -- operational efficiencies across all of our operations. This is one of the biggest focus areas for the company in 2024 and will be one of the bigger drivers of profitability improvement for us. The result of better gross profit and strong cost control was a positive adjusted EBITDA of $1.3 million this quarter, compared to a loss of $600,000 in Q4 2022. As of December 31, 2023, the company had a cash balance of $17.3 million, made up of $5.4 million in restricted cash and $11.9 million of cash. We received $3.4 million of the restricted cash on February 1, 2024, and anticipate receiving the final $2 million sometime in Q2.

The company continues to hold about $884,000 in long term debt related to our property in Beatty, Nevada, with no additional outside debt. Subsequent to the quarter, the company entered into an agreement to sell our Florida license, which is a prerequisite of closing the VidaCann transaction for $9 million in cash. Bob will talk about more about the legal process regarding the El Capitan matter. Knowing legal proceedings can take an unknown amount of time to resolve and the massive opportunity in front of us in Florida once we close the VidaCann transaction, we took the decisive step to reinforce our balance sheet by raising equity capital. We purposely kept the raise small at $11 million, enough for us to be well capitalized to execute Florida ahead of potential adult use in the state and to -- and continue increasing our scale in our home Nevada market.

This will put us on a pro forma cash balance of $33 million post VidaCann after satisfying the $4 million cash portion of the VidaCann transaction. We have approximately $2.5 million of CapEx commitments remaining to complete the Grand Hallway, the Dazed! Lounge and final payments on the Planet 13 Illinois construction project. The closing of the VidaCann and related branding costs and related rebranding costs will be primarily funded with the proceeds of the $9 million sale of the existing Florida license. We are also evaluating the recent tax position taken by one of the larger MSOs in order to determine what, if any, IRS refund Planet 13 may be eligible for. We will update the market as we progress with this initiative. I will now turn the call over to Bob to discuss the significant progress we've made during the fourth quarter and throughout the year on our growth initiatives and corporate strategy.

Robert Groesbeck: Thank you, Dennis, and good afternoon, everyone. Let me start with our ongoing growth projects, and then I'll talk a bit about our recent raise, cash position and ongoing legal action. We took a substantial step in January 2024 towards the closing of VidaCann, as Dennis indicated. We entered into a definitive agreement to sell our redundant medical marijuana treatment center license for $9 million. This is one of the biggest requirements toward closing the VidaCann transaction. And with this out of the way, we've effectively cleared the way for closing and are just awaiting final regulatory approvals. This is a tremendous opportunity for Planet 13. With potential adult-use coming, Florida will be the most exciting cannabis growth market in the United States, and Planet 13 will secure a sizable position that has built in tailwind.

To put this into context, analysts forecast Florida could be a $6 billion market opportunity, triple today's medical-only market. And Planet 13 will have approximately 5% of the stores in the state. We've been very pleased with VidaCann's performance since we announced the acquisition. Their team is performing at a very, very high-level, driving sequential growth in the fourth quarter and significant increases in both flower and milligrams of THC sold. Their medical focused brands complement our more experienced focused house of brands, and together, our combined footprint will be almost 30 medical dispensaries with cultivation and production capable of supporting up to 70 dispensaries. Once we've completed the acquisition, our main focus will be to continue building on their amazing trend of improving cultivation.

We also intend to add indoor cultivation for more premium flower to expand the assortment of brands, strains, products, and price points at their dispensaries and to make them more productive on a per store basis. I won't comment on our exact time line for closing, but will note we've cleared every hurdle required. As indicated, we've sold a redundant license and we're simply waiting on final regulatory approval to close on the transaction. The deal is also good -- offers good insight on how we are thinking about capital allocation going forward. We are very focused on profitable positions in markets with good growth tailwinds or an increasing profitability, market share and [indiscernible] Nevada, for instance. We are making progress on both capital allocation goals.

In Nevada, we are on track for the opening of our Dazed! Consumption Lounge in early April, and Cannabition will follow shortly after and sometime in mid-spring. Dazed! Consumption Lounge contains approximately 3,000 square feet of food, entertainment and consumption space and will be a first of its kind entertainment venue in the entertainment capital in the United States. It is the perfect place to watch the game, try products and simply enjoy night out. Both Dazed! and Cannabition are aimed at driving greater customer traffic, productivity and profitability in our core Nevada operations, allowing us to generate more cash and reinvest back into exciting growth markets. Turning to our ongoing legal proceedings and cash position. I'm limited at this point, what I can say in as much as the company is subject to ongoing legal actions.

As a quick summary, however, the SEC registered investment advisor that we have employed to handle treasury services, the Planet 13 embezzled money from the company's accounts. To date, we recovered $3.4 million of that and expect to recover an additional $2 million rather in short order. That is the cash position that was held with the share. In relation to the other $16.5 million, we have initiated a lawsuit against El Capitan as well as its founder Andrew Nash and his wife and additionally, we've named Casa Verde and Casa Verde's managing partner, Karan Wadhera as defendants. We've also obtained emergency equitable relief, which includes the appointment of a special purpose receiver to locate Planet 13's funds and an injunction to prevent further embezzlement and to assist Planet 13 in securing its funds and other compensatory damages, which brings me next to our capital raise that closed on March 7.

We know that the legal recovery process can take time. And given the scale of opportunity in front of us in Florida, we thought it prudent to do a capital raise to reinforce our balance sheet and make sure we had the funds required and available to execute on that opportunity along with the optionality to add more scale in Nevada and to increase profitability should the opportunity present itself. We recognize that this wasn't the ideal time for capital raise and that with the potential for rescheduling on the near-term horizon, we could have probably gotten better terms if we waited. Having said that, we think the opportunity in Florida is just too important and that's why we chose to do a small, very focused raise that will allow us to execute on that acquisition.

Looking at our full year performance in the context of our goals, we've had positives and we certainly had negatives. We succeeded in executing against the factors in our control. We maintained our market share in Nevada, controlled costs and improved margins. We've executed on our growth plans, opening a new dispensary in Illinois, adding scale in Nevada and entering into an exciting flower market. On the negative side, the criminal actions of an outside SEC registered financial advisor had a negative impact on our balance sheet strength and the Nevada cannabis market as indicated, continue to see price pressure. We've taken steps to address these negatives and have set Planet 13 up for an exciting future. The likely adult use conversion in Florida and the increasing possibility of rescheduling are major catalysts on the horizon that, combined with steps that we've taken internally, will drive growth, profitability and shareholder value.

And with that, again, I want to thank everybody for participating in the call today, and we'll open up for questions from covering analysts. Thank you.

Operator: [Operator Instructions] The first question comes from Pablo Zuanic with Zuanic & Associates. Please proceed.

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