Planet 13 Holdings Inc.
Q1 2021 Earnings Call Transcript

Published: 27 May 2021

[Operator:]

Greetings, everyone. And welcome to Planet 13 Holdings 2020 First Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded on May 27, 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. I would now like to turn the call over to Mark Kuindersma, Head of Investor Relations for Planet 13.

[Mark Kuindersma:]

Thank you. Good afternoon, everyone, and thanks for joining us today. Planet 13 Holdings’ first quarter 2021 financial results were released today. The press release, financial statements, MD&A are available on SEDAR, as well as on our website, planet13holings.com.

[Larry Scheffler:]

Thank you, Mark. Good afternoon, everybody, and thank you for participating in our first quarter call. It’s been a little more than a month since we last talked to you and I’m happy to report that the trends we were starting to observe have continued. Vegas is back finally. Earlier in May Caesars Entertainment reported that their rooms are sold out for the foreseeable future, mirroring what we see on the ground. We followed up with a record $9.7 million in sales in March and $10.7 million in April and are seeing continued strong performance through May. After battling against macro headwinds for the last year, it feels great to have the wind at our back and then be able to focus on capturing as much of the overwhelming demand as possible. On June 1st, the SuperStore will be open without any COVID restrictions. This allows us to increase our operating capacity back to 100%. We’ll also be moving back to having the SuperStore open 24x7. On the last conference call, we talked about how we were losing sales due to longer wait times and other restrictions we have to take to maintain social distancing. Removal of this restriction should help us capture more sales and improve the level of service we can provide to each customer.

[Dennis Logan:]

Thanks, Larry. Before I begin, I just like to remind everyone that all the numbers discussed on today’s call are stated in U.S. dollars unless specifically stated otherwise. Well, sales during the quarter were still seasonally sluggish and impacted by COVID- 19 related operating restrictions during the month of January, February. The month of March was the first of what we expect to be many very good months in Las Vegas, as the U.S. rebounds from COVID-19 and Nevada returns to a fully open economy expected as of June 1, 2021. We’ve heard from a number of casino operators across the strip that the hotel rooms are booked throughout the year for the balance of the year and we look forward to welcoming these tours back to Las Vegas into -- and to the Planet 13 SuperStore in the months ahead. The company generated $23.8 million of revenue in Q1 2021. The month of April also showed strong growth, generating as Larry pointed out, 10.7 million in revenue. This almost equals the entire revenue from Q2 2020 during the month of April. So suffice it to say we’re off to a strong start for Q2. The month of May is also on track to break another record of monthly revenue and with the State of Nevada expected to return to 100% open as of June 1st, we anticipate the trend will continue throughout the summer. Gross margin for Q1 was 53.8% and we expect continued improvement in this number as the tourists returned to Las Vegas. We’ve seen consistent improvements in gross margin month-over-month as we move through 2021. Sales and marketing expense was $660,000 this quarter, up slightly from Q4 2020, but still well below what we expect to be a more normalized level as we move to market to the tourists as they returned to Las Vegas and we also expect to see an increase at the end of Q2 and Q3, as we start to spend marketing dollars in support of our Orange County store opening. The company spent $7.8 million on G&A in the quarter, up from $7.4 million last quarter. If anyone who has been following Planet 13 closely would have noticed we’ve been fairly active in recruiting and hiring more sales and operational talent in both Las Vegas and Orange County as we ramp up the Planet 13 Orange County location and prepare for the additional 40 point of sale terminals in the planned expansion of the SuperStore dispensary floor space. We expect G&A to continue to increase as a percentage of revenue in Q3 -- Q2 and Q3 as we open Orange County -- the Orange County location and then have this number trend back down after that as the store starts to gain some traction.

[Bob Groesbeck:]

Great. Thank you, Dennis, and good afternoon, everyone. As Larry indicated earlier, the year is off to a great start and we’re seeing day-to-day growth as COVID restrictions are lifted and Americans are feeling more comfortable traveling and going on vacation after a years at home. We agree with America. Everyone deserves a trip to Las Vegas and certainly Planet 13 or hopefully soon to our beautiful Orange County operation, P 13 OC as we fondly refer to it. The P 13 OC is really Planet 13 SuperStore 2.0. We learned a lot over the last two years running the Las Vegas SuperStore and are excited to share that experience with Southern California, with its next generation entertainment features, intelligently designed facility that improves parking, customer throughput and enhances the overall shopping experience. Construction is rapidly progressing and we are on time and on budget for an opening in July. The Las Vegas SuperStore is still showing incredible growth after being open for over two years and I’m excited to watch how Orange County ramps up through the first couple of quarters and the first couple of years as they gain strength and traction with local and tourist customers alike. We also expect that like our Las Vegas location, OC will benefit, as well as tourists and locals alike visit the store and Instagram or share their experience on other social media platforms, sharing our unique entertainment features. Larry and I always say that our customers are our best marketers.

[Operator:]

Our first question comes from line of Bobby Burleson with Canaccord. Please proceed with your question. Mr. Burleson, your line is open.

[Bobby Burleson:]

Hey, guys. Can you hear me?

[Larry Scheffler:]

Yeah. Hi, Bobby.

[Bobby Burleson:]

Do you guys hear me? Okay. Great.

[Larry Scheffler:]

Yeah.

[Bobby Burleson:]

Larry, I’m just talking to myself for a second there. Congratulations on the EBITDA and the nice cash balance. So, yeah, just maybe focusing on California first, obviously you guys are doing well in Nevada with wholesale, curious what the opportunity is in wholesale in California. I know that’s not the main focus of what you guys are doing there this year. But curious what you see kind of longer term with your own brands wholesaling to other dispensaries there?

[Bob Groesbeck:]

Yeah. Bobby, this is Bob. Good to chat with you again. Yeah. Obviously, when we opened the SuperStore facility there in July, it were reliant upon third-party suppliers. But Larry and I and our team, we’ve been actively engaged in discussions with a number of cultivators and production assets that, that we look to bring into the portfolio at some point. And our intent there, of course, when that happens is to bring in our HaHa and our Medizin brands, roll everything in as a California market and grow it there as well. And the nice thing is, given the large number of California customers that we currently enjoy in Las Vegas, they’re already familiar with the products and they’re already asking for them in California. So we’re real excited about building that entire brand portfolio throughout the California region.

[Bobby Burleson:]

Great. Sounds like you’ll hit the ground running. And then you’re at 70% or so. Not sure what the latest figures are in terms of dispensary penetration in Nevada, where do you see that that peeking for you?

[Bob Groesbeck:]

Dennis, I’ll pass that over to you.

[Dennis Logan:]

Yeah. So, Bobby, in terms of penetration numbers, 70%, we may get you slightly higher than that. But I think we’re in all of the biggest dispensaries in the state. We’ve got customers up in Reno. There are a couple of smaller outlying dispensaries that we’re not in. For us, I think, it -- we’re really focused on turning those existing customers into bigger customers as we go forward with the repeat orders and bigger orders as we go. We are seeing that in the numbers in terms of our wholesale growth in the quarter and we expect similar type of growth in Q2.

[Bobby Burleson:]

Okay. And just one last quick one, in terms of the small format stores, you’re kind of replicating what you’ve done with Medizin, but maybe the Planet 13 brand. Do you expect to kind of infill into California metros or are you looking to do that initially elsewhere in Nevada or maybe in a -- an entirely different state?

[Bob Groesbeck:]

Yes to all three, Bobby. We are very active in California, looking at retail opportunities…

[Bobby Burleson:]

Okay.

[Bob Groesbeck:]

… outside of the SuperStore contacts, but also looking for opportunities in Nevada, something should fall in our lap that makes sense. We take a hard look at it. But we’re also looking at a number of other jurisdictions from the east coast again all the way to California.

[Bobby Burleson:]

Okay. Great. Thanks and congratulations.

[Bob Groesbeck:]

Thanks, Bobby.

[Larry Scheffler:]

Thanks, Bobby.

[Operator:]

Our next question comes from the line of Doug Cooper with Beacon Securities. Please proceed with your question.

[Doug Cooper:]

Hi. Good afternoon, guys. Congratulations on a nice quarter. So let’s start looking at the numbers. I think the SuperStore is $15.8 million versus $15 million in Q4. So Medizin, I think, it was Bob or Larry, you said that obviously was the biggest growth sequentially, $3.2 million, $650,000 for Medizin in this -- in Q4, which is I guess, what was that all just December?

[Bob Groesbeck:]

Dennis?

[Dennis Logan:]

Yeah. That was just December. Yeah. It would open…

[Doug Cooper:]

Okay.

[Dennis Logan:]

… an open -- soft open November 30, but that’s all December revenue.

[Doug Cooper:]

So 600 times 3 is 18. So it’s been a huge average increase in the daily traffic clearly in Medizin even from December. What 3.2 or 6 points, so that’s running about $13 million annualize. What do you think the potential there to get back up to guys, please?

[Bob Groesbeck:]

Yeah. Doug, we….

[Larry Scheffler:]

Yeah. You take that one Bob.

[Bob Groesbeck:]

No. I was just going to say, Doug, I think, we’re just getting started back in Medizin. There’s a lot more competition in the market, as Larry mentioned earlier, but approximately into Allegiant Stadium, I think is going to be the big game changer for us. In addition to the fact that I think I’ve mentioned before prior calls, the improvements to the 215 Interstate have all been completed. So there’s really no traffic issues over there anymore. So we’re really excited. Big -- the first big event at Allegiant Stadium will be July 10 with Garth Brooks opening up the arena. So we’re just -- we’re terribly encouraged and excited about what that’s going to draw, because a huge amount of that traffic is going to go right past our front door as people exit off of the 215 to get onto sunset.

[Doug Cooper:]

Okay.

[Bob Groesbeck:]

Larry, I don’t know if you have.

[Larry Scheffler:]

No. No. I agree. And I expect us to continue to grow. We’re looking at ways to even get through new customers through the store, whether -- even people carrying iPads to walk through bud tenders. And I’m very confident we’ll surpass where we were when we shut it down. I think we did $80 million in the first 10 months, but will surpass that there by the end of the year, if we look at month-to-month.

[Doug Cooper:]

The gross margin associated with the tourist traffic I think we’ve discussed in the past is better, because you don’t have to give a discount like you do to the locals. As we move forward to say in April just as a benchmark or maybe we could just look at the $15.8 gross margin the SuperStore versus a $3.2 million revenue from this -- from Medizin. What is it -- can you talk about what the difference in gross margin is and how much of the, say, increase in gross margin we can expect, I guess, through more tourist traffic, overall as a percentage of revenue and maybe as you get more vertical integration from your grow? What do you think the delta can be on gross margin?

[Bob Groesbeck:]

Yeah. Like, Doug, we all we always think that in terms of gross margin getting into the high 50%s, sort of in that 58%, 59% range on our gross margin basis, obviously, gets impacted. And company overall, not necessarily specifically to the SuperStore wholesale. Wholesale revenue does have a lower gross margin compared to the retail gross margins. And then the Medizin store does have a discount to the gross margin, just because of the lower average ticket size and the Nevada local discount. But we are comfortable in that 58% to sort of, I would even say, 60% to 61% range, depending on how vertical we can get on the cultivation.

[Doug Cooper:]

Okay.

[Bob Groesbeck:]

We are close to where we want to be on the concentrate products and the edibles and the beverages in terms of hitting that 50% -- kind of 50% of revenue coming from those brands and those skews in each of the product categories where we fall down is flower. And as Larry mentioned, we are improving and spending money, trying to enhance our ability to grow more flower in the cultivation facilities we have kind of working towards that. So I think we can see an increase in the gross margins if we got to the flower to the 50%. But that’s not a short-term view.

[Larry Scheffler:]

Yeah. And generally just to have best clarity that, we’re also in the planting stages right now adding 20,000 more square feet of just cultivation on -- of course on our 45,000 square foot building that we bought about nine months ago. Again, out of that 25,000 built out will be -- we’re in the plans of adding to 20 now, which will help dramatically.

[Doug Cooper:]

Okay. Great.

[Bob Groesbeck:]

It will dramatically -- it will move us on the way to that 50%, but we will still may need a bit more flower to get there on that target.

[Doug Cooper:]

So another 500 basis points, 600 basis points anyway from where you were 53%, right?

[Bob Groesbeck:]

Yeah. That -- we think so, yeah, as we go.

[Doug Cooper:]

Okay.

[Bob Groesbeck:]

Unless the wholesale market really takes off and we get massive wholesale and I would have to revisit that number. But I think we everything is growing right now, we’ll get to in that -- comfortable with that.

[Doug Cooper:]

And just the last one on the gross margin, I….

[Larry Scheffler:]

And -- yeah…

[Doug Cooper:]

Sorry about that. Go ahead.

[Larry Scheffler:]

No. No. No. If I can just add to and we’ve been had the meetings this morning already and how to get out even maybe a quick stop and shop where you know what you want. But in that line of items that we do for a quick stop and shop where people don’t want to wait in line. We will be selling only Medizin products, which is a much, much higher margin than pre-selling other people’s products and they’ll go away that drive up the profit for Planet 13 and get the people to pasture without having to wait an hour on the weekends.

[Doug Cooper:]

Okay. Cash $141 million as of March is it different subsequent, do you get some more warrant exercises and what is the cash in that?

[Bob Groesbeck:]

Dennis?

[Dennis Logan:]

Sorry about that. I was on mute. Yeah. So we have had more and more exercises come in since the end of March. I think we put it out in the MD&A in terms of the number of warrants that are coming in. But depending on where the share price is, we still have, I want to say, probably, 380,000 to 400,000 of the July and September warrants that are priced at the 215 and 580 level. We’re seeing some warrant exercises from the November financing as well and then even had a couple of from the February financing. So as the share price moves up, obviously, the better opportunity for us to take any more of those warrants in terms of cash.

[Doug Cooper:]

Okay. And do you just have a -- my final one, just basket size, do you guys publish basket sizes anymore?

[Bob Groesbeck:]

We haven’t published them, Doug. I mean, they’re back in July. So as to January, February, they were obviously down just given the slowdown still related to COVID. We’ve seen them return in March and April and then through May to where we had them kind of before the shutdown from the -- from COVID. So they’re in that -- I would say they’re in that 110, 225 range. Obviously, a bit lower at Medizin from the local customer versus the tourist customer like SuperStore, but…

[Doug Cooper:]

Yeah.

[Bob Groesbeck:]

So, overall, blended in that range.

[Doug Cooper:]

Okay. I think that’s it for me. Great workers guys.

[Bob Groesbeck:]

Thanks, Dough.

[Larry Scheffler:]

Thanks, Doug.

[Operator:]

Our next question comes from Greg Gibas with Northland Securities. Please proceed with your question.

[Greg Gibas:]

Hey. Good afternoon, Larry, Bob, and Dennis. Thanks for taking the questions and…

[Bob Groesbeck:]

Hi.

[Greg Gibas:]

… congrats once again on the quarter and nice start to Q2 as well. Good to hear. I want to ask about kind of how you’re thinking about sales and marketing ramping over the next several quarters, with the overwhelming demand due to the tourists return? How are you thinking about kind of matching that with the increased tourism?

[Bob Groesbeck:]

Yeah.

[Dennis Logan:]

Greg, it is Dennis. Let me address the one part, Bob, and I’ll turn it over you. Just on the…

[Bob Groesbeck:]

Okay.

[Dennis Logan:]

… on the slowdown in January, February, in Q1, largely result of the fewer tourists and the cab drops, et cetera. So all of that kind of dial back as we focused our more immediate advertising on the local customer. But go forward in Vegas, I think, we are going to see it returned to a similar percentage of revenue as it was kind of in Q4 -- Q3, Q4 of 2020. And then I’ll turn it over to Bob to talk about how we’re going to ramp up Orange County in California.

[Bob Groesbeck:]

Yeah. So, hi, Greg. Yeah. So, Vegas, as Dennis indicated, we’re obviously, we’re shifting that spin from a local customer again back to the tourist. So we’ve reengaged, for instance, our cab -- rep cab program, should has upwards of 200 vehicles on the road with our new signage, they’re rolling out every day, put our vans back out onto the streets to whisk customers touring from the facility. And as indicated in the MD&A, we’re also going back and I think Larry mentioned earlier, going back to 24 hours. So again, that spend now is really directed primarily in Las Vegas to capture the tourist customer. And we’ll continue to market aggressively for the locals of Medizin, but they already know us are familiar with us there for -- them it’s more about price. So we just need to be competitive there. California is an entirely different animal, some massive markets. We’re new to the market. So we’re going to spend aggressively in the Orange County area in the greater region and focusing again, where we can on the tourist sectors, the beaches, adjacent to the amusement parks, and of course, shopping. So it’s going to take a bit more time for that to ramp just given the size of the market. But we’re pretty excited about the opportunities down there.

[Greg Gibas:]

Got it. Yeah. That’s helpful. And you’re right, I guess, a bit different, but you’ve done a great job with it in Vegas in the past. So I remember last time I was there, it’s kind of hard to miss those vehicles. So good to hear...

[Bob Groesbeck:]

You won’t miss the next time. Exactly.

[Greg Gibas:]

You are right. If I couldn’t follow up to, while we’re talking about OpEx you talked about in your prepared remarks, Dennis, G&A going up as a percentage of revenue once July hits and this California store comes online. I guess I would just ask, how much of a degree would you expect that to go up as a percent and then maybe how long do you think it will take to start declining again as a percentage of revenue?

[Dennis Logan:]

Yeah. So in terms of how much, I look at the size, the operation in Orange County, the number of people who have their relative to the SuperStore. Bob, how many, I can’t remember the number of people we’re hiring for, so you will see some of that come in through Q2 leading up to that opening, obviously, no revenue associated with those people and employees that we’re hiring there and the expansion of the SuperStore and the return to the 24x7 operating at the SuperStore. So you’ll see come -- kind of go back up, I guess, as to how much it will go up as a percentage of revenue, I think, it’s going to depend on how quickly we ramp revenue in California and how quickly we ramp up additional revenue coming from that expansion in Las Vegas. So I don’t see it’s going above where we were on an operational basis in Nevada in, as I said, in sort of Q3, Q4 2020 from a G&A perspective as a percentage of revenue, because I think the revenue will ramp significantly in Nevada. And from what I understand in terms of our plans in Orange County, we expect a similar type of ramp. So we may see a quarter to two quarters of slightly higher G&A, but should turn back down by the end of the year for sure.

[Greg Gibas:]

All right. Okay. Great. Yeah. That’s helpful. I did want to ask too, if there’s any rough expectations you’d be willing to share, whether it’s type of customer traffic that you’d get at the Orange County location. I know it’s early and you haven’t provided guidance or anything there. But maybe how many points of sale the store will have relatives in Las Vegas SuperStore, any commentary there?

[Larry Scheffler:]

Well, the Orange County facility, we’re going to open with 50 registers and to give you an idea on scope and scale with the Vegas expansion, we’re adding another 43 registers here. So it’s going to be considerably larger here initially. But the one thing that, Greg, I think, is important to focus on down there, you’ve just got a lot more rooftops and you’ve got roughly 6 million people just in Orange County. So we see the delivery opportunities down there to be even more significant than what we’ve built here in Las Vegas. So it’s something that we’re going to really focus on in conjunction, of course, with servicing the tourist customer and providing entertainment experiences at the OC facility.

[Greg Gibas:]

Great. Yeah. I mean, nice to hear about that opportunity. Makes sense. And I guess the last one for me would just be following up. I hope I didn’t miss this in your prepared remarks. But can you just remind us when that additional cultivation expansion or the harvest rooms are expected to come online?

[Bob Groesbeck:]

Well, there are rooms coming online now with our genetics. So that has been happening here for the last 30 days, 45 days. It’s the expansion that Larry was talking about the physical expansion. That is going through permitting now. So we think we’re close to seeing some light at the end of the tunnel there and then once we receive all of our permits, of course, we’ll move forward aggressively to build the balance of that space out.

[Greg Gibas:]

Okay. Sounds good. Thank you.

[Bob Groesbeck:]

Yeah.

[Larry Scheffler:]

Thanks, Greg.

[Operator:]

And with that, ladies and gentlemen, since there are no further questions reflect in the queue. This does conclude our question-and-answer session, as well as today’s conference call. You may now disconnect your lines at this time. Thank you for your participation and have a wonderful day.

[Larry Scheffler:]

Thank you.

[Bob Groesbeck:]

Thank you all.