Planet 13 Holdings Inc. (PLTH) Earnings Call Transcript & Summary

Hello, everyone, and welcome to Planet 13 Holdings 2020 Second Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded on August 31, 2020. [Operator Instructions] I will now turn the call over to Mark Kuindersma, Head of Investor Relations for Planet 13.

Thank you. Good afternoon, everyone, and thanks for joining us today. Planet 13 Holdings' second quarter 2020 financial results were released today. The press release, financial statements and MD&A are available on SEDAR as well as on our website, planet13holdings.com. Before I pass the call over to management, we'd like to remind listeners that portion of today's discussions 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, the 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 SEDAR and 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. Planet 13 disclaims any intention or obligation to update or revise such information except as required by applicable law and does not assume any liability or disclosure relating to any company mentioned herein. 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 Bob Groesbeck, 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 Planet 13 Holdings Inc.

Thanks, Mark. Good afternoon, everyone, and thank you for participating in our second quarter call. Q2 was a tough environment for all Nevada businesses and an almost perfect storm for Planet 13. There were no tourists. We weren't allowed to serve customers in the store, and the local economy was essentially shut down by COVID. Even under these extraordinarily difficult conditions, Planet 13 proved its resilience with an essentially breakeven quarter. Planet 13 generated $10.8 million in revenue and adjusted EBITDA loss of $0.7 million in Q2. As Nevada, Las Vegas has started to reopen, we quickly regained lost ground and now actually generating higher revenue than ever before. In July, we generated $7.3 million, our highest month ever, and we're on track to exceed that number in August with $7.8 million through 30 days. While there's still substantially less visitors to Las Vegas than typical for this time of the year, the operational improvements we implemented are leading to converting a higher percentage of visitors into customers and increasing average ticket. In addition to the improvements of the SuperStore, we've done a great job of attracting Las Vegas residents. Our delivery and curbside generated $1.2 million in July, approximately 17% of the total sales. That's about 8x higher than our highest month of delivery pre-COVID. We effectively added another layer to our business, a larger component of local area sales, and we expect this to be additive to our overall revenue line for the foreseeable future. Our in-house brands built a following during Q2 as they were exposed to more locals. And while our vape and edible lines are available in most dispensaries in Las Vegas Valley, Medizin, our flower line, is currently only available at the SuperStore, and we've seen people choosing to make the trip just for this product. In Q2, in-house brands made up 28.4% of sales, up from 14.5% in Q2 2019. The popularity of Medizin drove our decision to acquire additional cultivation capacity. As a reminder, in July, we purchased an active indoor cultivation facility that is currently growing out of 25,000 square feet with room to increase to 45,000 square feet. I'll let Bob go over those details. I'll just say I'm incredibly excited to add premium cultivation to expand Medizin to increase our in-store offerings. Even after being shut down in May and April, our team pivoted quickly to grow local sales to generate a solid quarter in a very difficult environment. I'd like to thank each and every team member for the tireless efforts over the past few months, and I'm confident that these efforts will continue to pay off well into the future, particularly with the development of a greater local following and improved local brand awareness. With a strong foundation and upcoming expansion in both California and Nevada, Planet 13 is positioned to continue growing over the coming years. With that, I'll pass it off to Dennis to discuss our financials.

Thank you, Larry. Before I begin, I'd just like to remind everyone that today's numbers -- the numbers on today's call are in U.S. dollars, unless specifically stated otherwise. As Larry mentioned, while Q2 was a challenging operating environment for the entire cannabis sector and in particular, in Nevada with the mandatory shift to delivery-only, since we've been allowed to reopen, Planet 13 has quickly regained the momentum we had coming into the pre-COVID time. In July, across the entire business, the company generated $7.3 million in revenue. And as Larry said, through the first 30 days of August, we've generated $7.8 million in revenue, all at a gross margin closer to the historic Planet 13 levels in the mid- to high 50% range. In Q2, Planet 13 generated $10.8 million in revenue. I think it's worth breaking this down on a month-by-month basis. In April, as we were in the peak of the COVID shutdown, we migrated all of our sales to delivery-only. We generated $2.7 million in revenue. In May, as we got better at our delivery platform, we grew that revenue to $3.3 million, about 50% of our normal level. And in June, once we were allowed to finally reopen at first with only 10 people in the store before moving towards that 50% fire-rated capacity, we generated $4.8 million in revenue. We are getting better as operators, which is leading to better results even in the face of COVID-19's impact on the global economy. Adjusted EBITDA for the quarter was a negative $700,000, largely driven by the decrease in sales at lower margins, offset by lower marketing spend. Gross margin came in at 44% for the quarter and was lower than prior quarters as we maintained our traditional discounts to Las Vegas residents, and we ended up making up almost 100% of our customer base during the second quarter compared to the standard 15% we usually typically see. We also did not charge product placement fees during the second quarter due to the store being -- SuperStore being closed. Gross margin over the last 2 months, as I said before, has returned to the Planet 13 levels of the mid- to high 50s, so we should see that going forward into the balance of Q3 and Q4. Sales and marketing expense was $200,000 this quarter, which is down significantly when compared to prior quarters as a percentage of revenue. The company replaced its traditional marketing aimed at the tourist customer with an online and text platform aimed at attracting and maintaining the local customer during the quarter. Sales and marketing expense is expected to return to more normal levels as a percentage of revenue going forward as the tourists return to Las Vegas. The company spent $5.5 million on G&A during the quarter, essentially flat to the prior quarter and the prior period in the prior year. The company maintained its full staff during the mandated COVID-19 shutdown, as we repositioned employees from budtenders to drivers, et cetera, and were able to utilize everyone inside the organization. And we decided as an organization that maintaining a trained and knowledgeable staff as the correct course of action as we believe our strong performance in July and August couldn't have been achieved without their contribution. As of June 30, 2020, the company had $22.7 million in cash, up from $13.9 million as of March 31, 2020. Cash increased as a result of the $2.8 million in positive operating cash flow and $8.1 million in the -- from the exercise of warrants, offset by $1 million spend on the Santa Ana acquisition. Since then, we've raised -- we're in the process of raising approximately CAD 31.5 million through 2 bought deals. One -- the first one announced on June 15 that closed on July 3, and the second one was announced on August 20 and is in the process of closing. And we've received an additional $6.8 million in cash from warrant exercises since the June 30, Q2. We have spent approximately $1 million in purchasing inventory and $500,000 for the cultivation license as part of the transaction with W Vapes. As a reminder, both the new cultivation facility and our Medizin dispensary require negligible CapEx, and we are well financed through the opening of Santa Ana. And now with the 2 bought deals in process, we have ample cash to expand into other states. And with that, I'll turn the call back over to Bob.

Thank you, Dennis, and good afternoon, everyone. The last few months have been incredibly productive for Planet 13. We made significant strides with our branded products. As Larry mentioned previously, in Q2, we increased our share of in-house products sold at SuperStore to 28.4%. As COVID restrictions were lifted, we also began receiving household orders for our products. Reorders are coming in and wholesale revenues rapidly picking up steam with our products now in 33 dispensaries statewide. Between wholesale and sales in our dispensary, we have many products that are routinely in Headset's top 10 SKUs sold in Nevada. For instance, in the concentrate category, TRENDI regularly takes multiple top 5 spots. While in the edibles category, HaHa Gummies has proven to be a hit with multiple top 10 spots. As Larry mentioned earlier, one of the categories that we are excited to expand on is our premium flower line Medizin, which sells out days after each new harvest hits the shelves. In order to meet this demand and expand our supply of Medizin, we purchased a 45,000 square foot cultivation facility that currently has 25,000 square feet under cultivation. We started to convert the cultivation to our process, our standards and our genetics, and we should be seeing the benefit of these changes in the coming quarters. We acquired operating assets, equipment, licenses and tenant improvements for $500,000 in cash, and the value of $2.5 million in shares when the licenses are ultimately approved for transfer. As part of the deal, the counterparty wanted to sell the facility as well. So after considering cannabis REITs and looking at other financing sources, particularly with the continued relative dearth of options for operating cannabis companies today, Larry and I decided that costs were too onerous and made the decision to continue investing in the business by purchasing the facility, and we put a lease in place that has the same rents as our current cultivation facility, which is significantly lower than what cannabis REITs would have offered. To our knowledge, this will position the Planet 13 a name with one of the lowest cultivation rental rates in the industry, while also enabling the company to allocate capital towards generating higher returns on capital by opening additional SuperStores in other states. We were also recently awarded license for another dispensary and are set to reopen our original dispensary, Medizin. As a reminder, we closed that dispensary in October of 2018 when we transferred the license to the SuperStore. In Q3 of 2018, the last full quarter, that dispensary did $4.9 million in revenue. We see a pathway for adding an additional $15 million to $20 million in yearly revenue growth at that facility given the increased Planet 13 brand name awareness. The push to local audiences through COVID has also streamlined the reopening and further invigorated brand awareness among local customers. In California, our first out-of-state expansion, we continue to progress in line with our projected time line opening of the first half of 2021. I've never been more excited about the future of the company. The SuperStore is generating record revenue through July and August, despite all the COVID-19 impacts on the global economy and our industry, in particular, here in Nevada. Between the success of our delivery service, the expansion of wholesale and the reopening of our neighborhood Medizin dispensary, we are set to take a larger share of the local Nevada market, while maintaining dominance over the tourist market. Orange County continues to progress, as I mentioned, and with the proceeds from our bought deal and warrants, we have a war chest to continue to look at highly accretive growth opportunities, both within Nevada and in our high-priority states. And with that said, I'd like to again thank everyone for participating today, and I now ask the operator to end the call. Thank you.

Ladies and gentlemen, this concludes today's conference. You may now disconnect your lines at this time. Thank you for your participation, and have a great day.