This is the fourth quarterly results of Planet 13 ($PLTH) that we’ve looked at. Last quarter saw the new Orange County superstore getting close to coming online, and I’m curious if it’ll hit the ground running.

The store opened on July 1st (complete with ‘interactive sand’ and 50 cash registers(!)), and came in loud with a full court media press. It only took a week for them to open another ‘store within a store‘, putting in ‘Moxie’ beside Curaleaf’s ‘Select’ ($CURA) and one other brand.

In a comment about differentiation, one of $PLTH’s co-CEO’s said <paraphrased>: cannabis stores shouldn’t be ‘like a North Carolina liquor store’, and while MedMen went a ‘a little more upscale’….$PLTH is the way it ‘should be’. They helpfully point out it’s only 7 miles from Disneyland 🙂 .

There’s an old business line about buying the perfect car: it would be designed by an Italian; engineered by a German; manufactured by the Japanese; and sold to you by an American. $PLTH reflects to me this notion of marketing prowess by the Americans, and I’m interested in what may be described as the ‘Disneyfication’ (or perhaps ‘amusement park/destination approach) of (to) weed. And whether this concept will be successful in hitting the slipstream of mass market. As we’ve seen – the ‘concept’ isn’t cheap.

Readers will know I’m enamoured with $PLTH’s disclosure. My view might be a little exaggerated, just because so many outfits out there suck in direct comparison. $PLTH’s CEO says it’ll take 4 quarters for them to dial the Orange County store in, just like it did in Vegas. And in early August, $PLTH announced they’re heading into Chicago.

A recent presser says $PLTH brought in $12MM in sales in July, splits out Orange County’s revenue for the month ($800k), and claims overall system margin is north of 50%. That’s a relatively slow start for CA – and again, I’ll point out how good that disclosure is relative to peers.

Last time we were looking for revenue in the $26MM-$28MM range, and to see if there was some cost containment around SG&A. With a 240 person headcount in California and a shiny new store – it might be a few quarters before we see it stabilized.

To the financials!

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• Revenue at $32.8MM, margin at 57% (or $18.6MM).
• G&A up big to $11MM from $7.7MM quarter previous. $PLTH ascribes the growth to everything, from Orange County to wholesale and delivery expansion to COVID to Medezin being online (YoY). Total is about 34% of total revenues. Sales and Marketing doubled (from $750k to $1.5MM). Ramps aren’t cheap.
• All told, EBITDA positive excl. SBC, but operationally, a break even shop this quarter, despite a $9MM increase in sales.
• In-store revenue $40MM YTD, Delivery: $6.7MM (off 10% YoY, likely COVID driven). Wholesale is currently anemic at only $2.3MM for the entire year. $PLTH’s short term goal is to be 50% vertical.
• Given their cultivation assets (~=41kft² indoor, another 80 acres undeveloped, and indoor expansion potential for another 30k ft²) – they’re going to need a capital spend/expansion to come anywhere near that.
• PP&E and ROU $61MM of a total of $70MM non-current assets. I see Orange County clocking in around $34-$38MM(!) when complete.
• $12MM in inventory is lean, and most likely reflects lack of in-house derived throughput. Might as well let inventory sit on somebody else’s balance sheet until required.
• Clean balance sheet overall relative to sector. No large licence capitalizations, no non-controlling interests, no derivative liabilities or contingent consideration. Lease liability/improvements is really top heavy though. 83% of all capital assets are leasehold or soon to be – leasehold improvements. Wow.
• They flipped 55MM of ‘Class A’ shares into common shares this year. Looks mainly housekeeping. They’ve a good array of backstory on it, I don’t see anything untoward or costly to common shareholders – it looks like rich people doing tax planning and perhaps some loose ends around previous diligence on potential exchange requirements.
• SBC an aggressive $5.3MM, only $200k quarter prior. Perhaps a function of when the stock was nearing $9 in mid/late June. Seeing SBC percentage run into the double digits of annual sales – yuck. Could be a one off. They’ve been modest for the most part, and there is enough overhang for insiders to light up. More below.
• Still $7.5MM in construction commitments yet to go in Orange County, despite opening the day after these financials.
• Their restaurant (yes, there’s a restaurant) at the flagship 122k ft² ‘Planet 13 Cannabis Entertainment Complex‘ is doing about $350k/month.
• Medizin is running at $6.5MM for this year, and pretty pedestrian in comparison to the mothership. It’s first month’s revenue was $640k, and it’s been a straight line of $1.1MM every month since. IR had touted it to me as being close to the stadium, and had expectations of surges related to enhanced event related traffic. Doesn’t look like its’ done so yet, could be COVID hangover. Something to watch.
• $PLTH claims to still be working on the WCDN cultivation buy – one of the few opaque areas in the financials. As mentioned previously, it looks like there was some hair on the deal, and $PLTH points out that the genetics they picked up in the deal were <ahem> of ‘lesser yields’.

Ok. I could go on, because (as my broken record keeps saying), the disclosure here is superlative. Best anywhere in-sector, hands down. These financials are a real joy to wander around.

That 38% sales increase is split out by category. I wonder if topicals and such will be more popular given a relatively unique consumer profile they have in Vegas:

Most of $PLTH’s cheap options have been struck, there’s been a few paydays had. It looks like they’ve gone to RSU’s (like many) rather than the naked risk that options carry. It’s a sign of business maturation, and moving past the ‘hopes and dreams’ phase of start-up and into an operational profile. Hard to keep talent issuing forward risk (magic beans) for compensation. Not much in options left:

Warrants are more substantial, and also more aligned with equity price. Of note, the raise $PLTH did back in early February at $7/share, and half warrants at a $9 strike going out in the defined units. The broker allotment/over-allotment though carried a different strike ($7) on the warrants than the ones that went to investors. Way cute (and ridiculously expensive). Had I been going in, I would have had a word about that. As it stands, of the 600k of them shot out, 296k of them were struck almost immediately. One could muse that the brokers are simply flipping them to crystallize margin – maybe. Maybe a run for the doors? Not a big number, but to me, differential strikes within the same raise are really lowbrow.

For kicks, the interested reader might note price and volume for $PLTH between February 2nd and March 8th of 2021. If you like tinfoil hats, there’s plenty of raw material there to make one.

At any rate, price softness since those Feb/Mar highs has seen most of the value here evaporate for now.

SBC was significant this quarter, due to some 4.8MM RSUs being issued and partially accrued for. Shares are handed out (for $0) as compensation when they fully accrue. The higher share price at the time of issue ($8.12) would infer some $40MM in SBC to be accrued over a 3 year vesting period, 1/3 on each November 1st. Thus, they gave themselves $9MM in share compensation for payment 6 months later, this will vary by the time they get settled. But the ~=$5MM this quarter in SBC represents some 900k of RSUs previously issued vesting.

Meh. Not as rich as some others, but not modest either.

Despite $PLTH’s relative lack of optionality (very relative), they have added 53MM to their common share count over the year – a combination of many things but only 10MM of them issued in raises. one could characterize as ‘dilution by a thousand cuts’. I’d probably not remark on it but for the heavy tilt to leasehold improvements, and somewhat of an ‘asset light’ balance sheet (excl. cash):

That’s it for now. We’ll be looking again at G&A (for what we can discern). Orange Country is going to be sucking up a lot of cash oxygen for awhile in that regard. Same as in sales and marketing (notably doubling this quarter). The noise is going to make it challenging to isolate innate profitability of Vegas for awhile. And if the company is serious about taking a year to ultimately stabilize and grow Orange County – and presumeably heads into build in Chicago – one is left with much of what is in legal cannabis right now: future expectations.

I like this outfit for several reasons, but not enough to take a position. Because: $PLTH is packing a share price I simply can’t get anywhere near to though my own valuation. If you want to know how I derive that valuation, I detail it in replies to a subscriber’s questions at the bottom of our last Structure.

<As to why I don’t use perpetuity with growth – it’s because I believe a native calculation (ie: no growth) is a hard marker, and one can add growth rates to stress test against market price….and can impute market assumptions. Another facet is that the discount rate captures inherent variability (risk) in forward projections, and imbedding growth rates become redundant. This is ‘high concept’ finance, but hope this info provides the reader insight as to how subjective ‘price targets’ and asset valuation can be, no matter the source>

I’ve been lingering on $PLTH for awhile. The sales increase is good, but risk factors give me pause. The tenor of ‘full’ operations being realized is being extended (vis a vis growth initiatives and COVID). Whether $PLTH can fully replicate that sexy Vegas model is another question – and if $PLTH can adapt successfully to regional tastes. There’s potential impact in regulatory as well, and I can envision a place in a 3-Tier world for their model. $PLTH offers a somewhat unique exposure to legal cannabis which I am attracted to. I’ve learned over the years to never underestimate the power of the American consumer. Yet, I also wonder if there isn’t a natural ‘ceiling’ for them – inasmuch as how many locations can $PLTH profitably deploy, and to what extent is their model ‘moat’-able? (Think Planet Hollywood/Hard Rock Cafe here, which are far more unique in terms of branding).

Look next time for a full quarter of sales from Orange County, and if Vegas continues to recover/expand. If Orange County is sluggish in uptake, $PLTH could have some short term challenges. If sales blows out, $PLTH could be heading right into a successful overnight raise……and Illinois bound with a pocket full of cash. I’m guessing sales will be somewhere in the middle, G&A in flux, which again…… brings up the question of ‘when’ $PLTH will realize full operational speed. An ugly scenario will emerge if CA sales flatline.

This one really has me thinking. I sure as shit wish their share price was lower.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in $PLTH.