Planet 13: Riding high on the Las Vegas strip
What’s up with Planet 13? Shares (OTC:PLNHF) gained a mere 20 percent in the opening 80 days of this year, an embarrassing underperformance to the 50-plus percent move for the average cannabis stock. But oh how things have changed. Since March 20, the price has shot up by 64 percent.
For the record, this equals a 1,536 percent on an annualized basis. That type of performance rivals cryptocurrencies during their 2017 heyday: Wow, Bang, Woosh!
Please excuse the hyperbole. I don’t ordinarily resort to cheap tactics to gain attention. But in the case of $380 million market cap Planet 13, we are dealing with Las Vegas. This is where no amount of hyperbole is enough.
Who is Planet 13?
If the name isn’t familiar, it could be due to the almost total lack of Wall Street coverage. Here is how management describes themselves. Planet13 “is a vertically integrated company active in the cultivation, production, and distribution of both medical and recreational cannabis in the state of Nevada.”
The Company holds two cultivation licenses — one 15,000-square-foot facility in Las Vegas with a current production capacity of approximately 2,100 lbs/year (950 kg/year) of dried cannabis. The second cultivation license is in Beatty, Nevada with the potential for over 2,300,000 square feet of greenhouse production capacity.
Planet 13 also has two dispensary licenses, one for medical that operates under the Medizin brand and the second for the sale of recreational product. For the nine months of 2018 ending September 30, Planet 13 revenues amounted to a respectable $13 million that resulted in an operating loss of $4 million. Up to this point, there is nothing to separate Planet 13 from anyone else on the cannabis planet.
But on November 1, 2018, everything changed. “The Planet 13 Superstore”, a 16,000-square-foot “cannabis entertainment complex, was opened adjacent to the Las Vegas Strip. The superstore was designed to handle 2,000 to 3000 customers per 24 hour day, seven days a week.
The Planet 13 Superstore has more than lived up to its billing. On April 3, management announced that revenues from the Vegas operation hit $5.49 million just in the month of March.
The table below is extracted from the company’s press release showing sequential gains in just about every category. Since it’s opening, The Planet 13 Superstore has contributed sales of $16.7 million. Assuming no further growth (or decline) in revenues that is $50 million annually.
Before getting totally caught in Vegas fantasy, it is important to remember that Vegas is a seasonal destination so $50 million is probably not realistic. One thing, however, is clear. The Planet 13 Superstore may be a gimmick, but it is producing some magical results.
What happens in Vegas . . . yadda yadda
In the cannabis investment world, no successful marketing concept goes unnoticed. Surely, all eyes took notice of the April 3 press release. This raises several questions. Is the superstore duplicatable within Las Vegas? In the short run probably not. So PLNHF should be the only show in town at least for a while.
Is the superstore concept transferable to other locations? Perhaps, but only on a minimal basis do the dollars and the demographics match Vegas.
The last and most important question follows. How much of The Planet 13 Superstore success has been reflected in the current price of the stock. That is always the unanswerable riddle. But here are a few thoughts.
Management’s April 3 announcement is likely to grab Wall Street’s attention. As of now, only three firms are covering the stock. That is likely to increase. It is highly unlikely any firm will initiate coverage with a hold or a sell.
When analysts dig into PLNHF, here are some of the things to consider. Assuming 2019 revenues of about $75 million, the Price/Sales ratio ends up at five times. That is low for most young cannabis companies. The latest financial statements show $8.6 million in cash with a burn rate of $3.1 million. The company has already invested something close to $7 million in the Vegas superstore, but financing continued rapid growth will take more capital.
This is a concern; it has not stopped the company up to now. Last year $19 million was raised through new equity. But it could affect how well new investors in PLNHF do from here since raising capital is likely to produce a certain amount of dilution.
Personally, I do not own the stock and will wait to see how the numbers progress in the offseason months ahead. But, I am fascinated to see how far the superstore can go in creating brand value for the company’s products. So like the gambler's mantra, faites votre pari, or, place your bets.