How Planet 13's Margins Weather the 3Q23 Cannabis Storm, Analyst Forecasts

In his latest equity research report, Pablo Zuanic, senior analyst at Zuanic & Associates, delves into the third quarter of 2023 (3Q23) performance and the future trajectory of Planet 13 Holdings PLNH.

Mixed Performance In 3Q23

The report presents a detailed analysis of the company's recent financials and forecasts its strategic direction in the coming quarters.

Zuanic notes a decrease in total sales by 3% year-over-year and 4% quarter-over-quarter, mainly due to seasonality and deflation in Nevada, which accounts for more than 80% of the sales.

However, the California unit displayed resilience with a 2% sequential increase in wholesale sales.

The report also points out a slight reduction in net cash, emphasizing the quarter's financial intricacies. Additionally, the California operations contributed about 20% of the revenues in 3Q23.

In contrast, Nevada faced challenges, with a 5% sequential fall in retail sales, reflecting the diverse performance across regions.

Spreadsheet Zoom-In

Planet 13 Holdings showed a strong year-over-year growth in sales with a 70% increase in December CY21, indicating robust market demand. Although sales declined 12% in December CY22, the company maintained a considerable gross margin of 45.9%.

This resilience in profitability, despite fluctuating sales, could be taken as an indicator of a potential for stock appreciation.

On the flip side, the decline in sales and EBITDA margin from 14.1% to 3.3% between December CY21 and CY22 raises concerns about sustainable revenue growth and operational efficiency.

Additionally, the significant increase in operational expenses, as indicated by the rise in SGA/sales from -61.8% to -92.5%, points to potential financial management challenges, which could adversely affect investor confidence and stock performance.

Outlook for 4Q23 and CY24

Looking ahead, Zuanic remains cautiously optimistic: "PLNH expects ‘minimal top line growth’ from its legacy assets in 4Q23," indicating a tempered expectation for the immediate future.

He also sheds light on the potential growth drivers, stating "In CY24, sales growth will be driven [by] a full year of the IL store, [and] the closing of the VidaCann deal in FL."

Bigger Picture: Growth, Valuation And Potential

Zuanic captures the broader strategic vision for the company. "PLNH's various growth initiatives... should lead to >60% cumulative top-line growth by CY25."

He also addresses the company's valuation. "At $0.86, we calculate a proforma EV of $271Mn."

Despite this, Zuanic said the valuation may not fully capture the unique potential of the company’s superstore concept and the opportunity for growth through industry consolidation.

He emphasized the potential impact of Planet 13's VidaCann deal, which involves a plan to expand from 26 stores with Florida's capacity supporting a possible doubling of the retail network. This expansion is expected to enhance profit margins and maintain a 50% gross margin at the retail level.

While there are near-term risks associated with execution and integration, the overall growth outlook for PLNH remains positive, says Zuanic who recommends maintaining an Overweight stance on the stock.

Photo by chutipon Pattanatitinon on Unsplash.