Earnings Analysis: Planet 13, Ascend Wellness And TILT Holdings

In a recent analyst note, Jonathan DeCourcey from Viridian Capital Advisors provided an update on cannabis companies Planet 13, Ascend Wellness and TILT Holdings. DeCourcey covered the companies’ earnings and business strategies and offered a market outlook analysis for Nevada, Massachusetts, and Pennsylvania.

Planet 13: Tourist Spending Continues to Drag Results

Planet 13 PLNHF reported Tuesday its financial results for the second quarter of 2022. The firm informed revenues of $28.4M and $3M adjusted EBITDA, below Viridian’s estimates of $37M in revenues and $7.8M adjusted EBITDA. Although customer gains in California are showing major signs of improvement, the firm has been struggling with macro challenges and reduced tourism spending in Las Vegas. 

Viridian updated its forecasts to reflect persistent macro pressure rating Planet 13 as “Buy” while maintaining the price target at $3.70.

In Nevada, reduced customer spending is "a ticket size drag in the quarter," DeCourcey said. "This is particularly impactful to Planet 13 as the company traditionally benefits from inflated ticket values with tourists seeking out premium goods at the Superstore and because Q2/22 and Q3/22 were supposed to be the time frame in which Planet 13 disproportionately benefited from a post-COVID rebound in Las Vegas travel. The rebound does not appear to be occurring with tourism YTD. Spending is down on inflationary pressures. Despite the tourism pressure, Planet 13 maintained its leading position in Nevada both overall (>9% of sales in the state) and with specific house brands,” De Courcey said.

“The continued leading brand position in Nevada, particularly as enhanced cultivation and a lounge opportunity come online next year, coupled with ongoing growth initiatives in California, Florida, and Illinois, give us confidence that Planet 13, in general, can resume strong growth levels once macro conditions improve and generate a return to outperforming profitability and cash generation. (...) the company remains well capitalized (...).” 

TILT Holdings: Brand Strategy Bears Early Fruit

TILT Holdings TLLTF reported its financial results for the second quarter of 2022 on Tuesday. The holding reported $47.1M in revenues and $1.1M adjusted EBITDA, below Viridian’s estimates ($60M/$4.7M) “as operations were hindered by wholesale pricing pressure in Massachusetts and Pennsylvania and lower sales volumes for Jupiter’s premium vape hardware.” The analyst adjusted his estimates to reflect results and the guidance cut, however, he kept the rating “Buy” and price target at $0.50.

DeCourcey explained management announced a plan to mitigate the Jupiter pricing challenge by implementing a good/better/best service strategy. However, he expects headwinds to persist for the remainder of 2022 as that strategy as well as enhanced scale with the 3rd party branded products offering comes online.

“TILT management now expects 2022 revenues to be between $205M and $210M with adjusted EBITDA in the range of $10M to $15M. The updates compare to prior guidance of between $255M and $265M in revenues and adjusted EBITDA of $27M to $32M. While the underperformance for the quarter and persistent market headwinds are disappointing, TILT is experiencing solid early returns with its house of brands strategy on the plant-touching side of the business with cannabis sales up >20% YOY,” DeCourcey said.

“TILT is positioned to weather further challenging market conditions following the sale-leaseback transactions announced this past winter and execution by management.” 

DeCourcey noted TILT has a major catalyst looming with its New York-managed services business (operating on behalf of the Shinnecock tribe) “particularly if the rollout of traditional recreational sales in the state gets delayed. TILT as a service provider to a Native Tribe will face no such regulatory delays with the company having recently broken ground on a Long Island dispensary.”

Ascend Wellness Holdings: Q2 Beat on NJ Strength; Walking Away from NY Opportunity

Ascend AAWH reported Tuesday its financial results for the second quarter of 2022. The firm informed $97.5M in revenues and $20.9M adjusted EBITDA, ahead of Viridian’s forecast of $92M/$19.5M “on a stronger than expected start to New Jersey rec contributions” and “improved results in Michigan.” DeCourcery reduced his 2023 estimates and maintained a “Buy” rating for Ascend and a $5.15 price target.

New Jersey recreational sales have been a boon for all exposed operators and DeCourcey is confident that the growth in the second quarter for Ascend “is just the beginning, as the company brings on additional dispensaries (including Montclair) and enhanced cultivation capacity (to support vertical integration and eventual wholesale contributions) moving forward.”

“Meanwhile, top-line strength across the company was partially offset by margins on weaker wholesale pricing, particularly in Illinois and Massachusetts,” he added. During the earnings call, management announced the decision to terminate it's agreed-upon MedMen New York acquisition. In addition, management highlighted plans to enter Maryland and considered Florida and Missouri to represent additional focus expansion areas in the near term.

“Ascend management may now wait for the issuance of non-vertically integrated licenses which would likely prove to be a less expensive and challenging way to enter the state, albeit with less potential upside,” DeCourcey said. “Walking away from the MedMen deal could also be strategic as it may make Ascend a more viable takeout candidate for one of the larger MSOs which also plans to operate in the state.”

The company remains one of the cheapest well-positioned MSOs in the space with our price target offering more than 2x upside and a valuation still well-below similarly sized peers,” concluded the analyst.

Photo by Wance Paleri on Unsplash.