Planet 13 is a juicy acquisition target for multi-state operators, Beacon says

Nearly a half-year after the company opened its marijuana “Super Store” in Las Vegas, Beacon Securities analyst Doug Cooper says Planet 13 Holdings (Planet 13 Holdings Stock Quote, Chart CSE:PLTH) is killing it.

In a research update to clients today, Cooper maintained his “Buy” rating and one-year price target of $7.25 on PLTH, implying a return of 114 per cent at the time of publication.

Cooper notes that the company reported that more than 100,000 people passed through its turnstiles in Sin City in March. The analyst calls this figure “phenomenal”, noting that with an average spend of $89.17, the company generated $5.5-million in revenue for the month.

The analyst says to put these numbers in perspective, all cannabis sales in Nevada came in at $51.9-million in January, meaning Planet 13’s market share for the entire state is already at 10.5 per cent.

Cooper says PLTH’s strategic positioning could make it an acquisition target.

“We believe it is important for investors to remember that Nevada in general and Las Vegas in particular is a key strategic region for MSOs (multi-state operators),” the analyst says. “In our opinion, Las Vegas is and will always be one of the top cannabis cities in the world and as such MSOs need to establish a presence there as part of their national footprint. With Essence being bought by GTII and Acres being bought by CURA (Not Rated), the number of assets available for purchase in Las Vegas is shrinking. The value of those remaining, therefore, is increasing. We believe MSOs would be very interested in acquiring P13 given: a) It would be a “plug and play” acquisition. With ~11% market share in Nevada and growing, an acquirer would establish the leading presence in the state and city. It is clear that P13 is the crown jewel in the Las Vegas crown. b) Given the sheer number of tourists who come to Las Vegas from all over the country, P13’s burgeoning brand portfolio has significant value as it is portable to the home states of those tourists where the brands will be recognizable. We believe key brands within the market are attracting very high multiples of sales. c) With the stock trading only ~9.5x FY20 EBITDA, the acquisition by an MSO could be incredibly accretive.”

Cooper thinks Planet 13 will generate Adjusted EBITDA of (US) $20.5-million on revenue of $82.1-million in fiscal 2019. He expects those numbers will improve to EBITDA of $38.0-million on a topline of $109.5-million the following year.

“We maintain our Buy and C$7.25 target price based on 20x our FY20 EBITDA forecast of $38 million. We believe our target price could have an upward bias upon successful execution of its wholesale business (and growth of its brand portfolio) and/or the approval of an on-site consumption lounge, neither of which is included in our model,” the analyst adds.