Planet 13 will come back stronger after COVID-19, Beacon says

Planet 13 (Planet 13 Stock Quote, Chart, News CSE:PLTH) gets high praise from Beacon Securities analyst Doug Cooper, who reviewed the pot company’s latest quarterly results in a client update on Wednesday.

Cooper said COVID-19 and its effects will put a damper on Planet 13’s 2020 but that post-pandemic, it could very well capture 20 per cent of the hot Nevada market.

Vertically-integrated Planet 13 has a cannabis Superstore in Las Vegas, a 100,000 sq ft space, along with cultivation and production operations in Nevada. The company reported its fourth quarter and full-year 2019 financials on Tuesday, showing revenue doubling from $8.3 million for Q4 2018 to $16.5 million.

Adjusted EBITDA came out at $2.5 million compared to a loss of $1.5 million a year earlier.

Planet 13 ended the year with $63.6 million in revenues, up 200 per cent from 2018, and EBITDA of $9.9 million. The company also pre-announced its first quarter 2020 revenue of $16.6 million, representing a 20 per cent year-over-year growth rate.

In his quarterly comments, co-CEO Larry Scheffler spoke of the current COVID-19 environment which has forced the closure of essentially all tourism in Las Vegas and relegated Planet 13’s retail to delivery-only catering to locals.

“When cannabis dispensaries in Nevada were told to close, we pivoted to focus on our delivery business, and in only 25 days we've ramped our delivery service from five to twenty-eight vehicles and have shifted our customer mix from 15 per cent local area residents, to 100 per cent.”

“While tourism will continue to be a strong driver of our business when things return to normal, this is a unique opportunity for us to build a strong local base and gain lasting market share as we become a fixture in the daily lives of Las Vegas Valley residents,” Scheffler said.

On the Q4, Cooper said the results came in-line with expectations and that from P13’s traffic announcements for January and February, the company was tracking at +48 per cent year-over-year growth for those months, before things came to a screeching halt in March.

In his note, Cooper said Planet 13 is likely to come out of the current crisis with an even stronger market share, for a number of reasons: the company has the best balance sheet among the roughly 68 dispensaries in Nevada; its in-house production should be the low-cost choice for consumers; the company thinks it can be cash flow break-even during the current deliver-only period; and P13 has already grown its market share among locals during the COVID-19 era from two per cent to 7.5 per cent.

“With its strong balance sheet and with break-even at $100,000/day, we believe P13 can withstand it much longer than most. In fact, we would guess that 50 per cent of the dispensaries could go out of business, leaving more share for those remaining and P13 in particular,” said Cooper.

“If P13 can maintain the loyalty of the locals and the SuperStore can increase its share of the tourist market from 17 per cent to 25 per cent, ie ~$100 million or $8 million/month versus February 2020 of $6.4 million, its NV market share would be 18 per cent,” he said.

Cooper cautioned that the current situation in Nevada could last longer than other states given its heavy reliance on tourism. As such, he is calling for things to only return to normal by Q4 2020, albeit at a still slower level than Q1 2020.

The analyst has adjusted his forecasts and dropped his target price accordingly. Cooper maintained his “Buy” rating with the new target of C$4.50 (was C$5.25), which at press time represented a 12-month return of 192 per cent.