Beacon Securities analyst likes the looks of the new deal secured by Nevada-based cannabis company Planet 13 (Planet 13 Stock Quote, Chart, News CSE:PLTH).
In an update to clients on Tuesday, Cooper kept his “Buy” rating but upped his target for the stock from C$4.50 to C$5.25, which at press time represented a 54 per cent upside to its share price at publication.
Planet 13, which owns and operates the cannabis Superstore off the Las Vegas Strip along with cultivation and production operations in the state of Nevada, announced on Saturday that it has entered into an asset purchase agreement with West Coast Development Nevada to acquire cannabis inventory, equipment and tenant improvements in a 25,000 sq ft facility in Las Vegas, which has the ability to expand to 45,000 sq ft.
The purchase price is $4.1 million, consisting of $1.156 million in cash for the inventory and $3 million
($0.5 million in cash and $2.5 million in stock at C$2.50 per share) for the operating assets and licenses. (All figures in US dollars except where noted otherwise.)
“We've been pursuing additional premium indoor cultivation to expand our Medizin flower line, including our proprietary strain Chloe,” said Larry Scheffler, co-CEO of Planet 13, in a press release. “Medizin sells out each harvest days after it hits the SuperStore shelves. This agreement allows us to add 25,000 square feet of indoor cultivation immediately, with the ability to expand up to 45,000 square feet in the future.”
Looking at the deal, Cooper noted that P13 paid “almost nothing” for the assets, which are capable of generating about $20 million or more in revenue and more than $7 million in EBITDA. The company bought the inventory at below wholesale prices, according to Cooper, which it will then sell at its Superstore, while the total cash outlay of $1.656 million added to the expected cash inflow of more than $3 million from the inventory means that P13 ends up with about $1.5 million more cash than it had beforehand.
“We continue to believe that Planet 13 is operating at an extremely high level as it continues to gain market share,” Cooper wrote. “While LV casinos are operating at less than 50 per cent capacity, P13 sales are tracking ahead of July 2019 as its store has become a ‘must see’ destination with tourists AND the company has maintained its recently won local market share. As a point of reference, P13 is currently operating 17 delivery vehicles versus essentially zero this time last year. Furthermore, it appears the
court case related to the awarding of licenses in 2019 is winding up and we believe P13 will likely get one to allow it to re-open its Medizin dispensary, which would solidify its local market share.”
The analyst said Planet 13 continues to make excellent strategic moves. He estimates P13’s current market share at above 12 per cent and projects that to go to 20 per cent of all sales in the state.
“P13’s vertical integration strategy is also working to increase margins,” Cooper wrote. “Finally, we anticipate the company to put its first ‘shovel in the ground’ in California in the next month or two and add that to its revenue growth in 2021 and beyond.”
Cooper has projected fiscal 2020 revenue and adjusted EBITDA of $51.4 million and $5.2 million, respectively, and fiscal 2021 revenue and adjusted EBITDA of $123.8 million and $38.7 million, respectively.