Beacon Securities analyst Doug Cooper has brought his views of Planet 13 Holdings (Planet 13 Stock Quote, Charts, News, Analysts, Financials CSE:PLTH) back down to Earth, lowering his target price to C$9.50/share from C$11.50/share despite maintaining a “Buy” rating for a projected return of 48 per cent in an update to clients on Friday.
Founded in 2002 and headquartered in Las Vegas, Planet 13 Holdings is a vertically integrated cannabis company which operates its 100,000 square foot Superstore, including a 16,500 square foot retail footprint, in Las Vegas, and also owns cultivation and production operations in Nevada.
Cooper’s latest analysis comes after Planet 13 reported record revenue of $32.8 million in the quarter, a 38 per cent quarter-to-quarter jump and a 205.2 per cent year-over-year increase. The Superstore generated $24.3 million of the revenue, putting it on a $100 million revenue run rate, which Cooper notes would likely make it the largest single dispensary in the world. (All figures in US dollars except where noted otherwise.)
“Our prior FY22 estimate of $105 million now looks not only readily attainable but likely materially conservative, especially given the expansion of the dispensary floor by 7,000 sq ft and the increase in the number of cash registers from 43 to 85,” Cooper said in his report.
Meanwhile, P13’s Medizin store generated $3.3 million in revenue for the quarter, with Cooper modelling $18 million in revenue for the year with a possible influx coming from the NFL, as the store is two miles from Allegiant Stadium, home of the Las Vegas Raiders.
The company also reported record EBITDA of $7.2 million in the quarter, though it was unable to fully capitalize on an increased gross margin of 60 per cent on account of a slower than expected start in its Santa Ana, Calif. Superstore, along with increased selling, general and administrative expenses.
Since the quarterly results were released, Planet 13 also announced its intent to purchase a subsidiary of Harvest Health & Recreation Inc., to be renamed Planet 13 Florida, for $55 million, with the intent to purchase a license to operate as a Medical Marijuana Treatment Center issued by the Florida Department of Health.
“With tourism back, the Superstore’s in-store experience is once again proving that it is on the list of must visit destinations for any trip to Vegas. Every week thousands of people share their experience at the store with their friends on social media and the compounding impact of that organic marketing is obvious as even after being open for three years we are seeing strong growth and increasing share of the Nevada market every month,” said Larry Scheffler, Co-CEO of Planet 13 in the company’s August 26 press release.
“Along with our dispensary operations, our product brands are continuing to gain traction. According to Headset data, HaHa was the number two edibles and number three beverage brand in the state and TRENDI was the number three concentrate and number six vape brand,” Scheffler said.
Based entirely on changes to California projections, Cooper has lowered his revenue and EBITDA projections for the next two years. From a revenue perspective, Cooper has lowered his 2021 estimate to $130 million from his initial $142 million viewpoint, though it would still represent a year-over-year increase of 84.4 per cent. Despite a slight offset from potential increases in Nevada, Cooper has also lowered his 2022 revenue projection to $212 million from $223 million, which represents a potential year-over-year increase of 63.1 per cent.
Cooper’s EBITDA projections underwent a similar downsizing on account of overhead cost assumptions, with a revised expectation of $32 million in place for 2021 instead of $43.7 million, though the revision is still a potential 286 per cent year-over-year increase while keeping a 24.6 per cent margin. For 2022, Cooper’s new estimate is $65 million instead of $78 million, a 103 per cent potential year-over-year increase and a 30.6 per cent margin.
Valuation data also appears to be promising from Cooper’s perspective, with the EV/Sales multiple projected to drop from 11.8x in 2020 to 6.4x in 2021, then again to 3.9x in 2022. Meanwhile, the drop in the EV/EBITDA forecast is more dramatic, moving from 99.8x in 2020 to a projected 25.9x in 2021, then to a projected 12.8x in 2022.
With Cooper expecting positive EPS of C$0.06/share in 2021, the price-earnings ratio projects at 88.4x for 2021 before dropping to a projected 27.9x for 2022.
Cooper said he’s “as bullish as ever” on Planet 13.
“Despite our revisions, we believe P13’s growth story is perhaps more robust than ever, especially as we look to FY23,” Cooper said. “In NV, its market share gains continue while the regulations surrounding on-site consumption lounges should be clarified and enacted by Q1/Q2 FY22. This would allow for the build of a ‘Vegas’ style club ($10 million+ cost) that would create an impenetrable moat for the company.”
Overall, Planet 13’s stock price has dropped 10.6 per cent for the year to date, though it has steadily declined since spiking to its high point of C$10.37/share on February 10.