Planet 13 Holdings Stock $PLNHF A Strong Buy

Planet 13 Holdings is a cannabis company that has been put to the test.  Despite that test, they have performed better and better on an increasing level.  COVID had the governor of Nevada bring occupancy rates for retail stores down to 25%.  This was on top of the fact that tourism to Las Vegas was already down some 55%.  And yet, Planet 13 saw substantial revenues in the last two quarters.  Just imagine the increase in revenues now that the light is at the end of the tunnel with the Coronavirus.  Being a Las Vegas, NV-based dispensary, Planet 13 Holdings will now have increased tourism as well as increased occupancy in its dispensary.  And, then they will open their Orange County, CA dispensary.

The story of Planet 13 Holdings is going to be large revenue growth.  With that, I expect metrics to increase to very competitive levels.  This is a cannabis stock that should be on your radar.  Unfortunately, it is on a lot of investors’ radar.  Planet 13 Holdings Stock, $PLNHF,  moving continuously higher is indicative of that:

Planet 13 Holdings Stock PLNHF
Planet 13 Holdings Stock PLNHF

With all of the selling that has been happening in cannabis stocks, PLNHF has actually gone higher in the past few days.  For anyone wanting to get into this cannabis stock, patience is an absolute necessity.  I expect that PLNHF will come down somewhat.

Planet 13 Holdings Revenue

You can see the effects of the COVID-induced dwindling of tourism to Las Vegas as well as occupancy levels in the summer quarter after the COVID outbreak.  And, then Planet 13 Holdings got busy:

Planet 13 Holdings Revenue
Planet 13 Holdings Revenue

The question now becomes, what is going to be revenues for Planet 13 Holdings once tourism gets back to normal levels and stores are free to perform?  This is a question that I have been pondering with Planet 13 holdings.  Then, you have to factor in the opening of the Orange County store for potential revenue.  I am thinking Planet 13 could easily add 50% to its revenue in Las Vegas alone to about $30M per quarter in the next few quarters.  This will give Planet 13 Holdings a run rate of about $120M in Vegas alone.  Then, I could also see about an additional $30M in annual revenue from Orange County.

After about 6 months, when the dust settles on the virus, I am looking for a $150M run rate out of Planet 13 the following 12 month period.

Planet 13 Holdings Gross Margins

Gross margins, if you just looked at a chart, look paltry.  But, there’s an easy explanation for the lower levels: discounts to locals.

Planet 13 Holdings Gross Margins
Planet 13 Holdings Gross Margins

Planet 13 Holdings offers a 20% discount to locals at its super-store.  The math on this is easy.  If enough locals know about this, and the quality and experience are there, they will continually come back with little marketing cost to the company.  This increases overall revenue and margin costs are kept down.

Unfortunately, the local business has been the staple for Planet 13 during the pandemic.  So, gross margins are low.  For now.  Expect these numbers to top 60% in the coming quarters with both Orange County and Las Vegas.

Operating Efficiencies

Operating efficiencies will improve simply because of the mathematics of higher revenue relative to total operating costs:

Planet 13 Holdings Operating Efficiencies
Planet 13 Holdings Operating Efficiencies

For the uninitiated, the basic math on this is simple: This is total operating costs relative to total revenue.  Cost-of-goods are those costs associated with actually making a product such as the packaging of a preroll.  For operating costs, this is the cost associated with running the business from the perspective of SG&A, Sales, General, and Administrative.  This is the CEO’s salary as well as the rent on the dispensary.

Operating Costs

Considering the rent on the dispensary in Las Vegas, that is a fixed cost.  It does not matter if Planet 13 sells $20.00 worth of cannabis in their dispensary or, $20,000,000.00, the rent needs to be paid.  But, on a relative basis, there is a big difference.  As revenues increase, this metric will come in line and push towards lower levels (You want the chart above to be the lowest number possible).

The very best numbers I see are somewhere between 30% – 35% on total operating efficiencies.  As revenues start to come in from increased sales in Las Vegas as well as the new Orange County dispensary (Which they are already paying into total operating costs), this metric will start to move downward.

Financial Data

I am including the tables from the latest financial data.

Planet 13 Holdings EBITDA

EBITDA profitability is one of the first steps towards net profitability.  And, consistently, Planet 13 has printed EBITDA positive data:

Planet 13 Holdings EBITDA
Planet 13 Holdings EBITDA

Previous quarter notwithstanding, the numbers are coming in consistently in the same range.  With increased gross margins from higher revenues and more efficient economies of scale, this will add to the bottom line.  Then, operating costs will come more in line with revenue on a competitive basis.

Planet 13 Base-Case Price

I am looking for an approximate 50% increase in QoQ revenue from the Las Vegas store.  This will come as the city and state start to ramp tourism back up.  I am looking for approximately $30M in revenue in about 2 more quarters from that store alone. Then, I am also looking for approximately $10M per quarter from the Orange Country dispensary.  The run rate projection I have is approximately $150M for 4 consecutive quarters starting in about 2 quarters from now.

So, where does that put PLNHF?

Base Case Scenario

  • $175M gross revenue
  • 37.5% cost of goods: $65.625M
  • 35% total operating costs: $61.25M
  • 10% continuing costs: $17M
  • $31.125M net income
  • 336M Shares outstanding (OTCMarkets & Canadian Stock Exchange)

With $30M in net income, this puts EPS at $.0926 per share.

With fast-growing cannabis stocks, I always use a 100x future earnings multiple.  That puts $PLNHF at $9.26 per share.  This gives a bit more upside potential with the stock trading at $7.00 like it is right now.  But, I would wait to buy in.

The buy-in price

Cannabis stocks have been selling off lately due to some of the bigger companies having their stocks out of line with fundamentals.  This is dragging a lot of cannabis stocks downward.  I would have expected that $PLNHF to come down along with the rest of them.

Patience is the name of the game right now.  If $PLNHF drops to $5.00, it would be a strong buy.  My expectation is that over the next 6 months, prior to the increased revenues being printed, this will give an excellent buying opportunity for a long-term hold.  I would also target the higher range and look for $10.00 after a few months beyond the start of the run rate.

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