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Planet 13’s Cannabis Superstore And Florida Expansion: Is A Merger In The Air?

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Planet 13 Holdings Inc. (OTC: PLNHF) recently garnered an Overweight rating from equity research firm Zuanic & Associates. The firm believes that Planet 13’s stock valuation fails to fully reflect the potential of its innovative and scalable superstore concept.

Zuanic & Associates notes that despite potential risks, the growth initiatives undertaken by Planet 13 are expected to result in over 60% cumulative top-line growth by the year 2025, even with the anticipated increase in the company’s share count resulting from the acquisition of VidaCann.

Expansion and Growth Initiatives

Currently, Planet 13 operates two stores in Nevada, a superstore in Santa Ana, California, and has plans to open a mid-size store in Illinois. The company’s acquisition of VidaCann in Florida is poised to make Florida its second-largest market, with the potential for significant growth.

In addition to expanding the Las Vegas complex to include a restaurant, bar, apparel sections, and memorabilia, Planet 13 plans to add a consumption lounge and a cannabis-themed museum. The company aims to increase foot traffic by implementing delivery and curbside pickup services to cater to changing consumer preferences.

Planet 13’s VidaCann Acquisition – Florida Market Expansion

The acquisition of VidaCann solidifies Planet 13’s position as a key player in the Florida market, offering a strong dispensary network, a complementary brand portfolio, and an opportunity to expand revenue generation. VidaCann currently operates the 9th largest dispensary network in Florida with 26 dispensaries.

The acquisition involves the issuance of 78.5 million shares and $9 million in cash, with a targeted completion date of January 2024. According to senior analyst Pablo Zuanic, VidaCann held a 1.6% volume share in both flower and non-flower categories in the second quarter of 2023.

Planet 13 Superstore Concept

The Planet 13 superstore in Las Vegas is a standout feature, encompassing a massive 122,000 sq ft complex within walking distance of the Las Vegas Strip. It is currently the largest dispensary globally, generating over $60 million in annual sales, which is more than 10 times the state average.

The superstore offers a unique and immersive retail experience, incorporating drones, robotics, 3-D mapping projections, and customer-facing production. Despite the presence of numerous dispensaries in the area, Planet 13’s concept sets it apart, making it a must-visit destination for both locals and tourists.

Potential for Merger

Due to its novel superstore concept and scalability, Planet 13 presents long-term upside potential and could become an attractive acquisition target for other Multi-State Operators (MSOs), whether public or private. Analysts suggest that a merger with a private MSO like PharmaCann could be a strategic way to introduce the superstore concept nationwide.

The company’s unique concept and scalable nature position it as a promising player in the evolving cannabis industry. Planet 13’s management envisions tailoring its store offerings to specific states, although challenges such as execution risks, state regulations, licensing availability, location suitability, integration of the VidaCann acquisition, and profitability improvement in non-Nevada locations need to be addressed.

Financials and Projections

Planet 13’s financial performance is currently on the lower end among MSOs, with negative margins and operating cash flow. The company’s gross margins align with the industry average at 43.5%, while SGA costs, at 116%, are higher than the group average of 109%, primarily attributed to startup expenses in Illinois and Florida, as well as overhead costs in Santa Ana.

With negative EBITDA margins for the last 12 months and the second quarter of 2023, Planet 13 is one of seven MSOs experiencing negative operating cash flow in the same period. However, the company maintains a net cash position of $41 million, which could potentially fund up to $90 million with gearing up to 0.5 times its sales. The management has displayed caution in managing its balance sheet, pursuing stock-funded deals like the VidaCann acquisition.

Despite ranking 15th among the top 20 MSOs in terms of sales for the second quarter of 2023, Planet 13 stands out with a projected cumulative top-line growth of 65% between 2023 and 2025.

In conclusion, the unique superstore concept, the expansion efforts in Florida, and the company’s potential for a merger make Planet 13 an intriguing investment opportunity. While profitability remains a challenge, the company’s value at its current stock price and the anticipated growth in sales warrant an Overweight rating, according to Zuanic & Associates.

Photo by Markus Winkler on Unsplash.

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