Planet 13 Holdings PLNH, a multi-state cannabis operator, finds itself trailing its peers by 55% this quarter. Senior analyst Pablo Zuanic attributes this setback to a mistimed equity offering and allegations of embezzlement.
Despite grappling with these challenges, the company’s stock now trades at a 35% markdown. Its valuation stands at 1.1 times the projected 2024 sales, a figure notably lower than the industry’s average of 1.7 times.
Zuanic is optimistic about Planet 13’s future, especially in light of the burgeoning market prospects in Florida. The company’s innovative retail approach in Nevada, coupled with a scalable superstore model, positions it favorably for expansion into the potentially lucrative Florida cannabis market.
Legal Disputes Rock the Cannabis Sector
Planet 13 Holdings has initiated a legal battle by filing a $16.5 million lawsuit against Casa Verde Capital, co-owned by Snoop Dogg and El Capitan Advisors, alleging fraud. The lawsuit, lodged in Los Angeles, accuses both entities of misleadingly touting their success in cannabis investments to lure clients, including Planet 13, which had entrusted them with $21 million.
Planet 13 contends that El Capitan served as a mere façade enabling Casa Verde to profit at its expense. The company seeks financial redress and judicial intervention to oversee El Capitan, aiming to recoup its losses. In response, Casa Verde has denied any wrongdoing and expressed disappointment at the lawsuit despite offering cooperation.
Financial Highlights and Future Projections
While the fourth quarter of 2023 witnessed a decline in overall sales, particularly in Nevada and California, Planet 13 saw positive shifts in gross margins and a reduction in cash operating expenses. These factors collectively improved the company’s EBITDA margin, indicating enhanced profitability and operational efficiency.
Closing out CY23 with $17.3 million in cash, Planet 13 anticipates bolstering its cash reserves to $33 million post the completion of the VidaCann deal.
Strategic Pivots and Growth Trajectory
The company’s strategic maneuvers include the acquisition of VidaCann, securing capital raises for expansion, and exploring potential tax positions to reclaim overpaid taxes worth millions. The VidaCann acquisition strategically places the company to harness the opportunities presented by the Florida market, with plans for an extensive expansion of its store network.
Moreover, Planet 13’s efforts to bolster its presence in Nevada and enhance operational efficiencies are expected to propel future growth and elevate shareholder value.
Market Expansion and Investment Perspective
Florida emerges as a key growth frontier for Planet 13, with substantial revenue and EBITDA margin upsurges anticipated from the state’s recreational cannabis market. The company’s strategy to introduce new brands and operational strategies at VidaCann outlets, alongside plans for expanding its store network, underscores its commitment to seizing a larger market share in Florida.
Valuation Insights and Investment Outlook
Despite recent hurdles, including a significant stock price slump, Planet 13’s proforma valuation reveals a marked discount compared to the sector average. Analysis indicates that the current valuation inadequately reflects the potential EBITDA growth from Florida, the scalability of its superstore model, and the efforts to fortify its Nevada operations.
With a proforma enterprise value (EV) of $164 million and a stock price of $0.56, Planet 13 boasts proforma net cash of $33 million, trading at 1.1 times its projected 2024 sales of $148 million. This valuation represents a 35% discount vis-à-vis the sector average, highlighting the company’s undervalued status.
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