Hi, everyone. Welcome to Planet 13 Holdings' 2021 Third Quarter Financial Results Conference Call. As a reminder, this conference call is being recorded on November 23rd, 2021 . At this time, all participants are in a listen-only mode. Following the presentation, we will conduct a question-and-answer session. Instructions will be provided at that time for research analysts to queue up for questions. If anyone has any difficulty hearing the conference, please press star followed by the zero for operator assistance at any time. I will now turn the call over to Mark Kuindersma, Head of Investor Relations for Planet 13.
Thank you. Good afternoon, everyone, and thank you for joining us today. Planet 13 Holdings' Q3 2021 financial results were released today. The press release, financial statements, and MD&A are available on SEDAR as well as on our website, planet13holdings.com. Before I pass the call over to management, we'd like to remind listeners that a portion of today's discussion include forward-looking statements. There can be no assurances that such information will prove to be accurate, or that management's expectations or estimates of future developments, circumstances, or results will materialize. As a result of these risks and uncertainties, results or events predicted in these forward-looking statements may differ materially from actual results or events. Risk factors that could affect results are detailed in the company's public filings that are made available on SEDAR. We encourage listeners to read those statements in conjunction with today's call.
The forward-looking statements in this conference call are made as of the date of this call. Planet 13 disclaims any intention or obligation to update or revise such information, except as required by applicable law. It does not assume any liability for disclosure relating to any company mentioned herein. Planet 13's financial statements are presented in U.S. dollars, and the results discussed during this call are in U.S. dollars unless otherwise indicated. On the call today, we have Bob Groesbeck, Co-Chairman and Co-CEO, Larry Scheffler, Co-Chairman and Co-CEO, and Dennis Logan, CFO. I will now pass the call over to Larry Scheffler, Co-Chairman and Co-CEO of Planet 13 Holdings.
Good afternoon, everybody, and thank you for participating in our third quarter call. Today I'm gonna discuss our performance in Nevada and California, and then Bob will provide an update on our other growth initiatives later in the call. Q3 was a solid quarter in Nevada, although one marked with some sales headwinds from COVID resurfacing and changes in the seasonal trends. Nevertheless, we continue to maintain a market share north of 10% in Nevada. Across Nevada, each aspect of our business performed well. In Q3, we generated $22.6 million from the SuperStore, $2.7 million from curbside and delivery, $3.5 million from Medizin, and $1.6 million from wholesale and other, a 33% increase over Q3 2020.
September results at the SuperStore were impacted slightly as we're putting the finishing touches on our expanded floor space, which meant some construction taking place during the month that affected customer experience. The new and expanded area opened on September 21st, and the results were clear, especially during MJBizCon and some of the busier weekend days. On completion of expansion of the SuperStore, customer traffic increased, as did sales on the busiest days. In October, we had multiple days which exceeded $400,000 in sales. The improved customer flow and experience meant we're able to service more customers in a timely manner on those busy days. We expect this to really pay dividends as large conventions return, more entertainment events take place, and we get back to seasonably strong spring through summer months.
Our own brands continue to perform well with Trendi seeing 110% dollar sales growth year-over-year according to Headset. It now makes up about 5% of vape sales and 7% of concentrate sales in the state of Nevada. HaHa edibles claim 14.4% of edible sales in Nevada, making it the second highest selling brand in the state. Bob will talk about it a little later, and we are extremely pleased with the quality, consistency of our manufactured products, and we're very excited about the opportunity to bring them to other markets. Turning to California, we opened our new store on June 24th. During the quarter, it generated $2.4 million. Sales have been impacted by continued absence of out-of-state tourist activity due to COVID and significant freeway construction in the nearby vicinity.
Upon completion of the construction, we expect a boost for the store as it will make it significantly easier to get on and off the highway at our location, what currently is a major obstacle. These numbers have been disappointing to us, and while there is some consolation knowing that our customer reviews are some of the highest in the state and sales are artificially low due to obstacles that are outside of our control, it is one of the key focus areas. Based on what it costs us to acquire and build the store and current run rate, it is approximately 2x sales. While this might be in line with the rest of the industry, it is not a number we're happy with.
We are continuing to try new advertising methods and growing the delivery business to better optimize this location. Looking ahead to Q4, October was a very strong month for us, but we are aware that traditionally both November and December are seasonally lower as there's less tourist activity and party traffic in Las Vegas.
Furthermore, the conventions that typically help us make up the volume during these months are still not fully back. With that, I'll pass it over to Dennis to discuss our financials.
Thank you, Larry. Before I begin, I would just like to remind everyone that all numbers discussed on today's call are stated in U.S. dollars unless specifically noted otherwise. As Larry mentioned, Q3 was a strong quarter in Nevada and a first step for us in California. The company generated $32.8 million of revenue in Q3 2021. A 45% improvement over the same quarter last year. Revenue growth was driven by a continued improvement in Las Vegas as COVID restrictions eased and tourists returned. We had increased sales volume at our Medizin dispensary, increased wholesale operations in Nevada, and the opening of the company's Orange County location. Gross margin before the impact of biological assets declined to 53.4%, down from 56.9% in Q2 2021.
The decline in gross margin was primarily driven by a lower mix of in-store sales at the company's Nevada SuperStore location in Q3 when compared to Q2, 2021. Gross margins in Nevada were consistent from Q2 to Q3, as we saw a relatively stable mix of tourists to local customers and a strong return of third-party product slotting fees and cross-promotion opportunities in the quarter. Across our business, we continue to target gross margins in excess of 50% for the long term. Sales and marketing expense was $1.9 million in Q3, up marginally over Q2, 2021 as we ramp marketing activity in both California and Nevada. We expect this to be at or near the high watermark as we are starting to optimize spending in California based on the return on investment we are seeing from each marketing channel.
The company spent $13.1 million on G&A in the quarter, up from $10.9 million during Q2 2021. As we alluded to on the last quarterly call, we expect Q3 2021 to be the high watermark for G&A expense as a percentage of revenue, primarily driven by the opening costs related to California and a one-time spike in labor costs in Las Vegas from one-time retention bonuses that were paid to new hires and existing employees in order to maintain and attract high-quality people during the COVID-related issues in Nevada. The company is in the process of transitioning to becoming a U.S. domestic corporation and registering with the SEC. This involves the company switching to U.S. GAAP effective January 1st, 2022, implementing Sarbanes-Oxley compliance, and becoming an SEC registrant by preparing and filing a Form 10 registration statement.
During Q3 2021, we incurred approximately $400,000 in fees as a result of costs related to these initiatives. This sets the company up though for potential uplisting to a recognized U.S. exchange and broadening of our shareholder base if the existing federal rules are changed through either a SAFE Banking Act or similar federal reforms. As of September 30th, 2021, the company had a cash balance of $74 million. The company spent $55 million in the quarter to acquire the Florida license, which as of September 30th, was listed as restricted cash on our balance sheet. Final payment for the Florida license occurred on closing on October 1st, 2021.
As Bob will discuss further in his comments, the company is actively looking for Chicago location for a superstore, as well as expansion in Florida for our neighborhood dispensaries. Once we have plans in place, we will update our shareholders on the expected CapEx requirement, but we expect to have enough cash on hand for the initial build-outs in both states. Looking ahead to the transition to U.S. GAAP reporting, the main differences in our financial statements will be the accounting for warrants, which are priced in Canadian dollars and which will entail them to be treated as a derivative liability as opposed to equity, where and where changes in the underlying warrant values are recognized through the income statement as opposed to the statement of changes in equity. As well as the treatment of biological assets and leases.
With that, I'll pass the call over to Bob.
Thank you, Dennis, and good afternoon, everyone. The Q3 was all about setting Planet 13 up for future growth. We won an Illinois dispensary license lottery through a social equity partnership. Illinois has long been one of our targeted expansion areas. It has a large population, significant tourist counts, and a robust adult use market. We expect the license to be issued in the first half of next year and are in the process of identifying a strategic location for our first Planet 13 SuperStore there. We've acquired a vertically integrated license in Florida, arguably the best medical market in the nation, and one with adult use upside. Our plan over the next year is to open a network of neighborhood stores modeled off of our highly productive and successful Medizin store, supported by cultivation and manufacturing.
We expect this to be followed by two to three SuperStores as we get closer to adult use and have the ability to supply and support a wider variety of products. We are aggressively working to meet the OMMU requirements of six open dispensaries and cultivation within the first 12 months, and we feel confident about meeting and beating those timelines. We're moving forward with our cultivation and production facility modeled off of our Las Vegas operations. On the dispensary side, we have our team in place scouting our priority markets for locations that fit with our vision. We have proven our ability to build, open, and operate retail. We've excelled in the growing and manufacturing of cannabis products.
The one thing we haven't done as good a job as some of our peers is acquiring multiple licenses. This has historically slowed our growth and is why the Florida license is such a great fit. It allows us to open as many stores as we want, unrestricted by licensing issues. One of the big differentiators for us in Florida is that we have strong relationships with a lot of popular West Coast brands through store and premium branding and product placement relationships. We anticipate bringing some of those brands with us into Florida, along with our extremely popular Trendi, Dreamland and HaHa brands, giving us a competitive edge in both diversity and quality of products.
I'm extremely excited about the Florida opportunity, and I plan to personally move to the state full-time in the near term to oversee and guide our expansion expectations in the market. In Nevada, we expect the lounge regulations to be finalized by the end of this year or early next year. We started on the back-end design, but we are waiting for the final regulations to be adopted before we really dive into construction in earnest. We also expect to receive approval for the next phase of our cultivation expansion here in Nevada, and plan to start construction on that facility in early Q1 of next year. It will be great to be able to offer more of our popular Medizin branded flowers in both the SuperStore and our neighborhood locations. At the start of the year, we had operations in only Nevada.
By the end of this year, we will have secured licenses in four states and expect to have a meaningful presence in all four by the end of 2022. We are well on our way to achieving our five-year objective of having eight or more superstores in strategic tier one markets, supported by networks of neighborhood stores and cultivation. We also still have over $70 million in cash to pursue cost-effective M&A that increases our vertical integration in California, our build-out in Florida, both on local dispensaries and our cultivation assets in Nevada, and pursue opportunities for new superstores, the next one planned for Chicago, as mentioned earlier. We have an incredibly solid base of operations in Nevada and are growing multi-state in a significant way, as mentioned. This positions us for a very exciting 2022 and beyond.
With that said, I again would like to thank everybody for participating in today's call, and I would now ask the operator to open the line for questions. Thank you.
Absolutely. Thank you. Ladies and gentlemen, the floor is now open for questions. If you have any questions or comments, please indicate so by pressing star one on your touch-tone phone. Pressing star two will remove you from the queue should your question be answered. Lastly, while posing your question, please pick up your handset if listening on speakerphone to provide optimum sound quality. Please hold while we poll for questions. Your first question is coming from Doug Cooper from Beacon Securities. Your line is live.
Hi, good evening, everybody. Why don't we start off in Nevada? Larry, I just wanna make sure I heard you right. I think it was $22.3 million from the SuperStore in the quarter. Is that right?
Yes.
Okay. That was down slightly from Q2 by my notes, $24.3 million. You mentioned obviously the reasons. You know, as you look into 2022, if everything comes back as expected with the increased floor space, you know, increased the number of cash registers and so forth, what do you think this asset can do in 2022?
Of course, it was $22.6 million. I think you said $22.3 million.
Okay.
Um.
$22.6 million. Okay.
Well, again, if you remember, I don't know if we have talked about this a while ago. August, we saw 100,000 people through the store in one month. September, we hit 120,000. October, we had 130,000. So I guess if you wanna do the math on that, it's continuing to grow. We get the conventions back, we're expecting a significant increase. But even with COVID here, and plus they're in Las Vegas, only about 75% during those three months at the most with the tourists coming back to Vegas, we're still increasing by that much.
Mm-hmm.
We're still expecting a lot.
Well, Doug, if I can add to Larry's point, one of the things that has changed considerably here, you know, we weren't allowed to cater to international tourists until the last few weeks. You know,
Good point.
For the most of the year, we've seen zero international tourists. We see some significant upside there as we close out the year and start moving into early next year.
Okay. Bob, you mentioned the lounge. We'll see what the regulations are finalized. Let's assume they're finalized in Q1, and then you can start immediately constructing. Is that the plan? What's the budget on that, and what's the timeline? That would be sort of finished construction the end of 2022, and then open 2023. Is that the sort of idea?
Yeah. As far as the CapEx required to build that, I'm gonna kind of hold off on that now, Doug, 'cause we're designing it now, so we really don't want to guess. We'll certainly update shareholders when we get that finalized. Timing-wise, again, we're hopeful, as I said, you know, that we get adoption of final regs here by the end of the year or in Q1. Let's assume that happens by the end of Q1. You know, the construction timeline, you know, we're estimating is probably gonna be six to nine months at least. As we experienced here in the expansion of the SuperStore. The latest expansion, we had significant delays due to COVID and supply chain issues. You know, we don't see that improving here in the near term.
We could anticipate that going upwards, you know, into Q3, maybe in Q4 of next year before it's finally open. Again, we're gonna move it as aggressively as we can. We're designing the facility now in anticipation of the regs, being finalized. You know, we're gonna move as quickly as we possibly can.
Okay. Just before I leave Nevada, and with the new owner of your facility across the street, any comments or ideas what their plans are for and what it might mean for increased competition or just any thoughts on that?
Welcome to the neighborhood.
Also, Larry, I'll just add too that we, you know, we welcome them like Bob just said, and we'd like to have this corridor as the Amsterdam of cannabis for Las Vegas. It'll draw even more and more and more people.
Okay. Thanks for that, Larry. California, so $2.4 million in sales in the quarter, that was open the entire quarter, I guess. Are you seeing you know, how did that ramp from July through September? How has it been, you know, in the first month and a half of Q4?
Dennis, we'll let you speak directly to that, please.
Yeah. Doug, it's been pretty consistent. There's been some small growth, kind of 3%-4% growth month-over-month, and that is continuing into October and November, like, Vegas is a bit softer. I think it's gonna come in between, you know, $800-$850 a month for Q4.
$800, $850 a month in Q4. Okay. Like, what is gonna be the sort of, to bust it open in terms of, you know, in terms of, people, I guess, you know, the locals have to know it's there. They gotta, you know, get there. What is your expectation in, you know, how quickly this can ramp? I mean, it's obviously starting, as you said, it's starting off slower than expected, maybe you can give us some indication of your expectations for this in 2022.
Well, Doug, it's Bob. Obviously, I'm still very bullish on Santa Ana. It's, you know, so COVID has had a greater impact, particularly on the tourist market in Southern California than even here in Vegas. You know, again, I don't like to use that as an excuse, but it's just a reality, and it's had a meaningful impact, you know, to everyone down there. Of course, now with the seasonality, we're out of the beach season, so there's really not a lot of play there. We're just gonna keep plugging. We're trying to build the delivery platform. I think that's important. As Larry mentioned in his comments, I think once the freeway improvements are completed down there, I think it's gonna open things up quite a bit as well.
It's just a function of identifying those markets and targeting them. The other thing we're combating in California, of course, is just, you know, there are a lot of stores there, and there's still a lot of legal operators. You know, some of that's out of our control. I think, you know, our philosophy is still true. Once we get you to the store, you're gonna be coming back again. We're excited about that. People like it once they see it.
Just moving on to Florida then. You have to have the six dispensaries open and the cultivation within twelve months. Did the clock start ticking on that since you closed it October first? Is that the sort of deadline date? I guess, when can you give us a bit firmer timeline on when you think you'll be producing revenue in Florida?
Dennis, why don't you jump in on that, please?
Yeah. Doug, the clock started ticking on closing, the first piece of that is obviously getting the cultivation up and running, which we are in process with now, finding, as Bob mentioned, we've got a team on the ground, scouting out locations. I know Bob and Larry and the team have been down there several times. We do have some locations lined up. Meaningfully, it takes 12 weeks to get a crop off, so I was looking at probably no earlier than Q3. Most likely probably won't see revenue till Q4. If I have to guess on that one, that's sort of on the timeline.
Okay. Just finally on Illinois, you expect the license, I think you said in the first half. I think that's what you said, guys?
Yes. I did.
Can you get the location prior to receiving the license and start building? Would you expect that to be open in Q4 as well, or is that a 2023 thing?
No, no. We're hopeful it'll be a 2022 thing. The, you know, a mid-year projection obviously can move up considerably. The reason we've referenced that timetable, Doug, is just because of the outstanding litigation. We've got pending cases, so everything's kind of bottlenecked until that's resolved. That being said, we've moved forward. We're aggressively looking at multiple locations, and we intend to secure one for the SuperStore here shortly. You know, that obviously, you know, that relationship will be contingent upon the licensing licenses issuing from both the city of Chicago and the state. Again, it's a process, and we'll get there and we're comfortable that, you know, once those final approvals are issued, we'll be well on our way to getting a store open.
Okay. This is my final one, then I'll jump back in the queue. $70 million in cash remains to, I guess, open Florida, open California, open Illinois, and continue to fund some losses in California. You think you have sufficient cash, I guess is the question.
Yes.
Yeah.
Doug, it's Dennis. Yeah, we do have sufficient cash. I would also point out, like we are looking at rightsizing California to the current, you know, revenue run rate until that freeway, you know, gets revamped and we can ramp up the distribution. I don't expect to, you know, continue to lose the money that we lost in Q3 go forward in California, so.
Hey, hey, Doug, it's Bob.
Yep.
Let me just go back and clarify one thing.
Go ahead, Bob.
With respect to Chicago, our license is not encumbered by litigation right now. I just wanna be clear with that. Our license is clean. It's the process that's being held up. The state's not permitting or approving applications until that litigation is cleaned up. It's really a function of the state getting that resolved. We're moving forward in all other respects.
Great.
Thanks very much, guys.
Yep.
Once again, if there are any remaining questions or comments, please indicate so by pressing star one on your touchtone phone. The next question is coming from Greg Gibas from Northland Securities. Your line is live.
Hey, good afternoon, guys. Thanks for taking the questions. You mentioned G&A being the high watermark in Q3 here. How should we expect that to trend maybe as a percentage of revenue going forward?
Well, Greg, it's Dennis. You know, the dollar value is gonna come down quarter-over-quarter, and then it's just gonna depend on how quickly we can ramp the revenue to get that percentage. You know, we have had one-time costs, as we indicated in this quarter, to the tune of about $1 million related to you know, the U.S. domestic corporation conversion and the state bonuses that we had to pay people. And again, we are going through optimizing our spend and you know, making judicious cuts where we can to continue to enhance that margin profile at the EBITDA level in Nevada as well as California.
You know, I think you can see, you'll see the overall G&A come down and then as a percentage of revenue, you know, depends on where revenue goes so.
Okay, got it. You know, do you guys have a sense of when the freeway construction issue will be complete or subside?
Greg. Hi, it's Bob. Yeah, we were told, well, about several months ago when we contacted the state that they were looking between 14 and 18 months for that project until, you know, it was completed or substantially completed. They said that that can move. That's really the best we had from Caltrans.
Okay, got it. You know, if I could follow up on Florida, you know, given that state's kind of in land grab mode right now, are you seeing a lot of attractive opportunities there? Just, you know, wondering if you can provide some color on, you know, maybe what markets are attractive and, you know, how many opportunities are still available? And I guess, you know, maybe when we would see your first location being announced.
Okay. Well, that's. Let me take a stab at that. The entire state looks attractive to us. We're obviously longer term on the super stores, probably gonna focus in on, you know, three of the larger metro areas, that being Miami, Dade County, the Tampa Bay region and of course, Orlando. But as far as the traditional neighborhood store goes, you know, our the Medizin model that we referenced, we can see that, you know, that fitting well in, you know, 15 or 20 of the larger cities in the state. I mean, the beauty of Florida is it's just got a very large population. We're real excited about that. We've looked at already, you know, probably, you know, 10, 15 sites, potential sites.
From a timing standpoint, I'm guessing we'll be able to announce something here soon. We've identified a couple that we think are very attractive. It's just now a function of getting the paperwork in place. We're excited and we think when we do make the announcement, our shareholders will be very pleased.
Yeah, the only thing I'll add, this is Larry, is that we're looking at everything. We're courting a lot of people also in Florida private operators that would like to do a merger possibly with Planet 13. If that happens, of course, it gives us a jump-start on that, but everything has to be checked out, but it looks very promising on a number of fronts. Whether we do that or nothing really works out that we think is a good buy and good fit for Planet 13, we'll still always move ahead with the stores, like Bob said, and the grow and then the stores, and the neighborhood stores.
Okay, great. Look forward to updates there. Thanks, guys.
Yep. Thanks, Greg.
Once again, if there are any final questions or comments, please indicate so by pressing star one on your touchtone phone. Once again, that's star one if you have a question or a comment. Okay, the next question is coming from Robert DeSantis, Private Investor. Robert, your line is live.
Hey, how's it going? Wanted to congratulate you on the quarter and everything that you've been doing. I had a quick question regarding Vegas' expansion. I know you have the option, I believe, to buy the lot next door, which would double the space. I saw recently that you have plans to make a cannabis museum, which I think is a fantastic idea, to bring in other types of possibly maybe an older generation that hasn't possibly been to marijuana as much when they go to Vegas. But you also have the lounge, and I'm curious if you have anything else in the works that's, you know, sort of, to build out that and make it this massive marijuana complex beyond what you already have going.
Robert, this is Bob. Thanks for the call. With respect to the lounge and the museum, they're basically going to fill out the balance of our facility here, the main facility, 112,000 sq ft. As I said earlier, you know, we're working on the lounge regulations now and doing our design work. Same with the museum. That'll be a third-party space. They are working, you know, very diligently with our architects and designers to put something together. We're going to label those as phases four and five respectively. My guess is they'll both probably commence construction within a very short window of one another. That will comprise the balance of the complex, as I said.
Now, with respect to the location next door, that isn't a purchase option. If we secure that property, it'll be a lease. Yeah, we are looking at that, and to incorporate into the complex. It'll be a valuable addition to what, you know, we want to do. Again, it's, you know, we've got to finish out phases four and five here in the main building first.
Awesome. Then one follow-up on the lounge. You probably, I'm assuming you're not gonna be able to answer this, but you, as a company, seem to have the building or the makings of sort of like really cornering you. Like, you know, you have the Ricky thing in OC. You obviously have, like, Lil Wayne, you have Mike Tyson. You're cornering a lot of this market already in sort of the sports entertainment world with sort of brand partnerships and exclusivity. I'm curious if you have any plans to or if there's anything you can expand upon in maybe how you plan on utilizing those connections and exclusive deals with like these people that have massive followings, maybe in the lounge aspect or like a concert aspect for in any regard to that moving forward.
Well, again, this is Bob. Good question. I do think we'll obviously leverage those relationships to the extent we can to drive traffic to the lounge. There's been a lot of interest. Yeah, I can't go into much more detail on that right now, Robert, but stay tuned because it's pretty exciting. It's gonna be an amazing venue.
Okay. There are no further questions in queue. That's all the questions we have time for today. Thank you, ladies and gentlemen. This does conclude today's conference call. You may disconnect your phone lines at this time and have a wonderful day. Thank you for your participation.