Good day, everyone, and welcome to today's Planet 13 Q3 2024 financial results. At this time, all participants are in a listen-only mode. Later, you will have the opportunity to ask questions during the question-and-answer session. Please note today's call will be recorded, and I will be standing by should you need any assistance. It is now my pleasure to turn the conference over to Mark Kuindersma with Investor Relations for Planet 13. Please go ahead.
Thank you. Good afternoon, everyone, and thanks for joining us today. Planet 13 Holdings' third quarter 2024 financial results were released today. The press release, the company's quarterly report, 10-Q, including the MD&A and financial statements, are available on the SEC website, EDGAR, and SEDAR+, as well as on our website, planet13.com. Before I pass the call over to management, we'd like to remind listeners that portions of today's discussion include forward-looking statements. The forward-looking statements in this conference call are made as of the date of this call. 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. Risk factors that could affect results are detailed in the company's public filings that are made available with the United States Securities and Exchange Commission and on SEDAR+.
We encourage listeners to read those statements in conjunction with today's call. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliation to the most directly comparable GAAP measures, please refer to today's press release posted on our website. Planet 13 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 Larry Scheffler, co-chairman and co-CEO; Bob Groesbeck, Co-chairman and Co-CEO; and Dennis Logan, CFO. I'll now pass the call over to Larry Scheffler, Co-chairman and Co-CEO of Planet 13.
Good afternoon, everyone, and thank you for participating in our third quarter call. I will start by discussing our performance in the quarter before turning it over to Dennis to go through our financials and Bob to discuss our strategic initiatives. Turning to our performance in the quarter, in Q3 2024, the SuperStore generated $13.4 million. Looking at the Las Vegas tourism stats, visitors to the city were down 3% sequentially, and the average spend was down 7%. This mirrors what we experienced at the SuperStore during the quarter, with the consumer under pressure. We're also seeing a lot of competition from Delta 9 and dangerous intoxicating hemp derivatives that have seen rapid proliferation and are readily available in mainstream channels more than ever before.
This will continue to be a challenge that we'll fend off by differentiating ourselves both from other dispensaries and hemp products through focusing on product quality and entertainment experience. Revenue from our neighborhood SuperStore increased to $15.4 million, a 25% sequential improvement driven by a full quarter of contribution from our Florida operations. During the quarter, we saw a seasonal slowdown from a Florida neighborhood network. Historically, VidaCann has experienced weaker Q3 results due to challenging summer growing conditions. As Bob will discuss later, we've already implemented measures to address this for the future, including upgrades and improvements to their cultivation facility. This, combined with traditional seasonality for snowbirds, contributed to a softer quarter, softer than we expected from our Florida operations going forward. Outside of Florida, our operations in Illinois continue to mature and grow. They were up 6% sequentially.
We saw small markets-related declines in Nevada and California neighborhood stores retail, mainly driven by weaker consumer behavior in both markets. Between the SuperStore and our neighborhood network, we generated total retail revenue of $28.7 million compared to $27.4 million, a 5% sequential increase. We generated $3.4 million from wholesale, lifestyle, and other. According to BDSA, we moved up to the third most branded sales of any company in Nevada during Q3, up from fifth, and ranked second in edibles portfolio sales that were led by our HaHa gummies. This demonstrates that despite the slightly lower wholesale revenue, we've been successful in moving more of our brands through our own shelves. This trend should only improve as we close the acquisition on additional dispensaries in Nevada. With that, I'll pass it over to Dennis to discuss our financials.
Thank you, Larry. Before I begin, I'd like to remind everyone that all the numbers on today's call are in US dollars unless specifically stated otherwise. In Q3 2024, Planet 13 generated $32.2 million in revenue compared to $31.1 million in Q2 and $24.8 million in Q3 2023. The sequential and year-over-year growth was driven by the full consolidation of Florida for the quarter. For context, Florida contributed $7.2 million to our consolidated financials revenue line in Q2 2024 compared to $10.5 million this quarter. This additional contribution from Florida was partially offset by some consumer market pressure, mainly in their Nevada operations, that experienced the declines. Larry mentioned in his comments lower traffic numbers and lower average ticket at the SuperStore were the primary drivers of the decline in our operations outside of Florida.
In Q4, we anticipate revenue to be flat or slightly down in all markets with the exception of Florida. In Florida, we expect revenue will improve as we put the product quality issues we experienced over the summer months behind us. This improvement will be muted somewhat due to the closure of several stores in our Florida network for several days during the quarter due to the impacts of hurricanes Helene and Milton. In Nevada, the seasonally slower fourth quarter is expected to modestly impact top-line performance in that state. Gross profit was $16.7 million in Q3 2024 compared to $15.8 million in Q2 2024. This translates into a gross margin of 51.9% in the quarter compared to 50.1% in Q2. Since Q4 of 2023, we've improved gross margin by over 400 basis points through three main drivers.
First, by increasing the percentage of our own branded products that we're selling through our own stores. You can see this interplay in our improvement in branded product market share in Nevada and the purposeful decline in wholesale revenue in that state. Second, the team has done a tremendous job across our facilities in improving yields and potency. Bob will talk more about these improvements specifically in Florida, which should have a meaningful impact on future quarters. And third, the inclusion of a fully vertical and higher margin Florida revenue has also had a positive impact on overall gross margin. We are dealing with the reality of continued pricing pressure across all of our markets and are working diligently to maintain gross margins in the 50% range through continued efficiency improvements that are expected to offset pricing pressures.
Sales and marketing expense was $1.6 million during the quarter, up from $1.5 million in Q2 2024. As a percentage of revenue, sales and marketing was consistent at 5% of revenue. We are comfortable maintaining this level of sales and marketing expenditure, deploying it strategically towards priorities such as wholesale growth, new dispensary openings, brand awareness, and general marketing initiatives to drive consumers to our stores. During Q3, the company spent $14.8 million in G&A, up from $12.3 million spent in Q2 2024. This higher spend is directly related to the full quarter of consolidating our Florida operations. We anticipate G&A to level off with only marginal increases as we open new dispensaries both in Nevada and Florida. We generated $1.3 million of adjusted EBITDA in the quarter compared to $3.2 million in Q2 2024 and $0.2 million in Q3 2023.
This quarter's EBITDA margin came in below our projected sustainable levels, driven by lower operating leverage in both Florida and Nevada. As we improve our operating leverage, we expect to see meaningful improvements in our adjusted EBITDA margins. As of September 30th, 2024, the company had a cash balance of $29.5 million. This includes $2 million of restricted cash related to the El Capitan matter. In the quarter, we generated approximately $2.9 million in operating cash flow, covering the cost of our CapEx, which totaled $2.4 million. The CapEx was directed at high ROI projects to upgrade the quality of our product from our greenhouse facilities in Florida and to open additional dispensaries in that market. Currently, we have between $2 mliion-$4 million in additional CapEx planned for the next 12 months and $4 million committed to the purchase of a dispensary in Nevada.
We look to supplement this CapEx spend to add a component of indoor cultivation space in Florida, and we will update the market once the budget for that initiative is finalized. The company has approximately $3 million in bank debt due in February 2025 and $5 million in notes payable under the terms of the VidaCann acquisition due on April 1st, 2025. We also have $1.5 million in notes payable at the VidaCann level that mature in 2029. We anticipate cash proceeds from the sale of surplus land and equipment in Florida, coupled with positive cash flow from operations and cash on hand, as well as potential refinancing initiatives that should be sufficient to fund debt maturities over the next 12 months. And with that, I'll turn the call over to Bob to discuss the execution of our growth plan.
Thank you, Dennis, and thank you everyone for participating today. At the start of the year, we introduced a multi-pillar growth strategy to increase both our wholesale and retail revenue over the next couple of years. Let me review how we are executing against each pillar. The first pillar of our retail growth plan was Florida. When we made the acquisition, we saw the pathway to continued growth in this state regardless of the adult use question, given the attractive structure in Florida for growth. Unlike most states, we continue to open new stores to drive growth and earn high margin fully vertical revenue. Subsequent to the quarter, we completed the expansion of upgrades of our greenhouse facilities. As Larry highlighted, this was necessary to improve yield, potency, and quality of our flower, especially during the difficult summer months.
The upgrades we've made increased our square footage of cultivation by 25%, expected yield by up to 40%, and improvements in potency and quality. We've begun planning in those rooms, some of them with our proprietary genetics from California and Nevada, and expect to see that this will be a meaningful driver of improvement in Q1 and especially in Q3 of next year on a comparative basis. Furthermore, we are working to secure indoor cultivation, which will position us to compete across the entire product portfolio of good, better, and best offerings. These improved yields are of paramount importance as we continue to grow our store network. This leads me to the second pillar of retail growth, which is expanding our neighborhood store network.
We've opened two additional dispensaries since closing the acquisition and have six more in the pipeline, either waiting for final approval from the state or in finishing stages of construction. In any event, we expect all to open by the end of this year. During the quarter, we made significant progress toward our previously stated goal of expanding our dispensary footprint in Nevada through cost-effective M&A. We have acquired a dispensary that is complementary to our current Nevada operations for $6.9 million, which is accretive on a price-to-sales basis. This dispensary is a perfect fit for our Nevada footprint with a separate customer base. We'll be able to move more of our branded products to the new shelves, increasing gross margins and benefiting from operating leverage on other expenses. We are waiting for the final approval of the license transfer from the state to finalize this acquisition.
The third pillar of our retail growth plan is continuing to leverage a SuperStore as a one-of-a-kind lifestyle experience and brand-building platform. We just announced hiring of Jillian Austin to help spearhead a deeper effort in creating a one-of-a-kind lifestyle experience, not just at the SuperStore, but across our retail footprint and our lifestyle brand. She will also oversee celebrity partnerships and brand launches as we double down on being the platform of choice for launching brands like Khalifa Kush, Tyson Ranch, and others. The second part of the growth plan is growing our wholesale business. As Larry mentioned, we've moved into the third highest market share of Nevada branded sales and second highest for edibles. We've launched our popular HaHa branded gummies into the California market during Q3 and are on the verge of launching in Illinois now.
You can also see how our growing reputation as an entertainment destination intersects with our wholesale growth as we are increasingly being chosen to help celebrities launch their brands in new states. This includes the exclusive cultivation and manufacturing and sales agreement with Khalifa Kush in Nevada. At the end of July, we launched our lifestyles brand worldwide. The strategic initiative strengthens our relationships, enables cost-effective advertising, and fosters a deeper connection with our customers and fans. As part of this launch, we rolled out our marketing campaign featuring UFC fighters, Chito Vera, and Polyana Viana. We are focused on leveraging the Planet 13 brand, our celebrity relationships, the new lifestyles brand, and our entertainment attraction in innovative ways to drive increased traffic to the SuperStore, our neighborhood locations, and Planet 13 brands like HaHa Gummies.
To conclude, we are continuing to execute on an exciting two-pronged growth strategy. We're making significant progress against difficult headwinds. We've increased revenue by 30% year over year on our setup for positive growth in 2025. We're innovating as a cannabis entertainment and lifestyle company to create a national brand with substantial underlying value. And we're increasing operating leverage to become more profitable and generate more cash. And again, I thank everyone for participating, and I pass the call back to the operator.
At this time, if you would like to ask a question, please press the star and one on your telephone keypad. You may withdraw yourself from the queue at any time by pressing star two. And we'll take our first question from Doug Cooper with Beacon Securities. Your line is open.
Hey, good evening, guys. This is sort of go around the geographies quickly, just California. What's the update there in terms of how it performed in the quarter?
Hey, Doug. I wasn't expecting you on today, but so glad you could make it.
Good to hear.
So yeah, I'll talk to you about the different geographies as we go through. Bob and Larry can update on the initiatives in that market in terms of how we're trying to turn it around. Just give me a second here to pull up my file. All right. So California, if you look at relatively from a quarter over quarter, Q2 to Q3, we're down about $110,000 in revenue there. So it's stabilizing in that market. If I look across from Q3 of 2023 to Q3 of 2024, we're down about $350,000 in revenue. So some pricing pressure there. That's at the retail level. There's also California wholesale. California wholesale, if I go year over year, sort of $2 million - $2.7 million. So there's some pricing pressure on the wholesale front.
We are trying to mitigate that, changing different strains, providing the market with what it wants. We do continue to sell 100% of the product that we produce out of the Coalinga cultivation facility, and working at mitigating excess costs in the California operation, reducing some of the space, trying to find new initiatives to drive additional traffic to that location. And Bob, do you have anything you want to add on California?
I'd just add that, as I mentioned in my comments, with HaHa now entering into the wholesale market, we've seen a really positive reaction to that. We think that that's going to grow nicely, and again, with Trendi already in the market, so as we start to roll brands in on the wholesale side, I do see some upside. At the retail level, it's going to be a continued challenge with that store and increased competition in Orange County, and of course, an illicit market that government doesn't seem to have any interest in curbing, but that said, it's a nice store.
We're looking at some partnering collaborations potentially developing there. Hopefully, we'll have some news here in Q1 to announce on that, but we still think there's upside, and if we can get on-site smoking approved, we think that'll be a very positive moving forward. So we're working diligently to get approvals in that respect.
Okay. Illinois quickly, just before we move to Florida.
Yeah. So Illinois, if you compare, obviously, we weren't open in Q3 of 2023. Sequentially, we were down about $100,000, Doug. So, sorry, we're up $100,000 in Illinois. My apologies. Sequentially, we're $1.5 from $1.4, and then up from $1.1 in Q1 and $300,000 in Q4 of 2023. So Illinois seems it's continuing to grow. Lots of great initiatives happening in that state. And we see some future upside as well as we're introducing our wholesale brands into that state. The HaHa line is going in there. I'm not sure exactly when it's going to be launched. Probably Q1. We may get it launched in Q4 of 2024, but Q1 for sure. So we should see some decent upside there in Illinois, both at the retail level as it continues to perform and continues to build out and as we get those wholesale products introduced.
Again, just before we move to Florida, the Nevada dispensary you guys are in the process of acquiring. Where is it, and what's the revenue of that dispensary?
Yeah. So I guess the timing is the key one there. We've applied for the transfer of interest with the CCB. We're waiting to get assigned an inspector. Should have an inspector assigned sometime in November and probably get on the CCB meeting list. Optimistically, December. Realistically, probably January. So I would say we would probably close that acquisition sometime towards the end of January. Really, not looking at it for what its current performance is. It's 100% retail with no vertical integration. We envision turning it into an outlet for some of our flower that we're currently pushing in the wholesale market. So I would say it's more like a Nevada neighborhood store.
We'd probably see it generating $2 million-$2.5 million a quarter, similar to what we're getting out of the Medizin store. Location-wise, it's right across from the Palms, directly across the street from the Palms, and it has a drive-through. So while it closes the door for foot traffic and drive-in traffic, we get drive-through all night. So it's sort of from 10:00 P.M. until 4:00 A.M. So it's a decent location.
Dennis is across from the Palms, not the Sands.
Oh, sorry, the Palms, not the Sands. Sorry, Larry. I get my resorts mixed up.
Okay. Sorry, Dennis. The Palms.
Yeah, and moving to Florida, so obviously disappointment all around on the initiative that didn't get voted in. When is the next possible time that that can be voted on? Is it another four years?
Bob, you can take that one.
Yeah. I think they can do it unless there's a constitutional prohibition. I think they can bring it back in two years.
Two years?
Right. But I think, Doug, what they could do, it depends on what happens, I guess, in December when they talk about Schedule I to Schedule III. The governors and the legislators can actually still pass the law. They don't have to go through a vote. Truly, if you wanted to go through the vote. They can do it legislatively whenever they want to.
Just remind me, who set the 60% threshold? I think every other state was 50%. Am I right?
They didn't vote on it last year.
No, no. 2006, the legislature voted on a 60% threshold for all public initiatives. And so it's very difficult to get an initiative passed in Florida. And it was done on purpose that way.
Yeah. Yeah. So what do you think this means for selling your land and buildings? Is that going to cause an issue? Presumably, somebody maybe wanted to get in there because of the adult use initiative being passed or if you sign an LOI, or maybe you could just talk a little bit about that.
Yeah. On the building front, we've got an LOI signed with another potential operator, but that's just for the building piece of it, Doug. I still think that goes through existing operator. Then the land, although it's zoned cannabis, it's zoned for cannabis use. The party we sold our Florida license to is still operating on that property right now. We expect them to be finished probably sometime in November as they move to their own location. Then we'll sell the land to whoever. So it's industrial use. It's a lot.
So it doesn't have to be cannabis.
No, no. It doesn't. No, no. Not at all. In fact, I anticipate it'll be a non-cannabis buyer. It's a pretty popular corridor. It's got close proximity to [U.S. 75]. It's a nice piece of dirt. It will sell. And there's a lot of activity going over there in the region. I drove the area just last week. A lot of growth toward the area.
Okay. And maybe my final one, just obviously, there's a lot of potential if the legislation passed to be adult use. What do you think happens in terms of the competitive landscape in terms of build-out of storefronts, not just you, but everybody? Do you think people slow it down, or what happens?
Yeah. No question. We're going to see a significant slowdown. But let me go back to your first question. I'm not optimistic that there's going to be a legislative solution here. Let's just be clear about that, at least in this session, particularly with a strong governor who came out aggressively against the question. But we're going to continue to pursue that avenue. But let me tell you, Doug, I mean, it's obviously disappointing for all of us that are operating here in the space. But for us, I think it's an opportunity. It allows us. We're fortunate that we're not laden with debt. We're still nimble. We've got the opportunity to continue building out the store network. We're going to continue to do that. There are a number of operators down here in the space now that I think are highly overleveraged.
They're going to have to rein in their expansion plan. And that creates opportunities for us. So I've told my team down here that there's nothing but upside for us here on building this network. And I'm confident at some point it will transition to adult use. But there's still the potential to do really well here in the medical market. We just need to take advantage of the opportunity.
Yeah. Because I noticed, obviously, one of your peers, publicly traded peers, I think was down 80% or something after the news. So I think they're fairly levered, I think. So I think you're absolutely right about the balance sheet.
Yeah, and Doug, just to bring that point home on our existing store network, 27 stores, that we're growing to 32 hopefully by the end of this year. If we can bring those stores up to sort of the state's average revenue per store, we've got double the revenue potential that we currently have, so now, I don't think we'll get there overnight. I think as we make these product quality improvements and the CapEx we put in the greenhouses starts to bear fruit and we get our Planet 13 strains into those new stores, get the stores branded Planet 13 so we can actually do some coordinated marketing, I think we'll see a big uptick in the Florida revenue as we move forward into 2025.
Maybe just my last one. Just on the regulatory front, a lot of companies have chosen not to stop paying 280E tax. I think you guys were amongst those. What is your thought process on where that stands these days? The new administration comes in. I don't know if it's going to be a top priority. They have a lot of other things on the agenda these days, I'm assuming. So just in terms of 280E, what do you think happens there?
Well, let me turn my crystal ball back on here. That's a great question, Doug. I think government is going to continue to move in a snail's pace at the federal level. But I think at least we saw from both parties in the run-up to the last election that they're both supportive of cannabis reform. And it was encouraging to have the president-elect actually go out publicly and support Question 3 in Florida. So I have no reason to think that he's going to deviate from that in D.C. So my guess is there'll be some movement toward 280 reform, rescheduling, and potentially even some type of banking catalyst. It's not the president that has me concerned, though. It's more the Senate, the composition of the Senate. So we're going to have to wait and see how these people respond.
But keep in mind, the current administration is here for another until January. So they've got the opportunity with the FDA to continue with these hearings. If they don't punt again, there's an opportunity to actually get some meaningful change on at the administrative level. So see where things are.
Just remind me, where does Kennedy stand on cannabis? If he gets to control the FDA and the health, where does he stand?
Yeah. That's a good question. I don't know where he stands on that. I don't have a real clear sense of what his position is. But what I do know is he's not been vocally in opposition. And that's encouraging, so.
Right, and I guess just in the short term, I think some of your competitors have run up big bills on the 280E unpaid taxes, right?
Right.
Dennis, maybe just remind me. You said your balance sheet was, I think, $28 million in cash, including all the CapEx that you have, plus the notes coming payable in 2025. And if you had to pay the 280E, where do you stand on the balance sheet on the cash side? And then I'll leave it there.
So I'll give you that. Income tax is payable right now. We're sitting at about $15 million, $15.5 million on the balance sheet. I think we can refinance the bank debt that's due in February, likely be able to refinance the $5 million note that's due on April 1st as part of that VidaCann acquisition. And then the $4 million in cash, we pay out of our cash of, call it $29 million. We'll pay $4 million on the closing of the Exhale transaction. Really, the tax payable piece is a big nut. We have followed our competitors in refiling amended returns for 2020 to 2023. And if we go according to where they have gone, we should see a $35 million tax refund that the IRS will then fight us for.
So it's going to depend on a bunch of different outcomes there, Doug, and especially in the DEA on if they follow through and come out early December on the rescheduling front, then we'll have a better idea of where that shakes out.
Okay. Well, I guess maybe just final, final one. Just El Capitan, where do you think that stands and how much money can you get anything back? You have some restricted cash, obviously, there. But where are we standing now?
We've actually had some, yeah, yeah, yeah. We've had some pretty significant negotiations occur over the last 60 days. I'm optimistic that we're going to be able to claw back a good portion of that here over the next two or three months. We've identified potential channels for recovery. We've identified actual cash or cash equivalents that we can trace back to our money. Now it's just a function of getting the attorneys around the table and trying to work out a settlement agreement.
Okay. Okay. Great, guys. Appreciate the time. Thanks very much.
All right. Thanks, Doug.
Thanks, Doug. Good talking to you.
We'll move next to Yewon Kang with Canaccord. Your line is open.
Hi. This is Yewon Kang for Matt Bottomley. Thank you for the question. Just wanted to ask about you guys obviously have a very strong balance sheet, no debt. Just wanted to see if you can provide any color on the risk-benefit profile of some of the growth initiatives that you guys have outlined as part of your prepared remarks versus perhaps getting into a market that is currently medical-only, that is continuing on adult use regulation in the near term, such as Delaware or Minnesota. Just wanted to see how you guys are thinking about those opportunities. Thank you.
Yeah. I'll take it first, Bob, and then you can jump in and weigh in correctly where I go astray. But we are focused, as Bob mentioned, on Florida first and foremost, building out that store network. Then second, we're launching our wholesale brands into Illinois. I don't see us looking at other medical-only markets. None of them seem to be as robust as the Florida opportunity is. Given that we are focused on Florida and our existing markets, I would say you'll see us spend our money in Florida, in Illinois, and put possibly additional retail in Nevada. I don't see us going outside of that. But Bob, you can correct me if I'm wrong.
Yeah. No, no. I agree. And Larry can jump in as well. I don't really see us venturing anywhere into a medical market right now. Our focus is entirely on Florida. And as we've said before, there's a lot of upside here for us. We're still very bullish on the state and the opportunities for the company. So we're going to continue to build out the platform.
Yeah, and let me just elaborate that. Even though Minnesota's recreational, Minnesota's laws are screwed up terribly. I'm from Minnesota. You can't even buy flower. Any normal dispensary has to go to an Indian reservation to buy flower. You can only buy the edibles and non-flower products in a regular dispensary. It's different than every other state. It's kind of really restrictive.
All right. Thank you, Dennis. I'll pass on the line.
Thank you.