Hi everyone, and welcome to Planet 13 Holdings' 2021 second quarter financial results conference call. As a reminder, this conference call is being recorded on August 26th, 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 thanks for joining us today. Planet 13 Holdings' second quarter 2021 financial results were released today. The press release, financial statement, and management discussion and analysis are available on SEDAR, as well as on our website, planet13holdings.com. Before I pass the call over to management, we would like to remind listeners that a portion of today's discussion could 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, the 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, and 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. Management disclaims any intention or obligation to update or revise such information except as required by applicable law and 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.
Hi. Good afternoon, everyone. Thank you for participating in our second quarter call. Q2 was a great quarter for Planet 13, with our Nevada operations firing on all cylinders and our California expansion being completed on time and on budget. I'm going to discuss our performance in Nevada and have Bob provide an update on California and our other growth initiatives later on on the call. The Las Vegas Superstore is coming up on its third year of operations this November. It's been amazing to watch it grow. For the first couple of months, when we were doing around $3 million a month, and now to over $9 million a month from just the Superstore and delivery. Month- by- month, we have perfected the customer experience, upgraded and added new entertainment, and built a reputation through advertising, word of mouth, and customer social media.
The Superstore has cemented itself as a must-visit for any trip to Las Vegas. We're not done. We've grown our share of Nevada retail sales every single month in 2021. In May, the last month with available data, we reached 11.1%, our highest share ever, including pre-COVID. We'll finish the retail store and expansion of the Superstore dispensary space in mid-September, providing a further boost to the customer experience and overall throughput potential, which is absolutely necessary on our busiest days. Breaking down the drivers of Nevada revenue, in Q2, we generated $24.3 million from the Superstore, $3.3 million from curbside and delivery, $3.3 million from MEDIZIN, and $1.9 million from wholesale for a record quarter of $32.8 million. A 37.8% increase sequentially over Q1 2021, and 205% increase over Q2 2020.
The largest growth driver, not surprisingly, was in-store sales, which have seen continued strong performance as tourists have returned. We continue to make improvements to throughput, customer entertainment, the diversity of products, and the overall experience. As always, our customers are the best marketeers. Every week, there are thousands upon thousands of additional people posting on their Instagram, TikTok, and Facebook for their friends and family to see what an incredible experience they've enjoyed at the Superstore. The other large growth driver in the quarter was our wholesale business, which grew 20.5% over the prior quarter. Our brands are gaining recognition across the market. According to Headset, HaHa is now the number two edibles brand in the state and the number three beverage brand for our beverages. TRENDI is the number six vape brand and the number three concentrate brand.
I know our flower brand would be there if we had enough supply. Our MEDIZIN dispensary has continued to be a solid performer, and we're looking forward to the first NFL season at Allegiant Stadium with fans and seeing what impact that has on our MEDIZIN neighborhood store. Looking ahead at Q3, traffic remained strong throughout July and into August, with August being marginally softer, with Las Vegas implementing mask mandates again. While we don't see there will be further lockdown measures, we're carefully monitoring any potential restrictions, taking the steps necessary to be able to operate to our maximum potential under any scenario. Regardless of what measures might come into effect, if any, we're bolstered by our experience successfully working under COVID restrictions and are ready to meet the challenge of any environment. With that, I'll pass it on over to Dennis to discuss our financials.
Thank you, Larry. Before I begin, I'd just like to remind everyone that all the numbers discussed on today's call are stated in U.S. dollars, unless specifically stated otherwise. As Larry mentioned, Q2 was a record quarter, with strength continuing into Q3. The company generated $32.8 million of revenue in Q2, a 205% improvement over last year, and a 38% increase over Q1 2021. In July, our first month with California open, we generated a total of $11.9 million, and in August we are on track to meet that number. We expect California to ramp over time as we build awareness and optimize our marketing programs. Gross margin before the impact of biological assets improved to 56.9%, up from 53.8% last quarter, as the tourist customers made up a larger share of revenue.
We expect gross margins to fall marginally in Q3 2021 as the contribution from the Planet 13 Orange County ramps up. The California market has a structurally lower pricing, and margins than our Nevada operations, and we expect that will dilute our margins slightly overall. We continue to target gross margins in excess of 50% for the long term. Sales and marketing expense was $1.5 million this quarter, as we significantly increased our marketing spend in Las Vegas with the return of tourist customers and began marketing more heavily in California. As a percentage of revenue, sales and marketing increased from 2.8% to 4.7%, and we anticipate it will increase again in the next quarter as we continue to build awareness in California for our Planet 13 Orange County location.
This, longer term, we expect it to decrease over time as we optimize our California marketing channel and the Planet 13 stores start to generate higher revenue. The company spent $10.9 million on G&A in the quarter, or 33% of revenue, up from $7.8 million, or 32.6% of revenue last quarter. We expect this quarter and Q3 2021 to be the high water marks as a percentage of revenue, as we have already fully staffed up in Orange County and expect G&A as a portion of revenue to fall as revenue from the Orange County store grows. As of June 30th, 2021, the company had a cash balance of $136 million. Cash increased over Q4 2020 as a result of $4 million generated in cash flow from operations. This number included a payment of $8 million in income taxes.
We also added $60.8 million from financings, offset by $3.5 million spent on CapEx in Orange County. So far this year, we've completed all our outstanding CapEx for the Orange County Superstore phase one build-out, spent $2 million on the dispensary expansion at the Superstore, $650,000 on improvements at one of our cultivation facilities, and approximately $1 million on maintenance CapEx. As Bob will elaborate, we are currently monitoring the legislation around consumption lounges before we finalize a budget and plan for a build-out. The balance of funds after taking into account current construction commitments is earmarked for accretive M&A activity and other expansion opportunities, including the build-out of the Chicago dispensary. Looking ahead, we anticipate Planet 13 will transition to U.S. GAAP reporting and become an SEC registrant with a planned effective date of January 1st, 2022. With that, I'll pass the call over to Bob.
Thank you, Dennis, and good afternoon, everyone. As indicated, Q2 was a fantastic quarter, with strong growth in Nevada and the completion of our first out-of-state expansion on time and on budget. We started off Q3 with continued positive momentum. The initial sales in California are encouraging. Nevada is performing well despite a tougher operating backdrop with COVID mask mandates currently in place. We've secured our next expansion destination, as Dennis indicated. Our Orange County store opened in July 1st, on time and on budget. As a reminder, we spent about $6 million on licensing and a further $8 million on build-out of that facility. Orange County generated roughly $800,000 in its full first month of operation and is on track to top that number this month. We are seeing growth as we start to earn our position and reputation in the Orange County market.
I'd echo Larry's comments and remind people that when we first opened the Las Vegas location, many people were disappointed in the initial sales numbers. To those people, I'll again say it takes time to build awareness, reputation, and ultimately sales. Give us time. We are good at creating experiences and selling cannabis. In Planet 13 style, we've also identified our next expansion opportunity, and we've done it in an incredibly cost-effective way. Through a partnership, we received a dispensary license in the city of Chicago. This has been long one of our targeted expansion areas, with a large population, high tourist counts, and a robust adult use cannabis market. We are starting to do our research on potential locations, recognize that there are still a number of steps between winning the license and opening a dispensary.
We will continue to update our loyal Planet 13 shareholders as we progress towards opening this new dispensary. I know there are a lot of questions about the partnership structure and the social equity applicant process. The Illinois dispensary licensing process was specifically designed for social equity applicants. You've seen ourselves and a number of other companies partner with these applicants to provide the support necessary to open and run a successful dispensary. As part of that structure, we created a subsidiary, Planet 13 Illinois, LLC, which will own the Chicago dispensary license. I can't share much more on the details at this time, but we are extremely pleased with this deal and think it provides a great deal of upside to our Planet 13 shareholders at a very low risk.
In Nevada, we are monitoring the drafting of lounge regulations and will continue to provide input to the regulators as needed. Larry and I have a grand vision of what a Planet 13 Las Vegas cannabis lounge can and should look like, and we will share more details once the licensing timelines and regulations are confirmed over the next several months. We also continue to pursue cost-effective M&A that increases our vertical integration in California, both on local dispensaries or cultivation in Nevada, and opportunities for new Superstores supported by a network of neighborhood dispensaries in new markets. Our operations in Nevada are taking market share month by month. Orange County opened on time and on budget, and it's now up to us to grow awareness and ultimately sales. We've walked down the path to our next expansion and still have over $130 million to pursue accretive M&A.
Overall, I'm very pleased with the position Planet 13 is in today, and I'm incredibly excited to continue to grow this company and to create long-term value for our shareholders. With that being said, I want to thank everybody for participating in today's call, and I would now like to ask the operator to open the line for questions.
Thank you. At this time, we will be conducting a question and answer session. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. Our first question comes from Bobby Burleson with Canaccord. Please proceed with your question.
Thank you for taking my questions. Congratulations on the wholesale growth, up 20% sequentially. Curious whether or not that was driven by doors that you're opening, more store growth, or is it penetrating shelf space at existing stores?
Bobby, thanks. This is Bob. I'll take this. Good to talk with you again. I think it's a combination of everything you just mentioned. The new product lines, of course, we're offering, have received very positive feedback. The reorders we're seeing from our existing customers throughout the state continue to increase month-over-month. We're real excited about that. We've got some new offerings coming into the market here shortly. We think we can even expand on those numbers, we're real pleased with the progress and we know there's additional upside.
Great. I'm curious, did demand outstrip supply for you guys? How are you guys in terms of production capacity?
Well, we've had some issues meeting demand initially with, for instance, our sugar soda line that came out recently. It's a function of, again, getting product out. It's also, we're retooling to expand those lines, and, again, as I said, we've got a couple other offerings coming into the market here shortly. We can meet the demands overall. 1 thing we can't do, and we haven't been able to do, is offer flower into the wholesale markets. We're working aggressively to rectify that issue as we bring additional capacity online. That's going to take probably another few quarters, I would anticipate. I'm very confident where we go. The engine's firing on all cylinders, so we're excited about meeting that demand.
Great. Then just one more. I'm curious about Santa Ana or Orange County. You guys are doing some marketing there. Sounds like you're off to a good start. Curious what different approaches are you taking there versus the Las Vegas Superstore? I'd imagine there's a different customer profile. I'm just curious what you're applying to that marketing approach that reflects that specific market.
Well, this is Larry. I'll answer that one. The difference is we use more billboard advertising down there than we do here in Las Vegas. The main part of an entertainment destination, and that again, is what it is, whether it be locals or whether it be tourists in Santa Ana, it just takes time for that as we get the people in, it keeps expanding and building because as soon as they see it, they're excited about it. As soon as they see it, they're taking pictures and videos. They're sending it to their friends. "Have you seen this yet? Have you been over to this yet?" That's why it's keeping building every day, every week. That's what we had to go through here also in Las Vegas, and you've seen what's happened. They're our best marketers, like I was saying when I was talking.
We feel good about them. We think it's worked great. We think we got that model down and we anticipate the same thing into Santa Ana that's happening down here to build through our customers.
Bobby, let me just add to that, too. I think one of the things that's a little bit unique is we started the store from scratch in Santa Ana, so the tourist market down there is not fully stabilized yet. There's still a lot of uncertainty associated with travel and COVID. We've really kind of directed the majority of our marketing funds at targeting and creating awareness in the Santa Ana Metro area, or Orange County, rather. We're really kind of focusing right now on getting the locals accustomed to the store, becoming aware of it, and building that delivery platform. The tourist part of it will now start to get traction as we start merging into that area. It's a little slower, and it's going to take a little longer, as Larry said, but we're very confident that it will all fall into place.
Great. Thank you.
Yep. Thank you.
As a reminder, if you would like to ask a question, please press star one on your telephone keypad. Our next question comes from Greg Gibas with Northland Securities. Please proceed with your question.
Great. Good afternoon, Larry, Bob, and Dennis. Thanks for taking the questions and congrats on the strong results in Q2.
Thanks, Greg.
I wanted to, I guess I know it's early and you can't share too much, but how we should think about, at a high level, the process and timing of getting the Chicago dispensary up and running. I guess plans for any cultivation or manufacturing in the state as well?
That's a great question, Greg. We're working, literally today, we've been working to identify sites. We've identified a number of potential sites. The licensing process is really kind of the great unknown. Working with our partner in Chicago, we're pretty confident things will move fairly quickly. I don't want to hazard a guess here today, again, because it's new for all of us. It's new for Chicago in this round of licensing. I'm hopeful over the next few months, we'll see that fall into place, and then we'll continue, obviously, to work around that and identify locations that meet with our criteria. To your second point, yeah, we're also looking, we expect to be integrated in the Illinois market as well. We are looking at some cultivation opportunities now in tandem.
We're confident that we will find something that meets our criteria here in the near term, at least to get us started.
Sure. Great. I realize you can't share too much, but it seems like a great market for the Superstore, and definitely an exciting market to participate in.
We're very excited.
A follow-up, Dennis, with you on kind of the margin side of things and your commentary around sales and marketing expense going forward. Where do you expect that to level out, maybe as a percentage of revenue, or when should we expect it to peak? Kind of how long will it take to maybe ramp or create that awareness that you want in California?
Yep. Greg, thanks for the question. As I said in my remarks, I think it's going to peak in end of Q3, beginning of Q4 as we work through it. Again, building on what Bob said, that tourist market in Santa Ana and Orange County is not really stabilized yet. We are focusing more on the local billboard advertising and marketing. It's also going to depend on when that tourist customer and that tourist market, with Disney having regular opening, et cetera, in that area starts to stabilize so we can really gauge where our marketing spend goes. I think Q3 will be the peak, kind of beginning of Q4 will be the peak on a revenue basis, percentage of revenue basis, especially as revenue starts to ramp at that location.
Okay. Got it. That's helpful. To follow up with you there, Dennis, too, on a separate topic. It looks like owned brands represented, or in-house brands represented 20% versus 28% of sales a year ago. Just wanted to ask, I guess, what the dynamics there that drove the decline, and was it just introduction of a lot of new third-party products?
It was a sales function, Greg. We had record sales on a nominal dollar basis for all of our brands, all of our house brands and our house products. As a percentage of overall revenue, it was down because our revenue was up so much. Sequential growth quarter-over-quarter, year-over-year on our own brand sales on a dollar value basis, but percentage-wise down. We are, as Larry and Bob both mentioned, we're rectifying that on the flower side with some expansions on one of our cultivation facilities there to try and rectify our ability to provide premium flower. During the COVID shutdown and the mix of product with tourists only returning recently to Las Vegas, it's been more focused on flower and less on some of the other products as an overall buckets of revenue.
We see that shifting back towards the historical rates of 35%-37% flower and the balance being more inconspicuous methods of consumption by the tourists. We think that our in-house brands will, as a percentage of revenue, continue to increase both nominal dollar-wise and overall percentage.
Okay, great. Yeah, that does make sense. I didn't consider the revenue base there. I guess last one from me. Wanted to ask about in-store development. If you could discuss maybe any new features or expansions that you're planning at the Las Vegas or California Superstores. I noticed some nice announcements out of you regarding adding two to three store-in-store additions. I guess just wanted to ask if you kind of have room for more of those. You said phase one now complete at the California Superstore. Just kind of wanted to ask what's next there? What should we expect for phase two?
Well, phase two, as we get moving into, we've always said in California, will be some type of a small coffee shop type thing or small restaurant and a production facility. Phase three is going to be our consumption lounge. We'll be adding on an atrium, about 15,000 sq ft. Santa Ana itself, we've talked to the officials there. Actually are working right now on a bill trying to get a law in place and get it written to do the consumption lounge so that we can move forward with that part of the operation. In Las Vegas, of course, on the new, which should open towards the end of September, again, we're going 43 to 85 cash registers. We've just added an 80 ft long by 20 ft tall digital wall with all kinds of special effects.
We added nine cylinders that are about four foot tall that have a levitation device that we lease out to a lot of our vendors that rent them from us, and they display their products. We call it Gucci Row. In about two weeks, we'll also have our 2,000 sq ft retail store open with all our memorabilia and sundries and so on. We've been talking about a robot in our production facility. We're getting closer now. We're just doing the last of the choreographing of the robots where they actually get into a sword fight and the loser pours the winner a beer, live behind the scenes, and then they go back to work on the production line for the sodas. That's some of the things that are going on here for new items.
Okay, great. Yeah. A lot of exciting things in the works. I'll pass it on. Thanks, guys.
Thanks, Greg.
Thank you. Our next question comes from Jon DeCourcey with Viridian. Please proceed with your question.
Hey, guys. Congratulations on the quarter and the continued progress. Most of my questions have been answered, just a couple to kind of quickly recap and think about the dynamics moving forward. First off, you gave some good color on the August numbers, and kind of where things are from a tourism perspective in Las Vegas. Can you kind of give a little bit more color on how typically seasonality occurs in August? Do things typically fall off a bit given the heat, or is that one of the prime months for travel?
Yeah. Hey, Jon, it's Bob. Good question. Summers, obviously August is hot. It's our hottest month. People come here, whether it's hot or not. That's really not a detriment to tourism generally. What has had an impact, as Dennis alluded to, and as I'd mentioned, is the new COVID restrictions. They're not nearly as difficult as they were last year, but just the fact that we've got a mask mandate on again, and it seems like it changes every day with the larger venues here in town. There's some uncertainty with that. It may have a bit of an impact. Overall, we're pretty confident how the month has shaped up from a tour standpoint. The other factor that we need to consider, and that's probably more relevant, is the fact that kids are going back to school.
Families aren't vacationing in Las Vegas the latter part of August because they're getting ready for school again. That's probably a more meaningful indicator. I think things are going to ramp up again considerably in September as they have historically, and then heading into October. Vegas typically will slow down a bit in November and then, of course, December. One thing that also I think I just want you to be aware of and focus on, we don't really have any meaningful convention traffic back in Las Vegas now. That's going to take a bit of time for that to ramp up. Early next year, we'll start seeing the larger shows come back online.
Okay.
Hopefully offset some in the near term by the NFL stadium, et cetera. That could be nice.
Yeah, that'll be helpful. Yeah, we're excited to see what that does. Yeah, of course.
Okay. The other question I just had was regarding challenging pricing dynamics for flower in California for a lot of cultivators, producers. Does that change the dynamic for you guys at all in terms of seeking out vertical integration? Does the pricing get to a point where it's favorable for you to continue as a non-vertically integrated?
We've always expected to be integrated, so we're actively pursuing opportunities now. I mean, just the margin pickup alone on our own products makes it worthwhile. We're fortunate that we're a large buyer, and we've got some leverage over our vendors. Yeah, look, at the end of the day, it's important that we've got our product lines and our products in our stores, and that's what we're going to do in California. Dennis, I don't know if there's anything you want to add to that on the margin side.
Yeah, no, Bob, that covers off our view on the margin side. Yes, Jon, that California market and flower, you read about it on a daily basis what's happening there. As Bob mentioned, we need to get our own strains in and control our own product and our own brands. That's always been the plan. We will size it appropriately for what our needs are at the start, as Larry mentioned in phase II, with the production facility there and then vertical on the cultivation.
Okay, great. Well, thanks, guys. Looking forward to catching up again soon.
Great. Thanks, Jon.
Thanks, Jon.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation. Have a wonderful day.