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 26, 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.
I I will now turn the call over to Mark Kindersma, Head of Investor Relations for Planet 13.
Thank you. Good afternoon, everyone, and thanks for joining us today. Plant 13 Holdings' Q2 2021 financial results were released today. The press release, financial statement, Management discussion and analysis are available on SEDAR as well as on our website, plant13holdings.com. Before I pass the call over to We would 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, 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 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. FMS team 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.
Slide 13's financial statements are presented in U. S. Dollars The results discussed during this call are in U. S. Dollars unless otherwise indicated.
On the call today, we have Bob Grospeck, 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 Plant 13 Holdings.
Good afternoon, everyone, and thank you for participating in our 2nd quarter call. Q2 was a great quarter for Planet 13 With our Nevada operations, fire on all cylinders and our California expansion being completed on time and on budget. I'm going to discuss our performance in Nevada and let Bob provide an update on California and our other growth initiatives later on the call. The Las Vegas Superstore is coming up on its 3rd year of operations this November. It's been amazing to watch it grow.
For the 1st couple of months, when we were doing around $3,000,000 a month and now to over $9,000,000 a month from just the Superstar delivery. Month by month, we have perfected the customer experience, upgraded and added new entertainment that built a reputation for advertising, Word-of-mouth and customer social media. The Superstore 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 $24,300,000 from the Superstore, dollars 3,300,000 from curbside and delivery And $3,300,000 from Medizin and $1,900,000 from wholesale, and other for a second for a record quarter of 32 point $8,000,000 a 37.8 percent increase sequentially over Q1 2021 205% increase over Q2 2020. The largest growth driver, not surprisingly, was in store sales, We have seen continued strong performance and tourists have returned.
We continue to make improvements to throughput, customer entertainment, The diversity of products and the overall experience. And as always, our customers are 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, is now the number 2 edibles brand in the state and the number 3 of every brand for our beverages. Trendy is the number 6 vape brand and the number 3 concentrate brand, and I know our flower brand would be there if we had enough supply. Our medicine dispensary has continued to be a solid performer, and we're looking forward to the 1st NFL season at Allegiant Stadium With fans and seeing what impact that has on our Medicine Neighborhood store. Looking ahead at Q3, traffic remained strong throughout July and into August, with August being marginally softer with Las 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 $32,800,000 of revenue in Q2, A 205% improvement over last year and a 38% increase over Q1 2021. In July, Our 1st month with California open, we generated a total of $11,900,000 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 $1,500,000 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 start the Planet 13 stores start to generate higher revenue.
The company spent $10,900,000 on G and A in the quarter or 33 percent of revenue, up from $7,800,000 or 32 point We expect this quarter and Q3 2021 to be the high watermarks as a percentage of revenue As we have already fully staffed up in Orange County and expect G and A as a portion of revenue to fall as revenue from the Orange County store grows. As of June 30, 2021, the company had a cash balance of $136,000,000 Cash increased Over Q4 2020 as a result of $4,000,000 generated in cash flow from operations. This This number included a payment of $8,000,000 in income taxes. We also added $60,800,000 from financings, offset by $3,500,000 spent on CapEx in Orange County. So far this year, we've completed all our outstanding CapEx for the Orange County Superstore Phase 1 build out, Spent $2,000,000 on the dispensary expansion at the Superstore, dollars 650,000 on improvements at one of our cultivation facilities and approximately $1,000,000 on maintenance CapEx.
As Bob will elaborate, we are currently monitoring the legislation around consumption lounges before we finalize the budget and plan for a build out. The balance of funds after taking into account current construction commitments is earmarked for accretive M and A State Planet 13 will transition to U. S. GAAP reporting and become an SEC registrant with a planned effective date of January 1, 2022. And 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 Backdrop with COVID mask mandates currently in place and we've secured our next expansion destination as Dennis indicated.
Our Orange County store opened in July 1 on time and on budget. As a reminder, we spent about $6,000,000 on licensing And a further $8,000,000 on build out of that facility. Orange County generated roughly $800,000 in its full 1st 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. We've also identified our next expansion opportunity and in Planet 13 style, 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 accounts and a robust adult use cannabis market. We are starting to do our research on potential locations, but 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, Line 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 allowance 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 and A that increases our vertical integration in California. Bolt on local dispensaries are cultivation in Nevada and opportunities for new superstores supported by network of neighborhood dispensaries in new markets. Our operations in Nevada are taking market share month by month. Orange County open 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 $130,000,000 to pursue accretive M and A.
Overall, I'm very pleased with the position Planet 13 is in today and incredibly And I would now like to ask you, operator, to open the line for questions.
Thank you. At this time, we will be conducting a question and answer Our first question comes from Bobby Burleson with Canaccord. Please proceed with your question.
Thank you for taking my questions. So 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. So We're really excited about that. We've got some new offerings coming into the market here shortly. We think we can even expand on those numbers. But We're 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 capacity production capacity?
Well, we've had some issues meeting demand initially with our, for instance, our sugar soda line that came out recently. It's just 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 of other offerings coming into the market here shortly. We can meet the demands overall.
It one thing we can't do and we haven't been able to do is offer flower into the wholesale markets. So we're working aggressively To rectify that issue as we bring additional capacity online, but that's going to take probably another few quarters, I would anticipate. But I'm very confident where we go. The engine is firing on all cylinders. So we're excited about meeting that demand.
Great. And then just one more. Curious about Santa Ana or Orange County. You guys are doing some marketing there. Sounds like you're off to a good start.
But curious kind of what different approaches are you taking there versus the Las Vegas Superstore? I'd imagine there's a different customer profile. And I'm just curious kind of 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. But 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. And as soon as they see it, they're taking pictures and videos and sending it to their friends.
Have you seen this yet? Have you been over to this yet? And 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 marketeers, like I was saying when I was talking.
And it's 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. So we've really kind of directed the majority of our funds, our marketing funds at targeting and creating awareness in the Santa Ana Metro area Orange County rather.
So 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 You know, morphing into that area, but 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.
Yes. Thank you.
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, Craig.
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? And I guess plans for any cultivation or manufacturing in this day as well?
That's a great question, Greg. So I mean, we're working literally today. We've been Working to identify sites, we've identified a number of potential sites. Now 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.
But I don't want to hazard a guest here today again because it's all It's new for all of us. It's new for Chicago in this round of licensing. So, 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, yes, we're also looking we expect to be integrated in the Illinois market as well.
So we are looking at some cultivation opportunities now in tandem and 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. And I realize you can't share too much, but it seems like a great market for the Superstore and it's definitely an exciting market to participate in.
We're very excited. I wanted
to follow-up
on kind of the margin side of things and your commentary around sales and marketing expense going forward. Where do you Expect, I guess, that to level out maybe as a percentage of revenue? Or I guess, when should we expect it to peak? And then kind of How long will it take to maybe ramp or create that awareness that you want in California?
Yes. 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 and again building on what Bob said, the tourist market in Santa Ana and Orange County is not really stabilized yet. So We are focusing more on the local billboard advertising and marketing. So it's also going to depend on when that tourist customer And at tourist market, we're going to Disney having regular opening, etcetera, in that area, it starts to stabilize, so we can really gauge Where our marketing spend goes, but 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.
And 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 3rd party products?
It was a sales function, Greg. So we have record sales On a nominal dollar basis for all of our brands, all of our house brands and our house products, which is as a percentage of overall revenue, it was down because our revenue is up so much. So sequential growth quarter over quarter, year over year on our own brand sales on a dollar value basis, but percentage wise down. So We are, as Larry and Bob both mentioned, we're rectifying that on the flower side with some expansions on our 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 overall buckets of revenue.
We see that shifting back Towards the historical rates of kind of 35% to 37% flower and the balance being more inconspicuous Message of consumption by the tourists. So 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. Yes, that does make sense. I didn't consider
I guess last one from me. I wanted to ask about in store development. If you could discuss maybe any new features or expansions that you're planning at the Vegas or California superstores. I noticed Some nice announcements out of you regarding adding 2 to 3 store in store additions. And I guess just wanted to ask You kind of have room for more of those.
And you said Phase 1 now complete at the California Superstore. But just kind of wanted to ask what's next there? What should we expect for Phase 2?
Well, Phase 2, 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 Phase 3 was going to and a production facility. Phase 3 is going to be our consumption lounge. We'll be adding on an atrium about 15,000 square feet. Santa Ana itself, we've talked to the officials there and actually are working right now on a bill trying to A law in place and get it written to do the exemption 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, we're again, we're going 43 to 85 cash registers.
We've just Added an 80 foot long by 20 foot tall digital wall with all kinds of special effects. We added 9 Cylinders that are about 4 foot tall that have a levitation device that we lease out to a lot of our vendors That they rent them from us and they display their products. We call it Gucci Roll. In about 2 weeks, we'll also have our 2,000 square foot retail Our memorabilia and sundries and so on. And we've been talking about robots In our production facility, we're getting closer now.
We're just doing the less 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. Yes, a lot of exciting things in the works.
I'll pass it on. Thanks, guys.
Thanks, Frank.
Thank you. Our next question comes from John DiSorci with Meridian. Please proceed with your question.
Hey, guys. Congratulations on the quarter And the continued progress, most of my questions have been answered. So 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, but 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
Well, yes. Hey, John, it's Bob. Good question. So summer is obviously, August is hot. It's our hottest month.
But people come here whether it's hot or not. So that's really not a detriment to Tourism generally, what has had an impact, as Dennis alluded to and as I 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 there's It seems like it changes every day with the larger venues here in town. So there's some uncertainty with that. So it may have a bit of an impact.
Overall, we're pretty confident how the month is shaped up from a tourist standpoint. But the other factor that we need to consider And that's probably more relevant is the fact that kids are going back to school. And Families aren't vacationing in Las Vegas the latter part of August because they're getting ready for school again. So that's probably a more meaningful indicator. But I think things are going to ramp up again considerably in September as they have historically And then heading into October and then Vegas typically will slow down a bit in November and then of course December.
But one thing that also I think I would just want you to be aware of and focus on, we don't really have any meaningful convention traffic back in Las Vegas now. So that's going to take a bit of time for that to ramp up. So early next year, we'll start seeing the larger shows come back online.
Okay. But hopefully offset some in the near term by the NFL stadium, etcetera. So that could be nice.
Yes, that will be helpful. Yes, we're excited to see what that does. Yes, of course.
Okay. And then 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?
Well, we've always expected to be integrated. So we're actively pursuing opportunities now. I mean, just the margin pickup alone, Our home products makes it worthwhile. We're fortunate that we're a large buyer and we've got some leverage over our vendors. But yes, look, at the end of the day, it's important that we 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.
I know, Bob, that covers off our view on the margin side. I mean, yes, John, that California market in flower, We read about it on a daily basis what's happening there. But as Bob mentioned, we need to get our own strains in and control our own product and our own So that's always been the plan. So we will size it appropriately to we'll size it appropriately for what our needs are At the start, as Larry mentioned in Phase 2 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, John.
Thanks, John.
Thank you. Ladies and gentlemen, we have reached the end of the question and answer session. This concludes today's conference and you may disconnect your lines at this time. Thank you for your participation and have a wonderful day.