Planet 13 - Earnings Call - Q2 2025

Executive Summary

• Q2 2025 missed on revenue and profitability versus both prior year and S&P Global consensus: revenue $26.85M vs $31.09M (-13.6% YoY) and below the $28.2M consensus; GAAP EPS -$0.04 vs -$0.03 consensus; adjusted EBITDA -$2.4M vs -$1.5M consensus estimate. Values retrieved from S&P Global.
• Management leaned into an aggressive pricing strategy in Nevada to defend share, while initiating company-wide cost reductions; gross margin fell to 43.4% (from 50.9% YoY) on industry-wide price compression and competitive intensity in Florida.
• Net loss widened to $13.3M (vs. $8.1M YoY), and cash declined to $15.9M from $23.4M at year-end as the company drew its $9.75M secured revolver (subsequently extended to June 30, 2026).
• Key catalysts/considerations: pricing repositioning and loyalty relaunch (NV), continued Florida footprint expansion (32 dispensaries operating), and heavy 280E tax burden amplifying net losses; no formal guidance was issued.

What Went Well and What Went Wrong

• What Went Well

  • Executed strategic pricing reset in Nevada to leverage scale and defend traffic: “we took bold steps to maximize our scale advantage in Nevada, moving to a more aggressive pricing strategy” (Larry Scheffler, Co‑CEO).
  • Cost actions underway: “operational discipline, tightening expenses… necessary steps to build a more efficient and resilient organization,” with early savings contributing to a 4.6% YoY decline in total expenses in Q2.
  • Commercial initiatives: launched a revamped loyalty program in July to support traffic/retention post-pricing moves.

• What Went Wrong

  • Revenue contraction and margin pressure: revenue down 13.6% YoY to $26.85M; gross margin contracted to 43.4% (from 50.9%) on broad pricing pressure and competition, particularly in Florida.
  • Profitability deterioration: adjusted EBITDA swung to a -$2.4M loss (vs. +$3.2M YoY); GAAP net loss widened to -$13.3M, reflecting lower gross profit and deleveraging.
  • Heavy tax burden under 280E continues to inflate tax expense and suppress net income; Q2 current tax expense was material and management reiterates 280E materially elevates effective taxes relative to non‑cannabis peers.

Transcript

Speaker 1

Hello, and thank you for standing by. My name is Tiffany, and I will be your conference operator today. At this time, I would like to welcome everyone to the Planet 13 Q2 2025 Financial Results Conference Call. All lines have been placed on mute to prevent any background noise. After the speaker's remarks, there will be a question and answer session. If you would like to ask a question during that time, simply press star, then the number one on your telephone keypad. I would now like to turn the call over to Mark Kuindersma, Head of Investor Relations. Mark, please go ahead.

Speaker 3

Thank you. Good afternoon, everyone, and thanks for joining us today. Planet 13 Holdings Inc., second quarter 2025 financial results were released today. The press release, the company's quarterly reports and Q, including the MD&A and financial statements, are available on the SEC website, EDGAR and SEDAR Plus, as well as on our website, planet13.com. Before I pass the call over to management, we would 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, that management's expectations or estimates of future developments should compare to or results fully materialize. Risk factors that could affect the results are detailed in the company's public filings that are made available to the U.S. Securities and Exchange Commission, and are on PRMR.

We encourage listeners to read those tables in conjunction with today's call. As a result of these risks and uncertainties, the results are best predicted in these forward-looking statements made to a fully materialized financial results format. In addition, we will refer to both GAAP and non-GAAP financial measures. For information regarding our non-GAAP financial measures and reconciliation for the most directly comparable GAAP measures, please refer to today's press release posted on our website. Planet 13 Holdings Inc.'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 Larry Scheffler, Co-Chairman and Co-CEO, Bob Groesbeck, Co-Chairman and Co-CEO, and Steve McLean as Interim CFO. I'll now pass the call over to Larry Scheffler, Co-Chairman and Co-CEO. Larry?

Speaker 5

Thank you, Mark. Good afternoon, and thank you for joining us. I'll kick things off with an overview of our recent operational performance, and I'll pass it to Steve who will walk you through the financial results in a little more detail. Finally, Bob will share how we're navigating the current market landscape and putting our strategy into action. In Q2 2025, our SuperStore, including DAZED!, generated $12 million in revenue, up 7% from Q1. This is strong performance as Las Vegas remains a highly challenged market, with the June visitor traffic volume in Las Vegas down 11%, and revenue per room is up 14% year over year, according to Las Vegas Visitors and Convention Authorities. This slowdown in tourism, combined with softer local incomes, continues to weigh on retail demand. Statewide cannabis flower sales were down 14% from last year, with Las Vegas hit the hardest.

Flower prices also declined 18% year over year, further impacting top-line performance. In this environment, our team executed well. Our diverse product mix, strong brand partnerships, and unmatched locations continue to drive customer traffic and performance despite the downturn. Our neighborhood store network delivered $12.2 million in revenue, a 9% sequential decline from Q1. We've made significant gains in Florida flower quality, with potency up 20% from last year and yields up 45%. That said, it still takes time to win back customers, and that is the situation we're in today, winning back trust. We're also being impacted by a lack of a full suite of products. Bob will speak to that later. We're on track to have the complete set of products by Q4 once our BHO lab comes online.

In the meantime, we've implemented targeted pricing adjustments and upgraded our loyalty program, all with the goal of rebuilding and strengthening our customer base. Combined, our SuperStore and neighborhood store network generated $24.2 million in total retail revenue compared to $24.4 million in Q1. Wholesale revenue came in at $2.7 million, down from $3.4 million in Q1. This is driven by both market factors and internal indicators. On the market side, price compression and softer consumer demand continue to affect overall state sales. Internally, turnover in our Nevada wholesale team had a temporary impact, and we made the strategic choice to push more products through our own dispensaries. This protects margin and limits credit risk. As many independent Nevada dispensaries are under pressure, our brands continue to perform well. Medizin grew 21% year over year, and HaHa Gummies maintains its spot as the third best-selling brand in Nevada.

We're also seeing strong traction from our celebrity-led partner brands. We're adapting to market conditions by leaning into our core strengths: a great experience, premium products, and trusted brands, while actively evolving our approach around pricing to meet the moment and strengthen our competitive position. With that, I'll turn it over to Steve to walk through our financials.

Speaker 3

Thank you, Larry. In Q2, Planet 13 delivered $26.9 million in revenue, down modestly from $28 million in Q1, demonstrating disciplined execution in the face of a challenging macro backdrop. Las Vegas tourism and statewide cannabis sales were both down double digits year over year, with price compressions continuing to intensify across the industry. In Nevada, softer consumer demand and declining flower prices created additional headwinds. Internally, our decision to prioritize margin and channel more products through our own retail network reduced wholesale volumes, but helped protect profitability. Our strong brand equity, differentiated retail experience, and targeted pricing and loyalty initiatives cushioned much of the market-driven pressure.

As we enter the back half of the year, our focus is on offsetting price compression with higher volumes, particularly in Florida and the Las Vegas SuperStore, while maintaining operational discipline in what remains one of the most difficult operating environments we faced in our two core markets. Gross profit came in at $11.6 million, with a gross margin of 43.4%, up slightly from 42.8% in Q1. Margin stability benefited from directing a greater share of Nevada production to our own retail stores. That said, pricing pressure is accelerating, driven in part by undercapitalized operators liquidating inventory at unsustainable levels. We are evolving our pricing strategy to reflect this reality, leveraging our sales cultivation to compete on price where necessary. While this approach will compress gross margin percentages, the goal is to grow total gross profit dollars.

Sales and marketing expense increased slightly to $1.6 million from $1.5 million in Q1. Actions taken late in the quarter, along with strategic shifts in our approach, are expected to reduce the line item in future periods. G&A declined to $13.6 million from $14.1 million in Q1, reflecting early benefits from the cost reduction program we initiated at the end of Q1. These initiatives are essential to improving cash flow and will yield more meaningful results in the second half of the year. We expect to see savings in excess of $1 million in G&A in each of Q3 and Q4, as well as substantial savings in marketing expenses in the second half of the year. Adjusted EBITDA loss was $2.4 million, a slight improvement from a $2.5 million loss in Q1. While revenue de-leveraging remains a headwind, cost actions taken this year are beginning to take hold.

We expect continued improvement as these savings flow through the P&L in upcoming quarters. Importantly, we significantly improved operating cash used in this quarter compared to quarter one. In the quarter, we used $1.2 million in operating cash flow as we've been reorienting our full team focus on this metric above everything else. Turning to the balance sheet, as of June 30, 2025, the company had a cash balance of $15.9 million. Subsequent to the quarter end, we sold the property received as part of the recovery from the El Capitan lawsuit for $4.1 million in net fees. With the construction of our BHO lab in Florida nearing completion, capital spending for the remainder of the year will be limited to a few small production enhancements also nearing completion. Total remaining CAPEX is estimated at less than $1.5 million for the year.

At quarter end, we had approximately $10.6 million in short-term debt outstanding, with $9.75 million as a revolving line of credit, with a 5.5% interest rate, a very favorable rate. With that, I'll turn the call over to Bob to discuss the steps we are taking to focus on profitability.

Speaker 2

Thank you, Steve, and good afternoon, everyone. We've been clear all year about the challenges facing the cannabis sector and the Nevada consumer environment. Unfortunately, those headwinds intensified in Q2, with tourist volumes in Nevada continuing to decline, even as we entered what is typically deemed a busy part of the season. We are confident this is temporary, however. Historical patterns point to recovery in Nevada tourism and spending as we move through the balance of the year. We've weathered worse in the past, including a full cutdown during COVID, and our track record in responding to adversity speaks for itself. This team knows how to navigate uncertainty, take decisive actions, and emerge stronger. That's exactly the course we're on now. In Q2, we took a hard, comprehensive look at every aspect of our business with one goal: drive cost savings and efficiency.

While the full impact of these actions isn't visible in this quarter's results due to timing and severance expenses, this was a pivotal period for aligning our cost structure to the realities of today's market. On the revenue side, we're rolling out a new pricing strategy alongside a refreshed loyalty program. Our commitment is simple: we'll not be beaten on price. Across our footprint, we're implementing a price match guarantee so customers can be confident that they're getting not only the best experience and products, but also the best value in the market. This is especially critical in Florida, where we're working hard to rebuild trust now that our flower and product quality are back to the standard that our customers expect. We've invested heavily in cultivation improvements, delivering significant gains in both yield and potency.

On the operations side, we've upgraded harvesting, processing, and packaging to improve throughput and lower costs. The final step, as mentioned, our BHO lab remains on track for completion in Q4, enabling us to offer a full suite of high-quality products. We've also streamlined our discount and loyalty programs, making them simpler, more transparent, and more rewarding for our members. We're not taking our eye off the value of the customer experience. We're using low-cost events that leverage our dispensary space to bring the community together. That includes things like our Planet the 13th Night Market series, a monthly indoor art and maker's market at Planet 13 SuperStore Entertainment Complex. Tonight marks the very first of these events, bringing local artists together with the community in an engaging environment. These events, combined with our new pricing strategies, marked a much more focused effort being a destination choice for local customers.

We're also continuing to leverage celebrity partner brands to attract customers through celebrity meet-and-greets and special events. I do want to take a moment to thank our employees for their commitment during this period of transformations and our customers and patience for their loyalty as well. Our focus is straightforward: operate with discipline, protect cash, and build a more resilient, high-margin business. We are not pursuing growth for its own sake. Every decision we make is grounded in capital efficiency and the potential for durable returns. The work is well underway. We are rationalizing our asset base, improving cultivation yields, implementing tighter cost controls, and enhancing retail execution. These are targeted structural actions designed to have lasting impacts and not short-term fixes. While they will not be fully reflected overnight, they are already positioning us to deliver improved profitability in the quarters ahead.

Underlying all of this is a simple operating principle: do more with less. By maintaining discipline in capital allocation and a relentless focus on efficiency, we are setting the foundation for long-term value creation and sustained performance. I'll now turn it over to the operator and open the line for questions from customers.

Speaker 1

At this time, if you would like to ask a question, press star, then the number one on your telephone keypad. To resolve your question, simply press star one again. We will pause for just a moment to compile the Q&A roster. Your first question comes from Pablo Ernesto Zuanic with Zuanic & Associates. Please go ahead.

Speaker 4

Thank you, and good afternoon, everyone. I just before I ask my questions, I want to start by saying that I think we analysts appreciate all the transparency, right? I think you've been very clear about the challenges, and it sounds like you're trying to address them the best you can. I think that's a plus that should be highlighted. Two-part question regarding Florida. In the case of the cultivation improvements in terms of more yield, more potency, are you done, or is there still room to add more? I ask the question from the angle that when I look at the flower SKUs in your stores' menus compared to other stores, you still have very few flower SKUs. Is there still a lot of opportunity left in terms of expanding your flower suite in your stores in Florida?

The second question, I know we're waiting for the BHO lab, extraction lab. When do you start actually, you said completed by the fourth quarter? Does that mean that sales begin in the first quarter? If you can talk about, you know, how I don't know if you can give color on the capacity of that lab, you know, how big a sheet of extract type of products do we have? If you can touch on both those questions, please. Thank you.

Speaker 2

Yeah. Hi, Pablo. It's Bob. Let me take a stab at it initially. With respect to the first part on yield and potency and strains, yeah, we are looking to continue to integrate strains from the West Coast into the market. We've been working very closely with our internal lab to get those genetics into the pipeline. There will be more to come. You'll see that. You'll see a lot more drops in the near term in that respect. As for the BHO lab, I'd like to give you an exact date. Unfortunately, we've got to live with the regulators on getting inspections. We anticipate that it'll be fully operational by early November. Staff will be trained up and ready to go. Again, it's just a function of when the regulators will get on site and inspect the equipment and give approval. We're shooting for that early November timeframe.

Speaker 4

All right. Thank you. Just a micro question regarding Florida. For other states, we have more precise data about pricing from SEDSET and other sources. In the case of Florida, the data is a little bit more conflicting. If you can talk about what type of magnitude of price pressure are you seeing in Florida? The second question, again related to Florida, everyone has a view on what may happen with the ballot in November 2026. Will REC go into the ballot again or not, and the eventual result, if you want to share any thoughts you may have on that front. Let's start with the first question first. Thank you.

Speaker 2

I don't know, Steve, do you want to talk to the first part?

Speaker 6

Yeah. As far as the price, I mean, I think we have a combination of, yes, the pricing contraction. Difficult to put an exact number on it, as well as, you know, fighting for the customer from a product assortment standpoint, and as mentioned, you know, limited strains and whatnot. This is multifaceted. We are looking at increasing the strain numbers, increasing the suite of products through BHO. We're also introducing the creams, new line of creams that we're bringing into the market. All those things are going to help. The pricing piece, I know, is just part of it, but there's several things that play there.

Speaker 2

Pablo and Bob again. With respect to the second part, the 2026 ballot question, obviously, we want to see that happen again. It's a bit difficult because it's my understanding the administration was able to get on an increase to that threshold from 50% to 65%. We're going to continue, as a company, and I'm sure as an industry, to move that forward aggressively. It should pass. It should have passed last time. We remain optimistic that we will get this to adult usage sometime here in the near term.

Speaker 4

Right. Just one last comment I made. Obviously, it's nice to see the share price uptick across the spectrum, right, because we are rescaling news. You know, what I'm hearing and what we've seen in other cycles when share prices went up is that bankers started calling companies, offering them to issue equity, make use of the cut prices. Is that happening this time? Is that something you will be considering or not at these levels anyway? That's the last question. Thank you.

Speaker 2

Obviously, the phone does start to ring when you start seeing significant increases over a period of several days. That's just natural. We'll talk to anybody if it makes sense for our shareholders. We're optimistic. I'm very, very pleased to hear the President's comments the other day, as is everyone in the space. It'll be interesting to see what he does here in the next couple of weeks. If history is any indication, he's been true to his word since roughly 2016 that, one, he thought this should be a safe rights issue, but more importantly, he thinks it needs to be, the rescheduling issue needs to be addressed. We applaud him for that. We just want to see what the details look like.

Speaker 4

Yes, that's right. Thank you. Thanks.

Speaker 2

Thanks, Pablo.

Speaker 1

Your next question comes from the line of Brenna Cunnington with ATB Capital Markets. Please go ahead.

Speaker 0

Hey, y'all. It's Brenna Cunnington with ATB Capital Markets. Thanks for taking our question. I'm actually just going to second Pablo's comments about your time spent doing the various headwinds and just come here with action plans to address them. We do really appreciate it. Thank you for that. Just starting off with Florida, we noticed in the weekly aluminum new data that Planet 13 Holdings Inc. now has 31 stores operating, down from 33 last month. We're just curious, are these temporary closures from relocations, or is this the pipeline in Nevada?

Speaker 2

Yeah. No. Hi, Brenna. It's Bob. No, we did close two stores in Miami, and they were part of our legacy inventory. They were simply not performing. We didn't see a pathway to profitability with those locations anytime in the near future. We made a difficult choice to take them out of the inventory, and we think it was the right choice.

Speaker 0

Understood. The legacy Planet 13 location in Las Vegas, we've seen that they've been hosting various unique events. We just want some color on how these events have done in increasing the traffic and sales, and just any other commentary that you would like to highlight for us?

Speaker 2

This is Bob. I'll jump in. We're trying to maximize the facility. I mean, it's large. It's exciting. There are a lot of things to see. We're doing, as indicated, our first event is tonight with this new program we're launching geared primarily to locals. It's really just to create awareness and drive traffic. We'll see. It's early days. In light of this recent downturn with the tourist customer, the team is working very hard to pivot toward a local customer base in the interim. It's exciting. We've got a lot of things going on. We're going to have plenty of vendor days moving forward and market-type operations, again, to create awareness and just get people to the facility again, to their locals primarily.

Speaker 0

Okay. Perfect. Thank you very much. I will hop back in here.

Speaker 2

Thank you.

Speaker 1

That completes the question and answer session. Ladies and gentlemen, this concludes today's call. Thank you all for joining. You may now.