Darren415
I previously discussed Planet 13 (OTCQX:PLNH) two months ago, highlighting it as an undervalued cannabis stock. Since then, its price has dropped by 13%. After its Q2 report, my confidence in the company has only increased. In this article, I delve into its fundamental aspects, analyze its performance, and compare its valuation with industry peers.
Q2 Performance Highlights for Planet 13
In Q2, Planet 13 experienced substantial revenue growth, driven by the recent acquisition of VidaCann in Florida. The company reported a record $31.1 million in revenue, marking a 36% increase sequentially and 20% higher than the previous year. VidaCann contributed $7.3 million during its partial quarter. Had VidaCann been part of Planet 13 for the entire quarter, revenue would have been $36.8 million.
VidaCann not only bolstered revenue but also increased gross profits and adjusted EBITDA. The company reported a gross margin of 50.9% and disclosed a pro forma gross margin of 46.4%. Adjusted EBITDA for Q2 was $3.2 million, compared to $2.8 million the previous year and breakeven in Q1.
Analysts foresee significant growth for Planet 13, with projections indicating an 83% increase in revenue by 2024 to $180 million, and revenue of $250 million in 2025. While forward adjusted EBITDA estimates are not available, a 12% adjusted EBITDA margin would result in $30 million in adjusted EBITDA.
The company updated its balance sheet post the VidaCann acquisition, with net cash of $16.4 million and a tangible book value of $87.9 million.
Analysis of Planet 13’s Chart Behavior
Despite my initial belief in limited downside due to its robust balance sheet and low valuation, the stock experienced a significant decline, reaching an all-time low before the Q2 report. The reasons for this downturn are uncertain, but the stock’s recent 15.7% rally seems inconsequential. Potential support levels lie at $0.40, with resistance at $0.80 and $0.90, and warrants from an equity offering at $1.04.
Planet 13’s decline is concurrent with the broader pullback in the cannabis sector, particularly impacting MSOs. A comparison of Planet 13’s performance with Tier 1 and Tier 2 names since the market peak on 4/30 reveals its year-to-date decline of 25%, making it one of the worst performers in 2024.
Case for Planet 13 as an Undervalued Stock
Planet 13 stands out among publicly traded MSOs due to its positive tangible book value and net cash position. Currently trading at 1.8X tangible book value, the company presents a compelling valuation proposition.
While investors tend to favor larger MSOs, these companies face growth challenges given their market saturation and M&A constraints. In contrast, Planet 13 has untapped markets to explore and potential acquisition opportunities, positioning it favorably for expansion.
Despite being overlooked by many investors, Planet 13’s growth prospects for 2025 are promising. Based on a year-end target of $0.86, derived from an enterprise value of 8X projected adjusted EBITDA of $23 million in 2025, the company’s future outlook appears optimistic.
Final Thoughts on Planet 13
Given the impending regulatory changes in the cannabis industry, particularly related to rescheduling and the potential repeal of 280E, the outlook for companies like Planet 13 looks favorable. With a diversified portfolio that includes exposure to MSOs and a significant investment in Planet 13, the company holds promise for substantial growth and value appreciation.
While uncertainties persist, Planet 13’s resilient balance sheet and strategic positioning bode well for its long-term performance. Investors stand to benefit from the company’s expansion into new markets and potential adult-use opportunities, making it an attractive investment option in the cannabis space.
Editor’s Note: This article covers securities that are not listed on major U.S. exchanges. Readers are advised to consider the associated risks before investing in these stocks.
