There's no sugarcoating it: Marijuana stocks had an awful 2019. After beginning the year ablaze, cannabis stocks ended the final nine months in a pretty steep downtrend. Plagued by supply issues in Canada and high tax rates in the U.S., cannabis stocks have felt the pressure of a resilient black market and ongoing bottom-line losses.
While most investors are, not surprisingly, a bit gun-shy about investing in pot stocks (and who could blame them after last year's performance?), there are a few standouts in the industry. Perhaps most interesting is that these exceptions aren't always the largest companies or best-known names. If you do some digging, I believe you'll see that small-cap, vertically integrated multistate operator (MSO) Planet 13 Holdings (OTC:PLNHF) is one of the best buys in the cannabis space in 2020.
Best of all, there's not a reason or three I feel this way. Instead, there are 10 reasons Planet 13 is a pot stock you'll want to own.
1. A truly unique customer experience
Arguably the top reason to consider Planet 13 above all other MSOs is the fact that there's no other experience remotely close to what its SuperStore offers in Las Vegas, Nevada. Located just west of the Strip, the SuperStore spans 112,000 square feet, which is about 7,000 square feet larger than the average Walmart. This is a store that isn't happy simply being a place to buy weed. It's the go-to location for any cannabis enthusiast who's visiting Vegas, and this experience can't be matched by other dispensary operators.
2. Technology that's meant to drive sales and convenience
Having visited the SuperStore firsthand, I can say with confidence that one of the many reasons it's been so successful in the early going is its incorporation of technology. There are roughly three dozen point-of-sale systems set up throughout the store, as well as a small number of self-pay kiosks that are designed to expedite things for customers who know what they want. Though consumers still need to wait for a budtender to retrieve their items, these kiosks are instrumental in helping to personalize the experience.
3. Margin-driving layout at the SuperStore
Another factor that plays a role in the SuperStore's success is its layout. Despite the store being large, the most popular product (dried cannabis flower) is located toward the back. This is important, as it requires consumers to walk past higher-margin branded and derivative pot products at the front of the store, as well as past the point-of-sale registers. I'd contend that this layout is at least partly responsible for Planet 13's rising average paid tickets.
4. Top-notch transparency
At a time when investors have seriously lost trust in marijuana stocks, this company helps gain it back. Since opening the doors to the SuperStore on Nov. 1, 2018, Planet 13 has reported monthly data on foot traffic, paying customers, average ticket price, and the percentage of total sales it's been responsible for in Nevada. This latter data point is usually a month or two in arrears. The point is, there aren't many surprises come earnings time with Planet 13, and that's something Wall Street and investors seem to appreciate.
5. Foot traffic rose significantly over the first year
Clearly, Planet 13 is doing something right. Between November 2018 and October 2019, the average number of daily visitors skyrocketed from 1,843 to 3,300, with paying customers increasing from 1,406/day to 1,923/day. Considering that the SuperStore recently completed its Phase 2 expansion, which included the opening of a restaurant and consumer-facing processing center, the expectation is that foot traffic will continue to improve throughout 2020.
6. Average ticket prices are trending higher
While it's great that customer traffic data is heading higher, what's more important for Planet 13 is that it's converting these consumers into paying customers. According to the company's monthly data releases, the average paying customer ticket has increased from $79.82 in November 2018 to an all-time high of $100 in December 2019. The experience the SuperStore offers, along with its unparalleled selection, use of technology, and layout, are all encouraging consumers to open up their wallets.
7. Major SuperStore build-out expenses are nearly over
I believe it's also important to focus on the fact that a number of bigger expenses tied to the SuperStore are now in the rearview mirror. These expansion costs, coupled with the ramp-up of the SuperStore, are the reason Planet 13 has lost money to this point. However, some of the company's largest outlays are now behind it, which should push the SuperStore toward operating profitability.
8. Located in what might be the most lucrative U.S. market
Furthermore, don't overlook that Planet 13 is operating in what I've referred to as the most lucrative market in the United States. Even though California outsells Nevada, the State of the Legal Cannabis Markets report from Arcview Market Research and BDS Analytics predicts that Nevada will sport the highest per-capita cannabis spending by 2024. This makes investments in the Silver State particularly worthwhile.
9. A new location will open in the second half of 2020
Planet 13 is also looking to take its now-successful blueprint to another state. By the second half of 2020, it'll be opening a 40,000-square-foot location in Santa Ana, California, just minutes from popular tourist destination Disneyland. When open, Planet 13 will be operating in two core cannabis markets, but each will have its own unique focus.
10. Profitability is right around the corner
Last but not least, Planet 13 looks to be on the verge of pushing toward profitability. With expansion-based costs now in the past at the SuperStore and the Santa Ana location expected to begin generating sales in the second half of this year, Wall Street is pegging Planet 13 for a full-year profit of $0.08 per share on $93.5 million in sales. This places the company at a reasonable 22 times 2020 earnings and only 2.5 times sales.
It's for all these reasons that I believe Planet 13 deserves a spot in cannabis stock investors' portfolios.