The marijuana industry witnessed higher sales during the pandemic as many states legalized cannabis. At one point, all the bigger, multistate operators (MSOs), caught investors' attention. As with any evolving industry, the cannabis industry is also facing setbacks due to delays in legalization reforms at the federal level. However, one cannot deny the opportunities that lie ahead for this industry.
While all eyes are on the bigger players, many smaller companies often get sidelined. Nevada-based Planet 13 Holdings (PLNH.F -0.78%), a vertically integrated cannabis producer, might be a smaller company by market cap, but it is playing a serious game. Its central marketing strategy, in particular, has caught investors' attention. Let's take a look at what it is, and why Planet 13 could be one amazing growth stock to buy for the long haul.
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The "SuperStore" strategy is working
Planet 13 may not be a high revenue-generating company, but its "SuperStore" strategy has put it on the map. Unlike other MSOs, the company doesn't own many stores, but it does own and operate massive dispensaries that give customers a unique retail experience. Its Las Vegas store is the world's largest cannabis space where it sells a wide range of branded products, including edibles, vapes, and cannabis extracts.
For now, this $480 million market cap company only operates in Nevada and California, but it's slowly spreading its area of operation. In its recent third quarter, revenue increased 45% year over year to $33 million with positive adjusted earnings before interest, taxation, depreciation, and amortization (EBITDA) of $3.5 million. Management stated the sales growth can be accredited to its SuperStore in Las Vegas. I believe building a massive dispensary in a place like Vegas was a smart strategy. It acts as a tourist attraction that draws in customers who wouldn't necessarily search for small retail stores in Vegas and would rather have the type of experience a SuperStore offers.
Moving slowly toward consistent growth
Being vertically integrated has its perks. Planet 13 controls everything from growing to manufacturing to selling its products. However, the pandemic-required lockdowns challenged sales at its stores. Now that restrictions are slowly subsiding, the company expects more opportunities for expansion this year.
In December, Cann -- California's leading cannabis-infused beverage company -- launched its store in Planet 13's Las Vegas dispensary. Management also stated during the Q3 earnings release they plan to open another SuperStore in Chicago where they won a dispensary license. Illinois has already been experiencing a dramatic increase in cannabis sales ever since it legalized recreational cannabis in 2020. Last year, adult-use sales in the state crossed the $1 billion sales record of 2020.
Planet 13 has also acquired a Florida license and plans to "open multiple neighborhood and SuperStores in the state." Medical cannabis is legal in Florida, but recreational use is still prohibited, although efforts are ongoing to make cannabis available for recreational use as well. It will be interesting to see how customers react to Planet 13's SuperStores and its variety of products in Florida where Trulieve Cannabis is dominating the cannabis space with 112 dispensaries. Trulieve is also a much stronger company with total revenue close to $1 billion for the year. Planet 13 will also face competition from other MSOs in the state.
To strengthen its footprint in California, the company announced its plan to acquire cannabis producer Next Green Wave Holdings. The deal is valued at 91 million Canadian dollars.
Image source: Getty Images.
An excellent addition to your portfolio
With the marijuana industry expanding and heading toward federal legalization, the SuperStore strategy of Planet 13, in my view, will prove to be fruitful.
The stock has gained 51% over the last three years, versus a negative 75% return for the widely watched industry bellwether, the Horizons Marijuana Life Sciences ETF. The way the marijuana industry is expanding, experts believe it could double by 2025. And I believe Planet 13's stock price will surge more when that happens.
It is not too late to include this growth stock in your portfolio. Trading at a price-to-sales (P/S) ratio of 5.6, Planet 13 is cheap right now. Analysts see an upside of 149% for Planet 13's stock for the next 12 months. The company is also trading more than 50% below its 52-week high, making it the right time to buy the dip.
