Tourism Weakness And Price Compression Will Limit Long-Term Cannabis Retail Recovery

Catalysts

About Planet 13 Holdings

Planet 13 Holdings operates cannabis retail superstores and neighborhood dispensaries supported by vertically integrated cultivation and production facilities in select U.S. states.

What are the underlying business or industry changes driving this perspective?

• Continued tourism weakness and discount driven local traffic at the Las Vegas SuperStore risk structurally lower average selling prices and basket sizes. This could cap retail revenue recovery and limit operating leverage in Nevada.
• Persistent price compression and heavy promotional activity in Florida, even after flower quality improves and the BHO lab comes online, may prevent the company from converting volume gains into sustainable gross margin expansion or positive earnings in that market.
• Ongoing regulatory delays around facility approvals and potential changes to hemp and THC rules could slow product launches and constrain mix shift into higher margin concentrates. This could keep overall profitability below expectations for longer than current forecasts assume.
• Industry wide oversupply and wholesale pricing pressure in Nevada, combined with Planet 13’s excess cultivation capacity, increase the risk of recurring inventory write downs and low margin clearance sales that depress gross profit and adjusted EBITDA.
• A strategic focus on maintaining cash, limiting new store openings and exiting California reduces growth optionality. This could translate into slower long term revenue expansion and muted earnings power relative to current valuation assumptions.

Assumptions

This narrative explores a more pessimistic perspective on Planet 13 Holdings compared to the consensus, based on a Fair Value that aligns with the bearish cohort of analysts. How have these above catalysts been quantified?

• The bearish analysts are assuming Planet 13 Holdings's revenue will grow by 2.4% annually over the next 3 years.
• The bearish analysts are not forecasting that Planet 13 Holdings will become profitable in next 3 years. To represent the Analyst Price Target as a Future PE Valuation we will estimate Planet 13 Holdings's profit margin will increase from -79.1% to the average CA Pharmaceuticals industry of 3.1% in 3 years.
• If Planet 13 Holdings's profit margin were to converge on the industry average, you could expect earnings to reach $3.6 million (and earnings per share of $0.01) by about December 2028, up from $-85.7 million today.
• In order for the above numbers to justify the price target of the more bearish analyst cohort, the company would need to trade at a PE ratio of 15.8x on those 2028 earnings, up from -0.7x today. This future PE is greater than the current PE for the CA Pharmaceuticals industry at 14.4x.
• The bearish analysts expect the number of shares outstanding to grow by 0.06% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.45%, as per the Simply Wall St company report.

Risks

What could happen that would invalidate this narrative?

• Tourism headwinds in Las Vegas may prove cyclical rather than structural, as October already showed a five percent month over month revenue uptick and event driven traffic is restoring the historical mix of higher spending tourists. This could support a recovery in retail revenue and operating leverage.
• Florida appears to have passed a trough, with improved flower quality driving an eight percent sales increase versus the Q3 monthly average and the BHO lab expected to add higher margin concentrates in early 2026. This could support sustained top line growth and expanding gross margins.
• The divestiture of California removes a structurally unprofitable market and is expected to add roughly three hundred thousand to three hundred and fifty thousand dollars of monthly cash flow and margin benefit. This could accelerate improvement in consolidated earnings and net profit over time.
• Company wide cost discipline, including double digit sequential reductions in sales and marketing and G&A, plus limited remaining capital expenditure and access to low cost revolving credit, may allow Planet 13 to stabilize its balance sheet and improve net margins faster than expected.

Valuation

How have all the factors above been brought together to estimate a fair value?

• The assumed bearish price target for Planet 13 Holdings is CA$0.2, which represents up to two standard deviations below the consensus price target of CA$0.84. This valuation is based on what can be assumed as the expectations of Planet 13 Holdings's future earnings growth, profit margins and other risk factors from analysts on the more bearish end of the spectrum.
  
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of CA$2.02, and the most bearish reporting a price target of just CA$0.2.
  
• In order for you to agree with the more bearish analyst cohort, you'd need to believe that by 2028, revenues will be $116.5 million, earnings will come to $3.6 million, and it would be trading on a PE ratio of 15.8x, assuming you use a discount rate of 6.4%.
  
• Given the current share price of CA$0.24, the analyst price target of CA$0.2 is 20.1% lower. Despite analysts expecting the underlying business to improve, they seem to believe the market's expectations are too high.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.