Health Check: How Prudently Does Planet 13 Holdings (CSE:PLTH) Use Debt?

The external fund manager backed by Berkshire Hathaway's Charlie Munger, Li Lu, makes no bones about it when he says 'The biggest investment risk is not the volatility of prices, but whether you will suffer a permanent loss of capital.' So it might be obvious that you need to consider debt, when you think about how risky any given stock is, because too much debt can sink a company. We note that Planet 13 Holdings Inc. (CSE:PLTH) does have debt on its balance sheet. But should shareholders be worried about its use of debt?

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When Is Debt Dangerous?

Generally speaking, debt only becomes a real problem when a company can't easily pay it off, either by raising capital or with its own cash flow. Ultimately, if the company can't fulfill its legal obligations to repay debt, shareholders could walk away with nothing. However, a more frequent (but still costly) occurrence is where a company must issue shares at bargain-basement prices, permanently diluting shareholders, just to shore up its balance sheet. By replacing dilution, though, debt can be an extremely good tool for businesses that need capital to invest in growth at high rates of return. When we think about a company's use of debt, we first look at cash and debt together.

How Much Debt Does Planet 13 Holdings Carry?

The image below, which you can click on for greater detail, shows that at March 2025 Planet 13 Holdings had debt of US$8.85m, up from US$884.0k in one year. However, it does have US$15.6m in cash offsetting this, leading to net cash of US$6.71m.

How Strong Is Planet 13 Holdings' Balance Sheet?

Zooming in on the latest balance sheet data, we can see that Planet 13 Holdings had liabilities of US$25.3m due within 12 months and liabilities of US$67.8m due beyond that. Offsetting these obligations, it had cash of US$15.6m as well as receivables valued at US$1.63m due within 12 months. So its liabilities outweigh the sum of its cash and (near-term) receivables by US$75.9m.

Given this deficit is actually higher than the company's market capitalization of US$66.6m, we think shareholders really should watch Planet 13 Holdings's debt levels, like a parent watching their child ride a bike for the first time. Hypothetically, extremely heavy dilution would be required if the company were forced to pay down its liabilities by raising capital at the current share price. Planet 13 Holdings boasts net cash, so it's fair to say it does not have a heavy debt load, even if it does have very significant liabilities, in total. There's no doubt that we learn most about debt from the balance sheet. But it is future earnings, more than anything, that will determine Planet 13 Holdings's ability to maintain a healthy balance sheet going forward. So if you want to see what the professionals think, you might find this free report on analyst profit forecasts to be interesting.

Check out our latest analysis for Planet 13 Holdings

Over 12 months, Planet 13 Holdings reported revenue of US$122m, which is a gain of 26%, although it did not report any earnings before interest and tax. With any luck the company will be able to grow its way to profitability.

So How Risky Is Planet 13 Holdings?

We have no doubt that loss making companies are, in general, riskier than profitable ones. And we do note that Planet 13 Holdings had an earnings before interest and tax (EBIT) loss, over the last year. Indeed, in that time it burnt through US$2.1m of cash and made a loss of US$44m. While this does make the company a bit risky, it's important to remember it has net cash of US$6.71m. That kitty means the company can keep spending for growth for at least two years, at current rates. With very solid revenue growth in the last year, Planet 13 Holdings may be on a path to profitability. Pre-profit companies are often risky, but they can also offer great rewards. The balance sheet is clearly the area to focus on when you are analysing debt. But ultimately, every company can contain risks that exist outside of the balance sheet. Case in point: We've spotted 3 warning signs for Planet 13 Holdings you should be aware of.

If you're interested in investing in businesses that can grow profits without the burden of debt, then check out this free list of growing businesses that have net cash on the balance sheet.

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This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.