The saying goes, 'What happens in Vegas, stays in Vegas." Unfortunately for cannabis, not much is happening in Vegas these days. The pandemic and fear of traveling has caused the city's tourist crowd to disappear. The dispensaries who depended on these tourist dollars have also seen their business plans go up in smoke. Cannabis data firm Headset has said that states depending on tourists had seen sales drop as much as 56%.
Canaccord Genuity analyst Bobby Burleson has downgraded 1933 Industries (TGIFF) to Hold from Speculative Buy based on the uncertainty around the Vegas recovery. He wrote, "While we view cost cutting and recent management changes positively, Covid's impact on Las Vegas tourism poses significant medium-term risk to TGIF revenues in our view. Given modest cash levels relative to burn rate, we are downgrading shares to Hold from Spec Buy as we monitor the pace of tourism recovery."
So just what is the cash situation at 1933? Burleson noted that the company ended its last quarter with $4.9 million in cash, a drop from $9.1 million in the second quarter of fiscal year 2020. The company has not ignored the situation and has stepped up efforts to right the ship and adjust to the perils of the pandemic. It cut its SG&A by nearly 50%, limited all capex plans and delayed its debt payments. Still, the company is dependent on the Vegas recovery, which is difficult to call as parts of the country enter a new round of closures.
Just Keep Growing
Despite the lack of tourists, 1933 kept the cultivation facilities at full capacity. In March, the company completed a second harvest and the analyst believes the company will have the supply ready for when demand recovers. Consumers though may be wary that the product could end up being dated and not very fresh.
The company also accepted the resignation of its CEO Chris Rebentisch and is operating under interim CEO Paul Rosen. Rosen was once the CEO of PharmaCann. Eugene Ruiz joined as president and Burleson pointed out that he has experience in turning around companies.
Planet 13 Holdings (PLNHF) is the best known of the Vegas cannabis companies. The company can now accept up to 264 customers in its large space, however experts predict it could take 12-18 months for the market to recover. Planet 13 has said that since most entertainment options at the casino's aren't available yet, it could be a substitution for the tourists with its aerial orb show and customer-facing cannabis production facility.
Like 1933, Planet 13 has also made adjustments to weather the storm. The company reported that cash of $12.8 million at the end of 2019 versus 2018's $19.4 million. The company's cost of goods sold in the fourth quarter was $7 million and total expenses were $9.6 million. The company said it has pared back expenses, reduced fixed costs and expected that the SuperStore operations will be breakeven or better if the shutdown is extended indefinitely.
The company forecast a flat first quarter since the shutdown didn't begin in earnest until March. The second quarter is probably where most of the pain will be experienced. Planet 13 shifted to a delivery model to attract more residents. Prior to the pandemic, locals only accounted for 50% of the sales and the company is hoping to appeal to more residents and then retain them going forward.
The Nevada Dispensary Association reported that in fiscal year 2019 the state collected $172 million in excise tax, sales tax, and licensing fees. Total taxable sales for 2019 were $692 million, a 20% increase from fiscal year 2018. The group released a report that projected by 2024 the collection of excise tax, sales, tax, and licensing fees will be as high as $237 million with total sales at $956 million. However, that was before the pandemic, and now the group says, "The projections going forward would likely fall short, especially given a drop in tourism and loss of sales in March and April, typically big sales months for Nevada dispensaries."