With more and more states legalizing medicinal and adult-use cannabis, it may seem as if investing in this space would be a no-brainer. While some may feel that way, in reality there are still legal and regulatory challenges that have held back what otherwise would likely be a booming industry. Planet 13 Holdings (PLNH -3.18%) has a unique strategy that just might give it a leg up in the cannabis space. So what will happen to Planet 13's stock in 2022? Will it skyrocket to the moon or crash back to Earth?
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Recovering from pandemic restrictions
Planet 13 is a vertically integrated cannabis company, meaning it does everything from growing cannabis to testing, distributing, and selling. It mainly operates in Nevada and California but is already expanding beyond those two states. What sets the business apart is its unique retail experience. In both Las Vegas and Orange County, California, Planet 13 operates "Superstores," massive retail locations where customers can shop for a variety of owned-brand and other top-selling cannabis products. The Las Vegas location is the world's largest cannabis store and is located just off the Vegas Strip.
Because of its reliance on retail foot traffic for a portion of its sales, Planet 13 did see some headwinds as Nevada and California faced COVID lockdowns and capacity restrictions. However, in the most recently reported Q3 earnings, Planet 13 posted year-over-year revenue growth of 45%, and management expects continued improvement as restrictions abate.
The business is not lounging around
It's not hard to see the appeal of this Superstore business model in an industry with growing appeal and a slow march toward legalization and deregulation. And a recent decision in Nevada to allow cannabis consumption lounges has Planet 13's management excited and ready to offer one at its Las Vegas location as soon as it's able to secure a license. This has the potential to increase foot traffic to the store and should drive revenues as shoppers not only buy products, but also stay and consume them. While marijuana consumption is not prohibited in California, the city of Santa Ana -- where a Planet 13 Superstore is located -- has not yet made a decision. Considering its plans for Nevada, it seems a safe bet that Planet 13 will offer a lounge in California as well once it's permitted.
2022 might be the beginning of a bull run
While no one can predict the future, and pandemic-related curve balls keep being thrown our way, it's hard not to see a bright future for Planet 13. In addition to the two Superstores currently in operation, Planet 13 has new opportunities coming in the near future. In Chicago, the company was the winner of a lottery to secure a dispensary license and is currently seeking a location for a Superstore. In Florida, Planet 13 purchased a medical marijuana license. Not only is Florida a huge market with adult-use potential, the laws for medical licenses are different, and there's no restriction on how many locations Planet 13 can open. The company's plan is to open a network of neighborhood stores over the next year.
Before investors get too excited, it's important to remember that this is still a risky industry with potential regulatory and legal obstacles all companies must navigate. But for those looking to get exposure to the cannabis space, Planet 13 offers some serious potential at an attractive price. Trading at a price-to-sales (P/S) ratio of 5, Planet 13 is the cheapest it has been since the summer of 2020. Considering its potential and its price, I think Planet 13 could skyrocket in 2022 and make investors very happy in the process.
