3 Jun 2021
Earlier this week, the cannabis industry received a major boost when Amazon (AMZN) reported to support federal legislation to legalize cannabis.
This comes a few months after Uber (UBER) CEO Dara Khosrowshahi stated that the business could expand into cannabis if it’s decriminalized under federal law. Currently, cannabis delivery services are legally available for adults in New York, California, Nevada, and Oregon.
After these developments, we believe the cannabis sector is nearing an inflection point and expect federal legalization in the US to be the most significant potential catalyst for the entire sector.
One of the ways the cannabis sector was impacted by the COVID pandemic is related to the advancement of the cannabis delivery vertical. Prior to the pandemic, Eaze was the best known cannabis delivery platform. More than one year after COVID shut down the US, there are several operators that are capitalizing on the cannabis delivery vertical and this is a trend that our readers should be aware of.
If Uber and Amazon enter the cannabis delivery market, we expect companies like Eaze to come under heavy pressure. Although many people expect to see cannabis delivery platforms acquired by these multinational corporations, we believe that Uber and Amazon have the necessary infrastructure to immediately capitalize on the cannabis delivery opportunity. For this reason, we do not expect these large corporations to acquire platforms like Eaze and want to highlight a cannabis operator that has benefited from the cannabis delivery market.
Planet 13: An Execution and Growth Story to be Aware of
Last year, we highlighted Planet 13 Holdings (PLTH.CN) (PLNHF) due to how it was positioned to capitalize on the cannabis delivery market in Nevada ahead of the pandemic. Months before China reported its first case of COVID, the cannabis retailer was already offering a cannabis delivery service to medical and recreational customers in Las Vegas.
When Nevada issued a stay-at-home order in March, many Las Vegas cannabis consumers started to utilize Planet 13’s delivery service and this a trend that caught our attention. As a result, the company quickly became a major beneficiary of the stay at home order that was issued and its decision to develop a cannabis delivery platform resulted in Planet 13 reporting strong revenue growth.
Prior to the pandemic, Planet 13’s one location in Las Vegas accounted for more than 10% of all retail cannabis sales in Nevada in the quarter. The strength of the business pre and post-pandemic leave us confident in the company’s long-term outlook and is an opportunity that we are going to continue to closely follow.
Earlier this week, Planet 13 reported that bill 341 was passed in Nevada. The legislation will allow existing licensed dispensaries to operate a consumption lounge that is co-located in the dispensary. Since inception, Planet 13 has been highly focused on the consumption lounge vertical and we expect this aspect of the story to record impressive advancements in the back half of the year.
Planet 13 has reserved an expansive dedicated space within its Las Vegas SuperStore for a consumption lounge. Going forward, the management team plans to execute on a strategy to build out the consumption lounge as soon as possible. We are bullish on this opportunity for Planet 13 and expect the opening of a consumption lounge to serve as a major revenue generator for the business in future quarters.
One of the reasons for our favorable view on Planet 13 and the cannabis delivery market is related to the amount of work that has already been completed. The company’s Las Vegas location is one of the only dispensaries that has the space that is needed for a consumption lounge. Another reason for our positive view is related to how close the store is to the Las Vegas Strip.
For two years, Planet 13 has been highly focused on the consumption lounge opportunity. We expect the company to set the bar for other Nevada dispensaries that want to capitalize on the cannabis consumption market and believe that Planet 13 is one of the only platform that has the resources to turn the store into a Vegas style club.
1933 Industries: A Potential Beneficiary of Las Vegas Consumption Lounges
When compared to Planet 13, 1933 Industries (TGIF.CN) (TGIFF) has the ability to execute on a differentiated strategy to capitalize on the consumption lounge market in Las Vegas. Since the Las Vegas cannabis company does not own dispensaries, it will not be able to open a consumption lounge but this does not mean it will not benefit from it.
Although 1933 Industries does not have the property or licenses to capitalize on this emerging vertical, it owns a diverse portfolio of cannabis brands and products. When consumption lounges open, we expect the company’s products to be available for sale at consumption lounges and are bullish on the amount of value that could be generated through this.
2020 was a challenging year for 1933 Industries and this is a company that our readers should be aware of. The stock has rallied almost 100% off its lows from 2020 and we will continue to monitor the trend from here. Although 1933 Industries has fallen approx. 30% from its 2021 highs, we are favorable on how the story has advanced so far this year and believe the market is discounting the growth prospects that are associated with it.
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