Entertainment is not confined to inside casinos in Las Vegas, as tourists catch can catch the water show at the Fountains of Bellagio, which propel water more than 450 feet toward the sky, while walking on the Strip, or simply stand and look up at the light displays at the Freemont Street Experience.
Planet 13 has embraced and embodied that entertainment culture in its SuperStore, apparent from the moment visitors step foot inside the dispensary, with its responsive digital koi pond and aerial orb show—it’s all about creating an experience and dazzling customers, especially tourists.
In building that 112,000-square-foot cannabis retail facility, there were lessons that founders and co-CEOs Robert Groesbeck and Larry Scheffler learned, and from their experience launching their first store, Medizin, in Nevada’s medical market before adult-use sales were legal in the state. But economic realities have shifted dramatically since they launched the Planet 13 SuperStore in 2018, and even since October 2021, when the company’s Harvest Health and Recreation acquisition in the Florida market was finalized.
While the company is known for its extravagant dispensaries, operations are now focused on maximizing efficiency in light of inflation and other economic challenges, Groesbeck says.
“As we tell our managers now, when you’re putting orders in to purchase, it’s not what you want, it’s what you absolutely have to have to operate,” he says. “There really are no luxuries here.”
In this conversation ahead of his session at Cannabis Conference, Groesbeck shares early lessons learned as he and Scheffler were building Medizin and later Planet 13, and how they are using that experience to navigate this next economic cycle. He also provides insights for how cannabis companies can operate more efficiently in this “uncharted territory.”
Michelle Simakis: Can you talk a little bit about the experience of opening up Medizin in Nevada’s medical market, and one lesson that you learned or something that you did differently when you later opened Planet 13 for adult-use sales?
Robert Groesbeck: When we opened up Medizin [in 2016], we were in a medical market only. So, it was a bit challenging, to say the least. We realized early on that location means everything. It was a great location and still is. We probably have another half dozen or so dispensaries in near proximity. But at the time, [although] it was an ideal location, it was small and too far away from the Las Vegas Strip. We recognized that right away, we didn’t have the ability to expand, so it created some challenges. That’s one of the things that we learned early on, that location is pretty critical to execution, and if you don’t have the right location, things aren’t going to go according to plan in the long term.
MS: Considering you were operating in the medical market, was proximity to the Las Vegas Strip strategic from the medical market perspective or for long-term expansion into a future adult-use market?
RG: At the time, we didn’t know we were going to have adult-use. We felt pretty comfortable that the voters supported adult-use, and that turned out to be the case. (Voters approved a ballot initiative in 2016 to legalize adult-use cannabis.) But back in those days in Nevada, we had what was called reciprocity. So, we were able to take cards from other jurisdictions, primarily California of course … and so we were able to use those, which really saved us. Because I would say over 90% of our customers early on outside of Nevada were Californians. When we opened the business, it was always our objective and hope that the market would transition to adult use, which it ultimately did. There was a bit of a risk of course, because if it hadn’t happened, the medical market wasn’t viable, certainly in Nevada. I think the highest numbers the state ever got to were 27,000 or 30,000 [patients,] and that was not enough to support [the] dispensaries in the market at the time. (Editor’s note: There are now about 13,000 active medical marijuana cardholders in Nevada. According to an article published in the Las Vegas Sun in April 2018, in May 2017, there were 28,300 active cardholders.)
So, when we found the location where [Planet 13] is now, we jumped on it immediately. At the time, we were reliant upon those medical card holders from other jurisdictions, primarily from California, and most of them were staying on the strip. It was incumbent upon us to do everything in our power to draw attention to our facility so they would come out and see us. But we realized we were just too far. We needed to be much closer to our customer base. (Editor’s note: Medizin is about 5 miles from the Las Vegas Strip, whereas Planet 13 is just off the strip, about a mile from Wynn Las Vegas.)
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When rules were originally adopted and communities allowed cannabis businesses, they’d usually stick you in really undesirable areas. That’s really evolved considerably now. Now we’re locating facilities in traditional mall/retail settings, so things are improving from that standpoint. But at the start it was challenging. We didn’t have a lot of options, and with limited locations, you had to grab what you could to get open.
MS: Planet 13 reflects the Las Vegas entertainment culture, with interactive displays, an orb show – it’s all about the Vegas experience. It appears that no expense was spared, but Planet 13 reported roughly $62 million on the balance sheet at the end of 2021, (as recently reported in the June 2022 cover story in Cannabis Dispensary magazine.) How have you been able to do both things, where you invest in engaging experiences but without incurring debt?
RG: For us, Larry [Scheffler, co-CEO of Planet 13] and I both come from a school of thought that you don’t want to be burdened with debt. Debt in the cannabis space is extremely expensive, and a year ago, we didn’t anticipate how the markets were going to turn as they have. They are more troublesome today. Debt rates were coming down a bit, and it may have been more attractive to borrow, but now in light of the inflationary environment we are in, things are beginning to go back in the wrong direction We’re seeing exorbitantly high rates. We decided early on we didn’t want to get into the debt game because it’s risky and markets change, and you’ve seen that. Some would say we were lucky. Some would say we were visionary. I just know our balance sheet is strong.
We were able to fund our growth early on through the equity markets, and we were fortunate there that we got a lot of buy-in to the concept from our shareholders and capital markets. But that’s dried up now. There really is no vehicle there in light of where the economy is. We were very careful in how we were spending our money initially, and we were fortunate to have bankrolled an excess of $100 million at one point for future expansions and development, which allowed us to make that transition into the Florida market when we acquired the Harvest [Health and Recreation] license last October. So again, if we didn’t have that cash on the balance sheet, we wouldn’t be in a position to do any of that, particularly in light of the current market setting, so from that standpoint we were very fortunate. We are going to continue to be smart. We’re trying to cut costs where we can and run as nimbly as we can as we run through this economic cycle.
MS: The economic environment has changed quickly, as you noted. Can you talk about where you’re cutting costs or where it might make sense for other cannabis companies to look to as they are navigating higher costs for everything?
RG: We’ve taken a systematic approach to every operating expense and running through where we can cut costs, where we can reduce costs, and that starts from your ongoing contracts, whether it be security, maintenance, things of that nature. We’re looking to see where we can be more efficient and make cuts, at least short-term reductions just to be viable going forward. We don’t know how long this is going to last, but we do know our costs are going to go up. We’re no different than the folks at home trying to pay for gas and pay mortgages. We have the same obligations. We have fleets to run and fuel and insure. We have rent payments due on our various properties. It’s a challenging environment, so I think it’s incumbent upon anybody in this space to take a hard look at every component of your operating expenses and see where you can make cuts. As we tell our managers now, when you’re putting orders in to purchase, it’s not what you want, it’s what you absolutely have to have to operate. There really are no luxuries here. We are going to run as lean as we can, and we are going to weather to this storm. We are fortunate again that we don’t have debt on our balance sheet, so we’ve got staying power, we can ride this thing out. But I think we are going to see some massive changes in the near term.
MS: How does this economic downturn compare to the challenges of the COVID pandemic?
RG: We thought COVID was the most dramatic impact to our business certainly, the ups and downs there, and we transition out of COVID and now we jump into an economy that’s just horrific. I think this is much more challenging to be honest with you because it’s hitting us from all fronts. We were lucky during COVID, we were shut down completely for a period of time, but then we were deemed an essential business and allowed to reopen at limited capacity.
The problem now that we’re encountering is the customers want the product, they want THC and they want cannabis, but it’s like the barber or the nail salon—when times get tough, that’s the first thing people cut. It’s the things that they want to have and accustomed to having, but priorities are rent, gas and we’re seeing that. And it’s a challenging environment to find employees. It’s a really difficult time, and unfortunately, I think we have some headwinds to deal with.
MS: Are you seeing the same trends in the California market?
RG: Yes, we’re feeling the impact there. It’s just as acute, and in some respects, more so. The inflationary environment in Southern California is even worse than Nevada, fuel prices are substantially higher, rents are substantially higher. It’s a very tough environment and customers now are looking for bargains. Brand loyalty is not nearly as strong in this type of environment. It’s incumbent upon us as operators to offer those incentives to remain competitive and ride this out. Entry level, lower-priced brands … customers seem to be gravitating toward that.
MS: Where do you think cannabis companies have opportunities to operate more efficiently?
RG: Every company is unique. Take a look at your marketing budgets, marketing can get very expensive, very quickly. You have to market, you have to have your name out there, but at what cost? We’ve taken a real hard look at our billboards. Static boards are extremely expensive and it’s hard to quantify the value, but that’s just one example. We’re looking at every component of our operations to see if we can get tighter, get leaner. Unfortunately, with less traffic and with less revenue, you have to look at staffing issues. Do you make cuts, and if so, where and by how much? I think a lot of companies are making those hard decisions now. It’s the reality of where the market is.
MS: You mentioned you can ride out this economic downturn and weather this storm. What gives you hope right now?
RG: We’ve seen ups and downs in the industry …. Those of us that have been doing this for a while are pretty hardened to this. I just haven’t seen anything of this level yet. Particularly for the MSOs, the publicly traded companies, it’s just been a significant bleed for the last eight, nine, 10 months. We need a catalyst. And I don’t know what that catalyst is now. We’ve had a number of bills come out of the [U.S.] House, we’ve had senators talk about bills, the problem is everybody in Washington just talks. There’s no meaningful relief. We need banking relief desperately. We need tax relief. We need to get cannabis off of Schedule 1. This is absolutely critical to the long-term viability of this industry. And we just can’t get the traction or the attention that we need.
And tying back to my earlier point with debt, unfortunately debt was attractive. Debt made sense in a lot of instances because revenues were up, companies were growing at a very robust clip. But when things contract and you still have those debt payments and obligations and the interest rates associated with that, if not managed properly, that can result in a death spiral for a company. So, it’s a scary time. I tell my employees. I don’t sugar-coat it. We’re in uncharted territory in many respects. We just need some catalyst that will help. Unfortunately, we’re not getting any positive signs out of Washington or Congress, so we’re going to have to hunker down and mind your pennies and quarters. Unfortunately, we’re going to see some significant failures here in the near term in light of where things are going.
Editor’s note: Robert Groesbeck will speak at Cannabis Conference in the session “In The Black: Become Cash Positive By Avoiding These Expensive Cannabis Business Mistakes” from 4:30 p.m. to 5:30 p.m. Aug. 23, 2022, at the Paris Las Vegas Hotel & Casino. In this session, experienced cannabis operators will share ways that they’ve avoided (or learned from) costly missteps—from cultivation and operations to merchandising and marketing, to hiring and firing, retail sales strategies, product development and more. They will also share ideas for how companies can navigate the realities of the current economy.
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