How do you make a film worse than the original Phantasm while still keeping the best parts of the original intact (The Tall Man and his balls)? Well, you try to make a real story out of it, of course. The first one was kind of charming just because it was absolutely nonsensical. There was a certain dream logic to it that never added up to anything, but it at least made you laugh at how batshit it was.
This one, though, is a studio film. That means that not only do they lose one of the leads (they forced Coscarelli to trade out the original Mike with James LeGros, who they were really trying to make into a star at the time), but they forced Don to actually write a story. They also forced a love interest for Mike.
I guess it's not unwatchable, but it's really not good. There are, however, bigger and better balls.