Glass House Brands Reports Record Third Quarter 2023 Financial Results

• Cash increased to $37.9 million from $22.7 million in Q2 2023, including about $5 million in capex spend and a $12.8 million inflow from Series D Preferred Equity Fund Raise
• Operating cash flow reached a record $9.1 million versus $8.3 million in Q2 2023
• Adjusted EBITDA¹ was $10.7 million versus $9.5 million in Q2 2023
• Revenue was a record $48.2 million, up 8% sequentially and 71% year-over-year
• Gross margin was 54% versus 55% in Q2 2023 versus 31% in the prior year period
• Q3 Biomass revenue increased 142% year-on-year and production was up 36% year-over-year
• Cost per Equivalent Dry Pound of Production^2,3 dropped to a record low $118 per pound, down 12% versus Q3 2022
• Average selling price was $336 per pound, up 65% versus last year
• Guidance for Q4 2023 revenues is $38 million to $40 million, up 21% vs Q3 2022 and down 19% sequentially (from the mid-point of guidance) due to high heat, high humidity and low sunlight conditions affecting flower output
• Conference Call to be held today November 13, 2023 at 5:00 p.m. ET

LONG BEACH, CA and TORONTO, Nov. 13, 2023 /CNW/ - Glass House Brands Inc. ("Glass House" or the "Company") (NEO: GLAS.A.U) (NEO: GLAS.WT.U) (OTCQX: GLASF) (OTCQX: GHBWF), one of the fastest-growing, vertically integrated cannabis companies in the U.S., today reported financial results for its third quarter ending September 30, 2023.

Third Quarter 2023 Highlights
(Unless otherwise stated, all results and dollar references are in U.S. dollars)

• Net Sales of $48.2 million increased 71% from $28.3 million in Q3 2022 and up 8% sequentially from $44.7 million in Q2 2023;
• Gross Profit was $26.0 million compared to $8.7 million in Q3 2022 and $24.4 million in Q2 2023;
• Gross Margin was 54%, compared to 31% in Q3 2022 and 55% in Q2 2023;
• Adjusted EBITDA was $10.7 million, compared to $(2.7) million in Q3 2022 and $9.5 million in Q2 2023; 1-3Q 2023 cumulative Adjusted EBITDA reached $20.1 million, compared to $(18.8) million in the same period last year.
• Operating Cash Flow was $9.1 million, compared to $(8.2) million in Q3 2022 and $8.3 million in Q2 2023. 1-3Q 2023 cumulative operating cash flow reached $21.8 million, compared to $(31.5) million in the same period last year.
• Cost per Equivalent Dry Pound of Production was $118 a decrease of 12% compared to the same period last year and down 15% sequentially versus Q2 2023;
• Equivalent Dry Pound Production² was 101,825 pounds, up 36% year-over-year;
• Cash balance was $37.9 million at quarter-end, up 67% from Q2 2023 quarter end.

Management Commentary

"The third quarter of 2023 was another highly successful quarter for the Company as we achieved record levels of revenue and positive Adjusted EBITDA for the second consecutive quarter," stated Kyle Kazan, Co-Founder, Chairman and CEO of Glass House.

"We achieved record revenue of $48 million, largely driven by an increase in production, which grew 36% from Q3 2022 to over 101,000 pounds. This is quite impressive given we were able to accomplish this with the same cultivation capacity we had from last year. We are also very pleased as our Adjusted EBITDA reached a record high of $10.7 million in the third quarter, compared to negative $2.7 million in the same period last year."

"On the production side, we achieved a record low of $118 per pound this quarter, and this accomplishment has given us an even greater sense of confidence that we are well on our way to achieve our goal of less than $100 per pound. Driving down the cost of production, while staying focused on quality, is the key to cash flow generation, the key to taking advantage of our dominant position in the market, and the key to thriving in this industry, giving Glass House the ability to further deliver strong operational and financial results."

"Our outlook continues to be bright as we build upon the successes we have already achieved through the first three quarters of 2023, and I'm happy to re-affirm that we'll complete the retrofit of Greenhouse 5 at the SoCal Farm in Q1 2024, with revenue beginning in Q2 2024. We believe that our positioning as a very large, vertically-integrated California cannabis company with a core competency of amazing, cost-efficient premium flower cultivation will allow us to continue to drive shareholder value – especially given that we already own the millions of square feet of additional greenhouse facilities which will drive our expansion."

Third Quarter 2023 Operational Highlights

• Glass House Brands to Attend the ATB Capital Markets 2023 Life Sciences Investor Conference on September 20^th
• Glass House Brands to Participate in the AGP Virtual Consumer Cannabis Conference on October 4

Subsequent Event

• Glass House Brands Announces Appointment of John A. Pérez to its Board of Directors
• Element 7, APB and GH Group enter into a Settlement and General Mutual Release Agreement
• Glass House Brands Announces Appointment of Yelena Katchko to its Board of Directors

Q3 2023 Financial Results Discussion

Net revenues for Q3 2023 were $48.2 million, 71% growth versus Q3 2022 and an 8% sequential increase versus Q2 2023. This result was 3% higher than the high end of our Q3 2023 guidance range of $45 million to $47 million.

Wholesale biomass revenue of $33.8 million increased 142% versus Q3 2022 and was up 10% sequentially versus Q2 2023. In the quarter, biomass weight sold increased 47% year-on-year and 12% sequentially to 100,661 pounds of equivalent dry weight. The increase in weight available for sale was driven by a 36% increase in production versus last year to 101,825 pounds as a result of incremental production from the Company's SoCal farm. This quarter was a meaningful marker of our progress over the past twelve months, as the third quarter of last year was the first full quarter of operations for Greenhouse 6 at the SoCal Farm.

Retail revenue in Q3 2023 of $10.1 million increased 56% year-over-year and was flat on a sequential basis. The year-over-year increase was primarily a result of incremental revenues from four retail locations we acquired in Q3 2022, and from three new stores – Farmacy Isla Vista which opened in mid-December last year, Farmacy Santa Ynez which opened in January, as well as NHC Turlock which opened in late April 2023.

Wholesale CPG revenues were $4.3 million, a decrease of 45% compared to the prior year and an increase of 9% sequentially. The retail and brand segments of the California market continue to be distressed, and we are maintaining our strategy of only selling to stores that pay. This approach has kept our accounts receivables risk low.

Consolidated gross profit was $26.0 million, or 54% of net revenues, compared to $8.7 million, or 31%, in Q3 2022 and $24.4 million, or 55% in Q2 2023. The year-on-year increase in gross margin was driven primarily by wholesale biomass average selling price reaching $336 per pound in Q3 2023 versus $204 per pound in Q3 2022 and the sale of approximately 32,100 more pounds of biomass in Q3 2023 versus Q3 2022. The two key drivers of the sequential increase in gross margin dollars were cost of production falling to $118 per pound in Q3 2023 from $139 per pound in Q2 2023 and the sale of approximately 10,500 more pounds of biomass in Q3 2023 versus Q2 2023.

General and administrative expenses were $15.2 million for the quarter compared to $13.1 million in Q2 2023 and $11.5 million in Q3 2022. The main reason for the increase was $2.5 million more of bonus and stock compensation expense during Q3 2023 than in the previous quarter based on our year-to-date performance. 

Sales and marketing expenses were approximately $0.6 million down 31% year-on-year and 44% sequentially. Professional fees were $1.7 million, down 40% year-on-year and 22% sequentially. We have made a conscious effort to reduce external consulting and legal fees over the past year and are happy to see this result.

Depreciation and amortization in Q3 2023 were $3.7 million, up slightly from $3.6 million in Q2 2023 and up from $3.4 million in the same period last year.

Adjusted EBITDA was $10.7 million in Q3 2023, compared to Adjusted EBITDA of $9.5 million in Q2 2023. Cumulative Adjusted EBITDA for the first three quarters of the year reached $20.1 million, compared to $(18.8) million in the same period last year. This improvement has been driven by top-line growth and reduced cultivation cost per pound of biomass, resulting in higher gross margin, as well as by disciplined management of operating expenses.

We generated a record $9.1 million in cash from operations in Q3 2023, which is 11% more than the $8.3 million generated in Q2 2023 and a significant improvement over the negative $8.2 million in Q3 of last year. Through the first 3 quarters of this year, we have produced a cumulative $21.8 million in operating cash flow versus negative operating cash flow of $31.5 million in the same period last year.

Capital spending was $4.9 million in Q3 2023, as the Company began the retrofitting of Greenhouse 5. Q2 2023 capital spending was $0.2 million.

2023 Outlook

The Company is providing the following guidance for the fourth quarter of 2023 based on the strength of our third quarter results and current trends in the fourth quarter of 2023.

Q4 2023 Outlook

We expect total revenue to be between $38 million and $40 million, a 21 percent increase from Q4 last year but a 19% decline from the previous quarter at the mid-point of guidance. The expected sequential decline in revenue is caused mainly by a decrease in flower as a percent of total biomass production. The last few months, which represent a significant portion of the growing season for Q4, have seen a combination of unseasonably low sunlight, high humidity and higher temperatures, which is a particularly difficult set of conditions for cannabis cultivation. While we will far exceed our production compared to Q4 2022, we expect that these conditions will result in a lower percentage of flower than is typical for Q4, effectively reducing overall selling price. We typically expect flower to account for 40%+ of the production and volume sales this time of year, but we expect this figure to fall to the mid-30% range in Q4 2023. As a result, we are guiding for ASP to fall to $270 per pound in Q4 versus $336 per pound in Q3, which we expect will result in roughly an $8 million to $9 million reduction in revenue versus our previous guidance.

Retail and CPG Q4 2023 revenues are expected to be roughly consistent with Q3 2023 sales of $14.3 million.

We expect to produce between 100,000 to 102,000 pounds of biomass in Q4 which is slightly lower than Q3 2023 at the midpoint of guidance. We continue to guide for a second half cultivation cost of $120 per pound.

Given the reduced Q4 2023 revenue expectations and the need to make approximately $5 million in income tax payments in Q4 2023 for tax year 2022, we expect to have negative $2 million to $5 million operating cash flow in Q4 2023 and Adjusted EBITDA in the range of $5 million to $7 million.

The Phase 2 expansion into Greenhouse 5 at the SoCal Farm will have no impact on revenue or costs in Q4 2023. We estimate Capex spending in the quarter associated with the Phase 2 expansion to be approximately $6 million. Also note that we are reaffirming our guidance on timing related to Greenhouse 5 production and revenue.  We expect to have plants in Greenhouse 5 by early 2024, with the first sale projected for Q2 2024. Once operational, we expect Greenhouse 5 will increase our annual cultivation capacity by roughly 250,000 pounds to a total of 600,000 pounds.

Financial results and analyses will be available on the Company's website on the 'Investors' and 'News & Events' drop down menus (www.glasshousebrands.com) and SEDAR+ (www.sedarplus.ca).

Unless otherwise stated, all results are in U.S. dollars.

Conference Call
The Company will host a conference call to discuss the results today, November 13, 2023 at 5:00 p.m. Eastern Time.

Webcast:                        Register Here
Dial-In Number:             1-888-664-6392
Conference ID:              14375281 
Replay:                          1-888-390-0541
Replay Code:                 519275#
(replay available until 12:00 midnight Eastern Time Monday, November 20, 2023)

Non-GAAP Financial Measures

Glass House defines EBITDA as Net Loss (GAAP) adjusted for interest and financing costs, income taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA excluding share-based compensation, stock appreciation rights expense, loss (income) on equity method investments, change in fair value of derivative liabilities, change in fair value of contingent liabilities, acquisition related professional fees, and non-operational start-up costs.

EBITDA and Adjusted EBITDA are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. Such supplemental non-GAAP financial measures are not standardized financial measures under U.S. GAAP used to prepare the Company's financial statements and might not be comparable to similar financial measures disclosed by other companies and, thus, should only be considered in conjunction with the GAAP financial measures presented herein.

The Company has provided a table above that provides a reconciliation of the Company's net loss to Adjusted EBITDA for the three months ended September 30, 2023 compared to three months ended September 30, 2022 and three months ended June 30, 2023.

Footnotes and Sources:

1. EBITDA and Adjusted EBITDA are non-GAAP financial measures that are not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Please see "Non-GAAP Financial Measures" herein for further information and for a reconciliation of such non-GAAP measures to the closest GAAP measure.
2. Equivalent Dry Pound Production includes all dry production (flower, smalls and trim) plus equivalent dry weight for wet weight and fresh frozen not converted into dry weight by the Company.
3. Cost per Equivalent Dry Pound of Production, is the application of a subset of Costs of Goods Sold for cannabis biomass production (including all expenses from nursery and cultivation to curing and trimming - the point at which product is ready for sales as wholesale cannabis or to be transferred to CPG) applied to the Company's metric of dry production which includes all dry production (flower, smalls and trim) plus equivalent dry weight for wet weight and fresh frozen that is not converted into dry goods by the Company.

Glass House is one of the fastest-growing, vertically integrated cannabis companies in the U.S., with a dedicated focus on the California market and building leading, lasting brands to serve consumers across all segments. From its greenhouse cultivation operations to its manufacturing practices, from brand-building to retailing, the company's efforts are rooted in the respect for people, the environment, and the community that co-founders Kyle Kazan, Chairman and CEO, and Graham Farrar, Board Member and President, instilled at the outset. Through its portfolio of brands, which includes Glass House Farms, PLUS Products, Allswell, Forbidden Flowers, Field and Mama Sue Wellness, Glass House is committed to realizing its vision of excellence: outstanding cannabis products, produced sustainably, for the benefit of all. For more information and company updates, visit www.glasshousebrands.com and https://glasshousebrands.com/press-releases/.

Forward Looking Statements

This news release contains certain forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to herein as "forward-looking statements"). Forward-looking statements reflect current expectations or beliefs regarding future events or the Company's future performance or financial results. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "continues", "forecasts", "projects", "predicts", "intends", "anticipates", "targets" or "believes", or variations of, or the negatives of, such words and phrases or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. Forward-looking statements in this news release include, without limitation, the company's: ability to further deliver strong operational and financial results; positioning as a very large, vertically-integrated California cannabis company with a core competency of amazing, cost-efficient premium flower cultivation will allow it to continue to drive shareholder value; guidance that revenues will be $38 to $40 million in Q4 2023 and that the expected sequential decline in Q4 2023 revenue versus Q3023 will be caused mainly by a decrease in flower as a percent of total biomass production; projection that the set of conditions of unseasonably low sunlight, high humidity and higher temperatures will result in flower as a percent of the total production and volume sales of biomass in Q4 2023 being in the mid-30% range versus a typical 40%+ for this time of year, effectively reducing overall ASP to $270 per pound in Q4 2023 versus $336 per pound in Q3, and resulting in roughly an $8 million to $9 million reduction in revenue versus previous guidance; guidance that retail and CPG Q4 2023 revenues will be roughly consistent with Q3 2023 sales of $14.3 million; guidance that it will produce between 100,000 to 102,000 pounds of biomass in Q4 2023 and that cultivation cost per equivalent dry pound of biomass will be $120 for the second half of 2023; guidance that it will create negative operating cash flow of $2 million to $5 million in Q4 2023 and positive Adjusted EBITDA in the range of $5 million to $7 million; guidance that the Phase 2 expansion into Greenhouse 5 at the SoCal Farm will have no impact on revenue or costs in Q4 2023; estimate that Q4 2023 Capex spending associated with the Phase 2 expansion will be approximately $6 million; projection that it will complete the retrofit of and have plants in Greenhouse 5 at the SoCal Farm in Q1 2024, with the first sale/revenue occurring in Q2 2024; projection that, once operational, Greenhouse 5 will increase annual cultivation capacity by roughly 250,000 pounds to a total of 600,000 pounds; confidence that it is well on its way to achieve a cultivation cost per dry pound of production of less than $100 per pound. All forward-looking statements, including those herein are qualified by this cautionary statement.

Although the Company believes that the expectations expressed in such statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the statements. There are certain factors that could cause actual results to differ materially from those in the forward-looking information, including financial and operational results not proving to be as expected or on the timelines expected; the Company not completing certain proposed acquisition or financing transactions at all, or on the timelines expected; the Company not achieving the synergies expected; and other risks disclosed in the Company's Annual Information Form and other public filings on SEDAR+ at www.sedarplus.ca. Accordingly, readers should not place undue reliance on forward-looking statements.

For more information on the Company, investors are encouraged to review the Company's public filings on SEDAR+ at www.sedarplus.ca. The forward-looking statements and financial outlooks contained in this news release speak only as of the date of this news release or as of the date or dates specified in such statements. The Company disclaims any intention or obligation to update or revise any forward- looking information, whether as a result of new information, future events or otherwise, other than as required by law.

SOURCE GH Group, Inc.

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