23:18:23 EDT Sun 28 May 2023
Enter Symbol
or Name

Glass House Brands Inc
Symbol GLAS
Shares Issued 40,250,000
Close 2023-03-13 C$ 3.15
Recent Sedar Documents

Glass House loses $44.36-million (U.S.) in 2022

2023-03-13 16:28 ET - News Release

Mr. Kyle Kazan reports


Glass House Brands Inc. has released financial results for its fourth quarter ended Dec. 31, 2022.

Fourth quarter 2022 highlights (unaudited results, unless otherwise stated, all results and dollar references are in U.S. dollars):

  • Net sales of $32.2-million increased 75 per cent from $18.4-million in Q4 2021 and 14 per cent sequentially from $28.3-million in third quarter 2022.
  • Gross profit was $10.2-million compared with ($400,000) in Q4 2021 and $8.7-million in Q3 2022.
  • Gross margin was 32 per cent, compared with (2) per cent in Q4 2021 and gross margin of 31 per cent in Q3 2022.
  • Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was ($2.6-million), compared with ($9.1-million) in Q4 2021 and ($2.7-million) in Q3 2022.
  • Cost per equivalent dry pound of production was $127, a decrease of 24 per cent compared with the same period last year and down 5 per cent sequentially versus Q3 2022.
  • Equivalent dry pound production was 75,344 pounds, up 153 per cent year over year and up 1 per cent sequentially.
  • Cash balance was $14.1-million at quarter-end, down 19 per cent from Q3 2022 quarter-end.

Management commentary

"Two thousand twenty-two was a year of tremendous progress for Glass House Brands, and I'm incredibly proud of our team. Over the past several quarters, we've demonstrated the enormous potential of our marquee asset, the SoCal greenhouse that is 5.5 million square feet in size with 841,000 square feet currently dedicated to flowering and 420,000 dedicated to nursery operations that support all three of our farms, as well as third party clone and teen sales. This farm puts us firmly in the pole position to be the leader not just in California, the mecca of cannabis, but the entire [United States], enabling us to consistently produce top-quality cannabis in a highly efficient, low-cost and profitable manner," stated Kyle Kazan, co-founder, chairman and chief executive officer of Glass House.

"Almost two weeks ago, we announced the intent to turn on an additional greenhouse at our SoCal farm capable of producing 250,000 pounds of biomass annually when fully operational. Given that our current annual capacity across all three farms is approximately 300,000 pounds, this would represent a more-than-80-per-cent increase in production capability. Our decision to expand capacity at this time is motivated by supply-demand fundamentals, cultivation licensing trends, our production cost and pricing. Using 250,000 pounds of biomass at an average sales price of $275 per pound would add $68.75-million of gross revenue, and when multiplied by the gross margin from the fourth quarter of 43 per cent, it equals approximately $30-million in additional gross margin dollars. We don't know of any other company in the California cannabis industry that can turn on an idle cultivation asset in the current market environment and expect it to produce an attractive [return on investment], but we can. As the co-founder and a major shareholder in this company, this more than anything is what makes me excited about the future of Glass House, and it is especially gratifying to see current market conditions validate our build-for-the-long-term strategy.

"Since the time we brought the SoCal farm on-line, my fellow co-founder Graham Farrar has consistently observed that we have been able to sell every pound we produced. As we closed out 2022 and moved into 2023, demand for our biomass continued to accelerate to a point where we sell our product much faster than we can grow it, as evidenced by our very low inventory on hand. We frequently finish weeks with inventory that represents less than one week of wholesale biomass sales, and are increasingly getting calls from brands and buyers who have seen their traditional sources of supply unable to satisfy their needs. With the unusually stormy weather conditions experienced in California over the past two months, supply has been constrained even further.

"Meanwhile, we have seen a sustained and steady rise in pricing since prices bottomed in July and August. As recently as late last year, discussions of wholesale flower prices rising above $600 seemed optimistic, yet this February, 47 per cent of our flower sold for $600 or more versus less than 1 per cent in Q4. We now estimate that our average selling price for biomass in [first quarter 2023] will be $275 per pound, up from $236 per pound in Q4 2022 and $204 in Q3 2022. Since we announced our plan to move ahead with further expansion of production at the SoCal farm, the most common question investors have asked is, 'Prices may be rebounding now, but what if they start falling again?'

"Thanks to our record low cost of production in Q4 of $127 per pound, even if prices fall, we'll be well positioned to have a positive gross margin in wholesale biomass under almost any scenario; and with our low-cost structure, we can weather price swings even when others can't. We are focused on maintaining the highest-quality flower with the lowest-cost structure in the industry to maximize our cash flow over the long run, and we believe that the events of the past two years have validated this approach.

"I am pleased with our fourth quarter results and proud of our team as Glass House hit or exceeded our Q4 guidance. We hit a new record in the fourth quarter with revenues of $32.2-million, above the top end of our guidance of $30-million to $32-million. Q4 revenues were up 75 per cent versus a year ago and 14 per cent above the third quarter. Cost per equivalent dry pound of production fell to a record low, which was 24 per cent lower year over year and a 5-per-cent reduction from the third quarter to $127 per pound versus guidance of $135 (U.S.) per pound. Gross margin reached 32 per cent in the fourth quarter in line with our guidance from the Q3 results call while Q4 biomass production rose 153 per cent versus last year to over 75,000 pounds and also above third quarter levels, in only our second full quarter of operations at the SoCal farm.

"In closing, I'd like to extend a warm invitation to all shareholders to join Glass House Brands Investor Sesh 2023, where investors can tour our unicorn greenhouse facility, ask questions directly to Graham and me, along with the rest of our talented C-suite, and join our annual general shareholder meeting. There will be exclusive merchandise and Glass House Brands products, food, and an investor relations booth. Last year's event was the highlight of our corporate calendar and was attended by more than 150 people. I look forward to welcoming our shareholders to the event again this year. It will be held on Friday, June 23, at 9 a.m. Our transparency by personally meeting and providing tours to our investors is reflected in our company name and is another area of pride. Please join us in Southern California if you can."

Fourth quarter 2022 operational highlights:

  • Glass House closes second tranche of non-brokered private placement of equity securities.
  • Mission Green launches new clemency initiative and petitions President to release Parker Coleman, who is serving 60 years for marijuana.
  • Glass House appoints Benjamin Vega as general counsel and corporate secretary.
  • Glass House announces the final closing of the Series B preferred stock offering, fully subscribed at $50-million.
  • Glass House expands retail presence with New Farmacy dispensary in Isla Vista.

Subsequent events:

  • Glass House announces the closing of a $4.7-million Series C preferred stock offering.
  • Glass House will attend the 25th annual ICR conference and announce preliminary Q4 2022 financial results.
  • Glass House expands retail presence with the New Farmacy dispensary in Santa Ynez.
  • Glass House congratulates the Weldon project and Mission [Green] on the release of medical cannabis prisoner Luke Scarmazzo.
  • Glass House will webcast live at Virtual Investor Conferences on Feb. 23.
  • Glass House will host fourth quarter and year-end 2022 conference call on March 13, 2022.
  • Glass House announces plans for further expansion of cannabis cultivation capacity at its SoCal farm.
  • Glass House will participate in the 35th annual Roth Conference to be held on March 12 to March 14, 2023.

2023 outlook

The company is providing the following guidance for 2023 based on the strength of its fourth quarter results and current trends from the first quarter of 2023.

2023 cash flow and EBITDA

With the improved wholesale pricing which it assumes maintains for the balance of the year, it is accelerating its cash flow guidance of positive free cash flow excluding expansion capital expenditures from the third quarter of 2023 to the second quarter of 2023. It also expects to achieve positive adjusted EBITDA in second quarter 2023 and maintain it for the rest of the year.

First quarter 2023 outlook

It expects revenue to be between $27-million and $29-million. The decline versus Q4 22 is being driven by the seasonal reduction in production of biomass due to lower sunlight levels in Q1 relative to Q4 and its assumption consumer packaged goods sales will decline up to 20 per cent due to the continued difficult retail environment and shipping holds being placed on non-paying retailers. Its average selling price for wholesale biomass is assumed at $275 per pound based on trends through the early part of March.

It expects gross margins to improve slightly from Q4 levels of 32 per cent despite the lower seasonal production in cultivation and its projected Q1 23 cost of production of $200 per pound based on a projected 45,000 pounds of biomass production. The $200-pound level is a 16-per-cent reduction from Q1 2022, and the projection of 45,000 pounds produced is a 169-per-cent increase versus Q1 2022.

In addition, it expects adjusted EBITDA to improve from Q4 but to be slightly negative. Its ending cash balance for Q1 2023 is forecast to be approximately $12.5-million.

2023 fiscal year

It is maintaining its revenue guidance of $160-million for 2023 but is shifting sales between its segments. As a result of the higher pricing in biomass wholesale and slightly higher production, it is increasing its wholesale revenue projection from $60-million to $85-million. It expects the average selling price to increase from Q1 through the rest of the year as the mix of flower produced during the year increases with its wholesale biomass sales averaging a price of $300 per pound for the fiscal year.

It is reducing its CPG revenue guidance to $25-million from $35-million, which considers the difficult retail landscape and its expectation it will be dealing with significant retailer distress and continued high levels of retail account shipping holds during the year.

In addition, it is reducing its retail revenue guidance to $50-million from $65-million because of the change in how excise tax is collected and due to the difficult conditions in the retail market. Effective Jan. 1, 2023, retailers are responsible for collecting and remitting excise tax to the state. This duty previously belonged to distributors. With this change, the cost of inventory to retailers is reduced by the amount of the excise tax, and as a result, it is no longer included in revenue but is charged to the consumer as a tax. This does not change the total gross margin dollars collected, but reduces inventory cost and revenue by the same amount and results in a higher gross margin by about 10 percentage points.

Finally, for this fiscal year, it expects to produce 310,000 pounds of biomass with a cost of production below $130 per pound for the fiscal year. It had originally provided annual guidance for its three farms of 270,000 pounds of biomass, but with the additional experience, it is comfortable increasing its output guidance. This represents an increase of 62 per cent versus 2022 production and a reduction in costs of 9 per cent based on the $130 per pound projected for the fiscal year. In the second half of 2023, it anticipates the cost of production will be below $110 per pound, a 15-per-cent decrease versus the same period in 2022.

None of the above guidance includes any impact from the potential greenhouse expansion discussed earlier.

Financial results and analyses will be available on the company's investor relations website and SEDAR.

Conference call

The company will host a conference call to discuss the results today, March 13, 2023, at 5 p.m. Eastern Time.

A webcast will be available.

Dial-in number:  1-888-664-6392

Conference ID:  78528285

Replay:  1-888-390-0541

Replay code:  528285 followed by the number sign (replay available until 12 a.m. midnight Eastern Time on Thursday, March 20, 2023)

About Glass House Brands Inc.

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 Mr. Kazan and Mr. Farrar instilled at the outset. Through its portfolio of brands, which includes Glass House Farms, Forbidden Flowers and Mama Sue Wellness, Glass House is committed to realizing its vision of excellence: outstanding cannabis products, produced sustainably, for the benefit of all.

We seek Safe Harbor.

© 2023 Canjex Publishing Ltd. All rights reserved.