Mr. Kyle Kazan reports

GLASS HOUSE BRANDS REPORTS FIRST QUARTER 2023 FINANCIAL RESULTS

Glass House Brands Inc. has released financial results for its first quarter ended March 31, 2023.

First quarter 2023 highlights (unless otherwise stated, all results and dollar references are in U.S. dollars):

• Net sales of $29.0-million increased 108 per cent from $14.0-million in Q1 2022 and down 10 per cent sequentially from $32.2-million in fourth quarter 2022.
• Gross profit was $12.0-million compared with $2.3-million in Q1 2022 and $10.2-million in Q4 2022.
• Gross margin was 41 per cent, compared with 17 per cent in Q1 2022 and gross margin of 32 per cent in Q4 2022.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was ($100,000), compared with ($6.4-million) in Q1 2022 and ($2.6-million) in Q4 2022.
• Cost per equivalent dry pound of production was $196, a decrease of 18 per cent compared with the same period last year and up 54 per cent sequentially versus Q4 2022, which was expected due to seasonality.
• Equivalent dry pound production was 48,099 pounds, up 188 per cent year over year and down 36 per cent sequentially, which was expected due to seasonality.
• Cash balance was $16.4-million at quarter-end, up 16 per cent from Q4 2022 quarter-end.

Management commentary

"In the first quarter of this year, we achieved free cash flow positive operations one quarter ahead of our guidance. This performance signals that we have crossed a critical threshold in our operations, one that will hopefully lead to increasingly stronger cash flow generation in the months and years ahead," stated Kyle Kazan, co-founder, chairman and chief executive officer of Glass House.

"We also exceeded our production, revenue and margin guidance for the quarter, and narrowed our adjusted EBITDA loss to $100,000 versus a $2.6-million loss in Q4. Collectively, our performance in the first quarter of 2023 continues to demonstrate that our unique business model has significant competitive advantages that we are just beginning to unlock, which we expect will lead to tremendous growth in both revenues and profitability in the future along with driving substantial value for shareholders.

"We are increasingly optimistic about future pricing trends based on the latest results in our business, as well as what we are seeing across the industry in California relative to capacity and licensing renewals. From June, 2022, through the end of April, we estimate licensed California cultivation capacity has fallen by more than 16 million square feet of canopy, representing about a 21-per-cent reduction in acreage under cultivation.

"In summary, we continued to execute well against our strategic priorities in the first quarter of this year, driving significant growth and hitting several key profitability milestones, including reaching positive free cash flow. We are consistently demonstrating the durable competitive advantage of our vertically integrated model.

"I'd like to once again extend a warm invitation to all shareholders to attend 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. It will be held on Friday, June 23, at our SoCal farm in Camarillo, Calif., from 9 a.m. to 4 p.m. Pacific Time. Transparency is part of our name, and our culture of transparency is reflected in our desire to personally meet and provide tours to our loyal investor base."

First quarter 2023 operational highlights:

• Glass House announces the closing of $4.7-million Series C preferred stock offering.
• Glass House attends the 25th annual ICR Conference and announces preliminary Q4 2022 financial results.
• Glass House expands retail presence with 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 webcasts live at the Virtual Investor Conferences on Feb. 23.
• Glass House Brands hosts 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 participates in the 35th annual Roth Conference held March 12 to March 14, 2023.

Subsequent events:

• Mr. Scarmazzo joins Glass House as lead brand ambassador for NorCal following his recent release from prison.
• Glass House closes Turlock natural healing centre dispensary acquisition.
• Glass House will hold the second annual Investor Sesh on Friday, June 23.
• Glass House summary of coming events: Q1 earnings call, attendance at Canaccord Global Cannabis Conference, Investor Sesh 2023.

Media highlights:

• Recently released "Luke Scarmazzo Talks Cannabis Advocacy: 'I Served 15 Years In Some Of America's Worst Prisons'";
• Glasshouse Brands ranked in FT's top-125 fastest-growing companies in 2023;
• Advisor Shares presents: 4/20 Cannabuzz podcast with Kyle and Graham;
• The Big Myth About Growing Cannabis: Cannabis is Really Hard to Grow Consistently at Scale;
• Glass House continues to drive down costs to remain competitive in California cannabis;
• Seven years after legalization, Why Licensed Cannabis Sellers Still Face Stiff Competition From Illicit Market;
• Mr. Kazan and chief cannabis officer Graham Farrar of Glass House Cannabis Talk 101;
• What Law Enforcement Wants You to Know.

2023 outlook

The company is providing the following guidance for 2023 based on the strength of its first 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 expects to have positive operating cash flow and positive adjusted EBITDA in second quarter and for each quarter the rest of the year.

Q2 2023 outlook

It expects revenue to be between $38-million and $40-million. The increase versus Q1 2023 is being driven by the seasonal increase in production of biomass due to higher sunlight levels in Q2 relative to Q1 and its assumption consumer packaged goods and retail revenue will collectively be flat relative to Q1 due to the continued difficult retail environment. Its average selling price for wholesale biomass is projected at $325 per pound based on trends through the early part of May.

The company expects consolidated gross margin percentage to be in the mid-forties versus Q1's 41 per cent because of the higher seasonal production in cultivation which it projects to be 75,000 pounds, leading to an expected reduction in cost of production to $150 per pound in Q2 from $196 in Q1. The $150-pound level is a 5-per-cent reduction from Q2 2022, and the projection of 75,000 pounds produced is a 198-per-cent increase versus Q2 2022.

In addition, the company expects adjusted EBITDA to exceed $5-million and expects operating cash flow to be similar to Q1 at around $4-million.

It expects capital expenditures to be similar to Q1 at approximately $1-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, it is increasing its wholesale revenue projection to $100-million from $85-million. It is raising its projected average selling price per pound to $330 from $300 and expects it to increase from Q1 through the rest of the year as the mix of flower produced during the year increases.

It is reducing its CPG revenue guidance to $20-million from $25-million, which takes into account its move to a direct distribution model to its owned stores and results in a reduction in top-line revenue as it previously sold CPG to its distributor, which then sold to its stores. It also reflects the continued difficult retail landscape and its expectation that it will be dealing with significant retailer distress and high levels of account shipping holds during the year.

In addition, it is reducing its retail revenue guidance to $40-million from $50-million because of the extremely competitive marketplace, heavy discounting and its new stores not meeting internal projections.

Finally, for this fiscal year, it is raising its biomass production estimate to 315,000 pounds from 310,000 pounds, but raising its cost of production estimate to $140 per pound from $130. Given the state of the wholesale biomass market, with strong demand and improving pricing, it has increased its emphasis on maximizing production, which is reflected in its increased production estimates. In parallel, it is working on a number of operational improvements to processing, which it believes will have long-term net benefits, but which have short-term efficiency costs. Until it sees those improvements translate, it is being slightly more conservative on its full-year production costs. It remains confident in its long-term cost target of $100 per pound. The new guidance represents a 64-per-cent increase for production and a 2-per-cent reduction in costs versus FY 2022. Note that it typically produces roughly 60 per cent of the year's total biomass volume in the second half, and it expects this to hold true in fiscal 2023. In FY 2022, 78 per cent of its biomass was produced in the second half of the year when production costs are at their lowest, biasing the annual cost of production number downward. In the second half of 2023, it anticipates the cost of production will be below $120 per pound versus its original projection of below $110 per pound. This is still an 8-per-cent decrease versus the same period in 2022.

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

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

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

Conference call

The company will host a conference call to discuss the results today, May 15, 2023, at 5 p.m. Eastern Time.

A webcast will be available.

Dial-in number:  1-888-664-6392

Conference ID:  77602802

Replay:  1-888-390-0541

Replay code:  602802 followed by the number sign (replay available until 12 a.m. midnight Eastern Time on Monday, May 22, 2023)

About Glass House Brands Inc.

Glass House is one of the fastest-growing, vertically integrated cannabis companies in the United States, 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 Graham Farrar, president, 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.

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