Mr. Kyle Kazan reports

GLASS HOUSE BRANDS REPORTS RECORD THIRD QUARTER 2023 FINANCIAL RESULTS

Glass House Brands Inc. has released financial results for its third quarter ended Sept. 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 per cent from $28.3-million in Q3 2022 and up 8 per cent sequentially from $44.7-million in second quarter 2023.
• Gross profit was $26.0-million compared with $8.7-million in Q3 2022 and $24.4-million in Q2 2023.
• Gross margin was 54 per cent, compared with 31 per cent in Q3 2022 and 55 per cent in Q2 2023.
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was $10.7-million, compared with ($2.7-million) in Q3 2022 and $9.5-million in Q2 2023. Q3 2023 cumulative adjusted EBITDA reached $20.1-million, compared with ($18.8-million) in the same period last year.
• Operating cash flow was $9.1-million, compared with ($8.2-million) in Q3 2022 and $8.3-million in Q2 2023. Q3 2023 cumulative operating cash flow reached $21.8-million, compared with ($31.5-million) in the same period last year.
• Cost per equivalent dry pound of production was $118, a decrease of 12 per cent compared with the same period last year and down 15 per cent sequentially versus Q2 2023.
• Equivalent dry pound production was 101,825 pounds, up 36 per cent year over year.
• Cash balance was $37.9-million at quarter-end, up 67 per cent 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 chief executive officer of Glass House.

"We achieved record revenue of $48-million, largely driven by an increase in production, which grew 36 per cent 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 reaffirm that we'll complete the retrofit of greenhouse 5 at the SoCal farm in [first quarter] 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."

2023 outlook

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

Q4 2023 outlook

It expects total revenue to be between $38-million and $40-million, a 21-per-cent increase from Q4 last year but a 19-per-cent decline from the previous quarter at the midpoint of guidance. The expected sequential decline in revenue is caused mainly by a decrease in flower as a percentage 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 it will far exceed its production compared with Q4 2022, it expects that these conditions will result in a lower percentage of flower than is typical for Q4, effectively reducing overall selling price. It typically expects flower to account for 40-plus per cent of the production and volume sales this time of year, but it expects this figure to fall to the mid-30-per-cent range in Q4 2023. As a result, it us guiding for ASP to fall to $270 per pound in Q4 versus $336 per pound in Q3, which it expects will result in roughly an $8-million to $9-million reduction in revenue versus its previous guidance.

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

It expects 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. It continues 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, it expects 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. It estimates capital expenditure spending in the quarter associated with the phase 2 expansion to be approximately $6-million. Also note that it is reaffirming its guidance on timing related to greenhouse 5 production and revenue. It expects to have plants in greenhouse 5 by early 2024, with the first sale projected for Q2 2024. Once operational, it expects greenhouse 5 will increase its 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 and events drop-down menus and SEDAR+.

Conference call

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

Webcast:  Please register.

Dial-in number:  1-888-664-6392

Conference ID:  14375281

Replay:  1-888-390-0541

Replay code:  519275 followed by the number sign (replay available until 12 a.m. (midnight) Eastern Time on Monday, Nov. 20, 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 makes efforts rooted in the respect for people, the environment and the community that co-founders Mr. Kazan, 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.

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