Mr. Kyle Kazan reports

GLASS HOUSE BRANDS REPORTS FIRST QUARTER 2024 FINANCIAL RESULTS

Glass House Brands Inc. has released financial results for the first quarter ended March 31, 2024.

First quarter 2024 highlights (unaudited results, unless otherwise stated, all results and dollar references are in U.S. dollars):

• Net sales of $30.1-million, an increase of 9 per cent from $27.6-million in Q1 2023 and down 26 per cent sequentially from $40.4-million in fourth quarter 2023;
• Gross profit was $12.5-million, compared with $12.6-million in Q1 2023 and $18.0-million in Q4 2023;
• Gross margin was 42 per cent, compared with 46 per cent in Q1 2023 and 45 per cent in Q4 2023;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) was ($1.6-million), compared with $500,000 in Q1 2023 and $3.8-million in Q4 2023;
• Operating cash flow was negative $1.9-million, compared with $4.5-million in Q1 2023 and $1.4-million in Q4 2023;
• Cost per equivalent dry pound of production was $182, a decrease of 7 per cent compared with the same period last year;
• Equivalent dry pound production was 61,334 pounds, up 28 per cent year over year;
• Cash balance was $24.4-million at quarter-end versus $16.4-million at the end of Q1 2023.

Management commentary

"The first quarter of 2024 was another very successful quarter for Glass House, where we exceeded Q1 guidance across all operating metrics, including cash, sales, production and adjusted EBITDA," stated Kyle Kazan, co-founder, chairman and chief executive officer of Glass House.

"We produced 61,300 pounds of biomass, revenue of $30.1-million, and gross profit of $12.5-million or 42 per cent of net revenue during the first quarter, all ahead of our guidance. Greenhouse 5 is now running at full capacity, and will have its first full quarter of production and sales in [second quarter] of this year. We are very pleased with the initial production volumes, quality and yields that are coming out of this facility, and are confident that the facility will continue to pick up steam as the year progresses.

"I am particularly proud of our retail and [consumer packaged goods] teams. We saw a 4-per-cent increase in CPG revenue versus Q4 2023 with Allswell revenue growing by 20 per cent. The Allswell eighth priced at $9.99 out the door, including taxes, has been one of our most successful launches ever and shows the strength of our vertical integration from farm to consumer. In early March, we introduced this new pricing across all of our stores, and it resulted in the Allswell Eighth becoming our bestselling product by unit sales volume, up from the No. 2 position in January and February. This offering dovetailed nicely with our retail dispensary strategic pricing plan, driving increased foot traffic to our dispensaries across the board in March."

2024 outlook

The company is providing the following guidance for the second quarter of 2024 based on the strength of its first quarter results and current trends in 2024.

Second quarter 2024 outlook

The company expects to set a new record high for single quarter revenue at $52.0-million to $54.0-million, up 76 per cent sequentially and 19 per cent year on year at the midpoint of guidance.

The company is raising Q2 biomass production guidance to 128,000 to 130,000 pounds from a previous 125,000 to 127,000 pounds, as initial production levels have somewhat outperformed expectations with the increase coming from trim. This will represent 110-per-cent sequential and 25-per-cent year-on-year growth at the midpoint of guidance. The company expects visibility on Greenhouse 5's production capabilities to improve as it moves through Q2 and as it completes several planting and harvest cycles in the greenhouse.

Average selling price for wholesale biomass is projected to be $330 to $335 per pound, which is down from its prior guidance of $350 to $355 due to a higher mix of trim being sold compared with prior guidance. It is also slightly below second quarter 2023 ASP of $340 per pound. The new guidance assumes that pricing of flowers and smalls remains at the same levels seen during the second half of Q1 2024.

Cost of production is projected to fall to $150 per pound, down 18 per cent sequentially but an 8-per-cent increase year over year, due to start-up costs from Greenhouse 5.

Retail and CPG revenue is expected to be roughly flat from Q1 as the company continues to expect a highly promotional and price-driven retail landscape.

It expects consolidated gross margin to be approximately 50 per cent, which is up about eight percentage points versus the Q1 level of 42 per cent, driven mainly by a higher margin in wholesale biomass as a result of the higher mix of flower production during the second quarter versus the first quarter. In addition, it expects adjusted EBITDA to be a positive $10-million to $12-million and operating cash flow to be a positive $8-million to $10-million. It expects to see cash end the quarter at around $25-million as Greenhouse 5 output and sales ramp up in May/June. Within the quarter, it expects capital expenditure spending to be about $4-million as it makes the final payments associated with phase 2 and adds some additional investments in automation and infrastructure at the Camarillo farm. Similar to the first quarter, it will make $1.9-million in dividend payments and $1.9-million in debt amortization payments.

2024 fiscal year outlook

It is maintaining revenue guidance of $215-million to $220-million for 2024, a 35-per-cent increase at the midpoint of guidance. It continues to expect adjusted EBITDA to exceed $50-million during 2024 and for operating cash flow to be in the mid-$30-million range. Cash flow will grow at a slower rate than adjusted EBITDA due to working capital associated with starting up Greenhouse 5. This guidance does not include the $11.5-million ERTC refund the company expects to receive later this year.

It is raising its guidance for wholesale biomass production by 5,000 pounds to 525,000 to 535,000 pounds, which represents a 49-per-cent increase over 2023 at the midpoint of guidance. Cost per pound is projected to be $135 per pound, which is roughly flat to its 2023 cost of $136 per pound. The increase in guidance for 2024 wholesale biomass production reflects the higher-than-expected production in the first quarter and the increase in its second quarter guidance. Although Greenhouse 5 is delivering ahead of expectations, it is nonetheless still in its first full quarter of operations. Therefore, it is maintaining its current production guidance for the second half of the year until it has additional experience from which to develop a more robust baseline of expectations.

The company expects pricing to drop in the second half of the year as compared with the first half of the year following a similar pattern to last year as industry production increases in the second half. It is planning on flower and small pricing to be modestly lower than last year in the second half, but it expects its average selling price in the second half of 2024 to be about flat to up slightly as a result of an improved product mix versus the second half of 2023. It is revising its projected average selling price to between $310 and $315 per pound for the year, down slightly from the previous $315 to $320, due to the higher percentage of trim it is seeing in its sales mix.

Combined revenues from retail and CPG are projected to be up mid-single digits in the second half of the year as it expects its retail dispensary strategic pricing plan will drive higher sales as foot traffic builds. However, it is planning for the difficult market conditions in both retail and the branded business to continue in 2024.

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, May 14, 2024, at 5 p.m. Eastern Time.

Register for the webcast.

Dial-in number:  1-888-664-6392

Replay:  1-888-390-0541

Replay code:  647010 followed by the number sign (replay available until 12 a.m. midnight Eastern Time on Tuesday, May 21, 2024)

In addition, content related to the earnings call, including a transcript and audio recording of the call, as well as the company's financial statements and management's discussion and analysis for the period (upon completion), will be posted to the company's website. Content from previous reporting periods is also available.

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, board member and president, instilled at the outset. Through its portfolio of brands, which includes Glass House Farms, Plus Products, Allswell 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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