Glass House Brands Continues to Drive Down Costs to Remain Competitive in California Cannabis

Exclusive Interview with Glass House Brands Co-Founder, Chairman and CEO Kyle Kazan

Since Kyle Kazan, Co-Founder, Chairman and CEO of California cannabis company Glass House Brands (OTCQX: GLASF) (NEO: GLAS.A.U), last spoke with New Cannabis Ventures in February 2022, the company has turned on a 1 million-square-foot greenhouse. The company has also continued to drive down its costs, giving it an advantage in the current California market. Kazan checked in to talk about the company’s plans to expand its canopy, acquisitions and 2023 guidance.

Listen to the entire interview or read the summary below:

Glass House Brands in California

The company has three revenue channels: wholesale, retail and consumer packaged goods. Its wholesale business has seen a strong performance. The company sold more in its third quarter than it did the previous year, according to Kazan. On the retail side of the business, it has nine dispensaries. It plans to open another store soon, located in Turlock. It also has a house of brands, including Glass House Farms, Allswell, FIELD, Forbidden Flowers and PLUS.

In 2023, the company plans to expand its capacity by 80 percent. It is retrofitting another 1 million-square-foot greenhouse with plans to have plants going in by the end of the year.

The company completed the acquisition of PLUS Products in April 2022. As a part of the integration process, Glass House shifted the edible company’s manufacturing operations to its own facility in Lompoc. It also updated the packaging for the edible products, keeping the round tin popular with consumers while ensuring the products stay fresh for longer. Finally, it rebooted the look of the brand.

Wholesale pricing in the California market bottomed out in the middle of last year, and it has been rising since then as many licenses have been turned off, according to Kazan. He pointed out that a lot of smaller growers could not compete in this environment. Because of the company’s low cost of goods sold (COGS), it has been able to not only survive in this environment but to also achieve solid margins.

Glass House’s low COGS are paired with high quality products. California cannabis consumers are discerning; they want quality, and they want a good selection when they visit a retail store, according to Kazan.

Producing consistent, high-quality cannabis at a low cost allows the company to remain competitive with not only legal operators but also the illicit market. The company’s vertical footprint and its three different revenue channels are also a competitive advantage. When one channel experiences more stress, the company can lean into another. Kazan offered an example of retailers experiencing distress, which has squeezed the company’s CPG business. But the company has a strong wholesale business and its own retail stores.

M&A Outlook

Back in 2022, Kazan discussed the company’s pending litigation against Element 7 related to a breach of an M&A contract. He had no updates to offer on that process in 2022, but he did discuss Glass House’s decision to buy other stores the team considers superior. In May 2022, it acquired two stores that operate under the Natural Healing Center (NHC) name.

Right now, the company’s primary goals are to reach positive free cash flow and to ramp up its new greenhouse. It expects to achieve that first goal in the second quarter, just weeks away. But it would consider M&A opportunities that pop up. The PLUS deal came to the company out of the blue, according to Kazan. With the current distressed state of the California market, other opportunities may suddenly arise.

A Future with Interstate Commerce

Distributors may be illegally shipping Glass House products to New York and other states. The company sells only via METRC in California; it cannot ship products across state lines due to federal law. Kazan pointed out it is unclear whether any products being illegally sold in other states are genuine or counterfeit packaging with different products inside. In either case, the company cannot stand behind those products.

Kazan does look forward to the day the company can participate in interstate commerce, but the timeline for that remains unclear. Movement at the federal level has remained slow. He does anticipate some incremental legalization this year, such as SAFE Banking, but remains skeptical of major changes.

Glass House Brands and Funding

The company closed a $26.5 million Series B in December 2022, followed by a $4.7 million Series C shortly after. It needed approximately $10 million in cash to complete the NHC acquisition. Kazan considers its balance sheet good but not great. Turning on more capacity will help the company get to the point where it can pay off the recently completed preferred offerings and address its debt.

The Glass House team is exploring some non-dilutive financing options to help turn on the new greenhouse. That is the only reason the company would consider going back to the markets at this time, according to Kazan. It could wait to use free cash flow to turn on the farm, but he considers the return on investment high enough that it makes sense to explore funding options. After that, the company should be in a strong position with no need to go back to the capital markets, according to Kazan.

2022 Results and 2023 Guidance

The company announced its Q4 and full year 2022 results in March. Kazan emphasized the company’s cost per pound of $127 and pointed out that the company met its Q4 guidance.

In 2023, the company is expecting to generate $160 million. That target is not reliant upon completing any acquisitions, and Kazan is confident in the company’s ability to get there. Kazan expects to see a shakeout in the brand landscape in California, which could open up more opportunities for the company.

While Kazan is eager to see federal regulatory progress that could benefit the cannabis industry, he urged the prioritization of pardons for people serving federal prison sentences for cannabis.

To learn more, visit the Glass House Brands website. Listen to the entire interview:

Carrie Pallardy, a Chicago-based writer and editor, began her career covering the healthcare industry and now writes, edits and interviews subject matter experts across multiple industries. As a published writer, Carrie continues to tell compelling, undiscovered stories to her network of readers. For more information contact us.