Now that I’ve listened to the conference call and thought a bit more about the quarterly update, here are things that I take away:
Positives:
- They have a 5.5M sq ft facility w/ 1.5M sq ft now in production
- In most recent Q they produced on the 1.5M sq ft and sold all the production
- You have to contextualize the Q: in the worst cannabis market (CA), in one of the lowest pricing markets in all of US, the company showed that gross margins improved to 36% and they sold all their production and almost were EBIDTA positive
- Integrated PLUS brands and reduced the operating costs
- The dispensaries count increased in Q3 as they closed on the NHC acquisition and will increase more in Q4 as new dispensaries are opened in Q4
- In CA the number of active cultivation licenses has dropped in most recent Q. Basically the tough CA market is killing the competition, making Glass House that more valuable because of its costs and scale
- Positive cash flow has been pushed from Q1 ’23 to Q3 ’23. Although it is not good to see the positive cash flow get pushed back, the cash burn is going to be fairly low and waiting 6 more months is not a major issue. Cash burn should be around $2-3M per quarter till they get to cash flow positive
Negatives:
- Delaying opening of a new dispensary based on market conditions
- Record temperate in Sept due to a hurricane in MX will have an impact on production in Q4
- Lowering revenue guidance for Q4 from $50M to $30-32M
- Share of the CA market has dropped in most recent Q
- Delaying the phase 2 expansion at the SoCal farm
- Laid off 19 employees
My take is the company is executing exceptionally well. They just turned on the biggest greenhouse cannabis production in all of US and after a few hiccups the operations are delivering. We will see improvements every quarter from here on out. The cost of production keeps trending down and the margins keep expanding. The company is executing in one of. the toughest market conditions: most competitive market (CA), worst pricing, inflation impact, and not federally recognized.
Glass House isn’t a play that makes you money in one or 2 quarters. Instead it is one that will make you absurd profits in 2-3 years.
2 responses to “Glass House: more thoughts”
Agreed a solid showing esp in gross margin expansion. Most of the negatives strike me as temporary and/or out of their control. One negative that got my attention tho is losing market share.
Any insight on why or what caused them to lose market share? Is that a function of the total pie faster than them growing their slice of it?
Yes, the loss in market share is alarming a bit. Not sure what is happening but my guess is more localities in CA opened up for cannabis sales. These new localities approved a bunch of dispensaries. GHG didn’t get any dispensaries there, so GHG brands likely had lower sales there. GHG has said they sell more of their brands in their own dispensaries. So maybe new dispensaries opening lowered the sales of GHG brands?
Other explanation is in the CC mgmt said higher inflation had an impact on sales. GHG brands are not the cheap end stuff. So higher inflation might have let customers that are cost sensitive to switch to a cheaper brand, leading to loss of market share.