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:
- 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
- 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.