Glass House 3Q22 earnings report.
Glass House Brands (GLASF) is a Hedgeye Cannabis Best Idea Long.
The company reported 3Q22 revenue of $28.3M which is a 72% sequential increase. Management had guided for $27M-$30M in revenue for the quarter, so they were in line but a tad short of street estimates of $28.5M. Amazingly, Glass House is now able to produce a pound of cannabis in California for $134, which is a sequential decline of 15% and improves gross margins to 31% compared to 14% a year ago. To be able to improve gross margins the way that they did in the quarter with the macro backdrop the way that it is and a California cannabis market that has seen high signal digit pricing pressure YoY is nothing but spectacular.
"We believe that we own and operate the best and most efficient cannabis greenhouse in the US at 5.5 million square feet in size, of which 1.5 million square feet is planted and in production. And we are excited to show conclusive evidence that we own the unicorn of greenhouses. In the third quarter, and the first full quarter of cultivation and harvesting at the SoCal farm, we grew biomass production by 164% year-over-year and equivalent dry pounds sold by 265% to approximately 69,000 pounds," stated Kyle Kazan, Co-Founder, Chairman and CEO of Glass House.
It's not all rainbows and butterflies, the company did have to reduce 4Q22 revenue guidance to $30M-$32M and move their free cash flow positive target from 1Q23 to 3Q23. The company also raised an additional $22.5M in new capital and now has a cash balance of $17.5M at the end of the quarter. Adjusted EBITDA4 was -$2.7M, compared to -$5.4M a year ago.
We continue to believe that this company is best positioned for interstate commerce which we believe the U.S. could see at some point in 2023-2024. The fact that the company has increased the dry pound production 164% YoY, can produce a pound of cannabis for $134 (which is by the lowest in the space), and continues to grow both revenue and margins in an environment where there is a series crunch to many operators margins is pretty remarkable. This name remains the best idea long with a ton of upside in the coming years.
Nevada industry trends.
Oregan monthly cannabis sales came in at ~$73M in the month of October which is a sequential increase of 2.3% and a YoY decline of 5.3%. Unit growth in October was up 0.6% sequentially and up 8% YoY. Average cannabis product cost in the month was up 1.7% sequentially and down 12.3% YoY. Are we seeing the trough in pricing out of Nevada in the month of November? I sure hope so for their sake.
Cannabis in Minnesota.
Democrats took control of the state's congress in Minnesota and the Governor of the state, Tim Walz, is already planning on making cannabis legalization a top priority for the state in 2023. “The sticking point for cannabis in Minnesota were the Republicans and the house they controlled,” Ventura said on the streaming platform. “Well, they’ve lost it now. And the governor reassured me that one of the first items that will be passed—Minnesota, get ready—cannabis is going to have its prohibition lifted.” This is just another example of how the states will continue to move the needle for access to adult-use cannabis in this country. The movement has just begun and we could see a future where all 50 states legalize cannabis before the federal government does.
