GLASS HOUSE BRANDS 4Q22 Earnings Report.
Glass House Brands (GLASF) is a Hedgeye Cannabis Best Idea Long.
GLASF reported 4Q22 earnings yesterday and grew revenue 14% sequentially and 75% YoY. They continued their strategy of continued focus on driving the cost per pound cultivated down. In 4Q22, cost per pound came in at $127, which is down 5% sequentially and down 24% YoY. The company is targeting $110 price per pound by the end of 1H23, and the management team has commented in the past that their goal is to get that number below $100 in 2023. The company announced last month that they are adding capacity at their SoCal Farm for an additional 250k pounds of cultivation per year. Gross margins came in at 32%, which is an increase from 31% in 3Q22 and -2% in the prior year.
The company had previously guided positive free cash flow in 3Q23, but the company commented that they are "Accelerating our cash flow guidance of positive free cash flow excluding expansion CAPEX from the third quarter of 2023 to the second quarter of 2023". Excluding expansion CAPEX from the free cash flow expectations isn't exactly the definition of free cash flow, but it is a step, a little one at that, in the right direction. They are expected to achieve positive adjusted EBITDA in Q2 and maintain it for the remainder of 2023.
"Since the time we brought the SoCal Farm online, my fellow Co-Founder Graham Farrar has consistently observed that we have been able to sell every pound we produced. As we closed out 2022 and moved into 2023, demand for our biomass continued to accelerate to a point where we sell our product much faster than we can grow it, as evidenced by our very low inventory on hand. We frequently finish weeks with inventory that represents less than one week of wholesale biomass sales, and are increasingly getting calls from brands and buyers who have seen their traditional sources of supply unable to satisfy their needs. With the unusually stormy weather conditions experienced in California over the past two months, supply has been constrained even further. Meanwhile, we have seen a sustained and steady rise in pricing since prices bottomed in July and August. As recently as late last year, discussions of wholesale flower prices rising above $600 seemed optimistic, yet this February, 47% of our flower sold for $600 or more versus less than 1% in Q4. We now estimate that our average selling price for biomass in Q1 23 will be $275 per pound, up from $236 per pound in Q4 22 and $204 in Q3 22."
Glass House Brands continue to execute in the hardest market in North America to operate, California. GLASF is the lowest-cost cultivator in the country which will continue to take market share in California with massive growth potential if the U.S. ever allows interstate commerce. Glass House Brands remains a best idea long.
Trulieve 4Q22 Earnings Report.
Trulieve (TCNNF) is a Hedgeye Cannabis Best Idea Long.
Last week, Trulieve reported revenue of $1.24B in 2022, up 32% YoY, and quarterly revenue of $302 million, with 2% retail revenue growth sequentially (96% of Trulieve revenue comes from the retail segment). The company grew its dispensary count by 14% YoY in 2022 and ended the year with 181 dispensaries. 4Q22 operating cash flow was $55 million, and free cash flow was $21 million with gross margins of 50%. The company reported a net loss of $77M in the quarter. "Trulieve has grown to surpass $1.2 billion in revenue in less than seven years, a notable milestone and a testament to the agility of our team," said Kim Rivers, Trulieve CEO. "Our success is the culmination of thoughtful intention, superb execution, and best-in-class capabilities for rapid growth." Rivers continued, "With increasing mainstream support and meaningful regulatory reform on the horizon, tremendous growth opportunities lie ahead for U.S. legal cannabis. In 2023, we are laser-focused on cash generation while investing to build a sustainable company designed to thrive in an integrated commerce environment." In the quarter, Trulieve became the first cannabis company to advertise on a major social media platform. They also expanded their U.S. footprint by opening a dispensary in Bristol, CT. Trulieve has major exposure to the Florida market, where the state is looking to increase the number of operators, which is a net negative for the company. We continue to believe in this management team and the path forward. Trulieve remains a best idea long.
California CANNABIS TRENDS.
In the month of February, California recorded ~$379M in cannabis sales, which represents a sequential decline of 4% and a YoY decline of 7.6%. Unit volumes in the month were down 2.9% sequentially but up 2.7% YoY. The average price per unit was down 1.2% sequentially and down 10% YoY.
