GLASS HOUSE BRAnds
Glass House Brands (GLASF) is a Hedgeye Cannabis Best Idea Long.
Earlier this week, 562 Discount Med Inc (based in Long Beach, California), otherwise known as Catalyst, filed a lawsuit against Glass House Brands where they commented that GLASF is “one of the largest, if not the largest, black marketers of cannabis in the State of California, if not the country." The suit further alleges that publicly available information can be used to prove Glass House’s culpability and charges that in the fourth quarter of 2022 alone, "upwards of 75% of GHB’s Q4 2022 sales were outside the legal market.” This is not the first time Catalyst has taken to the courts; back in 2021, they sued the state over burner distros which got dismissed. We spoke with GLASF management team yesterday, and their official comment is, "We are aware of the lawsuit and will respond accordingly." When it comes to its wholesale biomass business, the company keeps very low inventory numbers and is able to sell that product as fast as it is produced. They take on extra steps than those required by the state to make sure the shipments are secured by the correct seller. They also are required to get audited annually, but their auditor checks it quarterly. In our opinion, there isn't much substance to this lawsuit at the moment, and the reality is that it doesn't make much sense. Wholesale cannabis prices are up over 70% since they troughed in 3Q22. Why would GLASF take less money on the black market when prices in the legal market are surging at the same time that California's cannabis capacity is dropping? It just doesn't make sense. The reality is many cannabis operators are really struggling in this macro environment, and DC has done nothing to help them, so they must go after the biggest producer in the state.
Illinois is helping cannabis businesses.
Yesterday, Governor Pritzker of Illinois approved a budget bill that included a provision that allows legal cannabis companies to take state tax deductions. Since cannabis is still federally illegal, cannabis companies are prohibited from taking federal tax deductions from the IRS under code 280E. 280E is a massive problem for companies that touch a marijuana plant because it increases the industry's effective tax rate. It is nice to see some states going this route, but it would be even better if DC finally did something to revive the industry.
Alabama Medical Market
The Alabama Medical Cannabis Commission voted to award 21 business licenses to select companies across the state. Ninety businesses applied for these licenses. Those applicants who were awarded licenses will have 14 days to submit the appropriate license fee to the commission. Licenses will be distributed next month and we should see the state's first legal cannabis sales shortly after that.
