- Greenhouse 5 completed its first full quarter of production and sales in Q2, outperforming expectations - Record quarterly highs included consolidated revenue and gross profit, wholesale biomass revenue and gross profit, biomass production and sales and retail revenue - Second Quarter 2024 Revenue was $53.9 million, at the high end of the guidance range and up 21% year- over-year - Biomass production was more than 149,000 pounds, 20,000 pounds ahead of the mid-point of guidance and up 45% year- over-year - Quarter-end cash and restricted cash balance was $25.9 million - Q3 2024 revenue projected at a record quarterly high of $65 million to $67 million - Q3 2024 quarter-end cash and restricted cash balance projected to be $38 million to $40 million, a new high since completion of Phase I expansion - Notice to vacate given to farmers leasing Greenhouse 2 for next expansion with one-third already empty. Considering cultivating "Hemp-Derived Cannabis," which was legalized in the 2018 federal Farm Bill, in Greenhouse 2 but no formal decision has been made - Conference Call to be held today August 13, 2024 at 5:00 p.m. ET     LONG BEACH, Calif. and TORONTO, Aug. 13, 2024 (GLOBE NEWSWIRE) -- Glass House Brands Inc. ("Glass House" or the "Company") (CBOE CA: GLAS.A.U) (CBOE CA: GLAS.WT.U) (OTCQX:GLASF) (OTCQX:GHBWF), one of the fastest-growing, vertically integrated cannabis companies in the U.S., today reported financial results for the second quarter ended June 30, 2024. Second Quarter 2024 Highlights (Unaudited results, unless otherwise stated, all results and dollar references are in U.S. dollars) Net Revenue of $53.9 million, an increase of 21% from $44.7 million in Q2 2023 and up 79% sequentially from $30.1 million in Q1 2024. Gross Profit was $28.7 million, compared to $24.4 million in Q2 2023 and $12.5 million in Q1 2024. Gross Margin was 53%, compared to 55% in Q2 2023 and 42% in Q1 2024. Adjusted EBITDA1 was $12.4 million, compared to $9.5 million in Q2 2023 and $(1.6) million in Q1 2024. Operating Cash Flow was positive $8.9 million, compared to $8.3 million in Q2 2023 and negative $1.9 million in Q1 2024. Equivalent Dry Pound Production2 was 149,717 pounds, up 45% year-over-year; Cost per Equivalent Dry Pound of Production3 was $148 an increase of 6% compared to the same period last year. Cash, Restricted Cash and Cash Equivalents balance was $25.9 million at quarter-end versus $24.4 million at the end of Q1 2024. Management Commentary "Our second quarter results reflect another period of exceptional growth for Glass House Brands where we met or exceeded expectations across almost all key operating metrics," commented Kyle Kazan, Co-Founder, Chairman and CEO of Glass House. "Net revenue increased 21% year over year and 79% sequentially to a record high $54 million, reaching the high end of our guidance range of $52 to $54 million. We produced approximately 150,000 pounds of biomass and sold 138,000 pounds, driving wholesale revenue to a record high $39.1 million and wholesale biomass gross profit to a record high $22.6 million." "Greenhouse 5 delivered its first full quarter of production and sales in Q2 as production levels, quality and yields have all outperformed our original expectations. As our results show, many of the improvements we have made at Greenhouse 5 have been successful, and at this early stage, Greenhouse 5 is already our most efficient greenhouse. As a result, we have made plans to backport a number of the modifications made in Greenhouse 5 into Greenhouse 6 over the next 6 to 12 months." "Our retail and CPG teams also delivered strong results in the second quarter. Same-store retail revenue grew by about 6% year-over-year, which is impressive given the backdrop of a highly competitive California retail sales market. Also, the Allswell $7.50 ‘price on the shelf' and $9.99 ‘taxes paid out the door' eighth and the Allswell 14 gram package are our best-selling products by unit sales volume and helped propel Allswell into the top 3 of California Flower brands by units sold in the second quarter per Headset data. These products, along with the retail dispensary strategic pricing plan, drove a 20% year-on-year increase in transactions in our stores on a same store basis during the quarter." "We are planning our next expansion in Greenhouse 2 and to that end, we gave a formal notice to vacate to the tomato and cucumber farmers who have been leasing it. With the federal legalization of ‘hemp-derived cannabis' in the 2018 Farm Bill, we are considering growing ‘hemp-derived cannabis' compliantly in Greenhouse 2 which would allow us to ship directly to consumers in the many states outside of California where it is legally permitted. As the capital improvements are nearly identical for cultivating ‘hemp-derived cannabis' and cannabis, we are taking the time to calculate the best ROI before making a formal decision." Second Quarter 2024 Operational Highlights Glass House Brands Participates in 8th Annual Canaccord Genuity Global Cannabis Conference Glass House Brands Announces Appointment of John ‘Jay' Nichols Jr. to its Board of Directors Glass House Brands Announces the Resignation of Board Member Jamie Mendola Subsequent Events Glass House Farms Earns Golden Bear Award at the California State Fair Cannabis Awards Glass House Brands Issues an Open Letter Urging President Biden, Former President Trump and Vice President Harris to De-Schedule Cannabis Glass House Brands Welcomes Hector De La Torre Back to The Board of Directors Glass House Brands Announces Court Dismissal of Catalyst Lawsuit Q2 2024 Financial Results Discussion Net revenues for Q2 2024 were $53.9 million, up 21% versus Q2 2023 and a 79% sequential increase. This was at the high end of Q2 guidance of $52 to $54 million, driven by record quarterly performance in biomass production, biomass volume sales, wholesale biomass revenue and retail revenue. The core wholesale biomass business achieved revenue of $39.1 million, increasing 28% versus Q2 2023 and 145% sequentially. Biomass production reached 149,717 pounds in Q2, ahead of guidance of 128,000 to 130,000 pounds as Greenhouse 5's first quarter of production exceeded expectations. Retail revenue in Q2 2024 was $10.9 million, compared to $9.9 million in the previous quarter and $10.1 million in Q2 2023. On a same store sales basis, retail revenue grew by nearly 6% year-on-year and by 10% sequentially, outperforming the broader California market which saw sales decline 8% year-on-year and which saw sequential growth of one half of one percent per Headset data. The strong performance was driven by the Glass House retail dispensary strategic pricing plan implemented late in the first quarter and by strong sales of Allswell branded flower in Glass House-owned retail stores. Wholesale CPG revenues were $4.0 million down 6% sequentially and up 1% year-over-year. Strong sales of the 14 gram and 1/8th ounce packs helped propel Allswell into the top 3 of California Flower brands by units sold in the second quarter per Headset data. Consolidated gross profit was $28.7 million, or 53% of net revenues, compared to $24.4 million, or 55%, in Q2 2023 and $12.5 million, or 42% in Q1 2024. Overall gross margin was ahead of guidance of approximately 50%, due to a 19 percentage point increase in wholesale biomass gross margin, coupled with a 145% quarter-over-quarter increase in wholesale biomass revenue. Wholesale gross margin was 58% despite a lower than anticipated average selling price. It was the third highest wholesale biomass quarterly gross margin on record behind only 61% in Q2 2023 and 60% in Q3 2023. Average selling price was $283 per pound, compared to $340 in the second quarter of 2023 and guidance of $330 to $335 per pound. General and administrative expenses were $17.4 million in Q2 2024, up 33% from $13.1 million last year and 28% from $13.5 million last quarter. About 60% of the sequential increase was due to the bonus accrual for projected 2024 performance with most of the remainder due to an increase in wholesale cannabis sales taxes caused by the $23.1 million increase in sequential wholesale biomass revenue. Sales and marketing expenses were $0.7 million, down from $1.0 million during the same period last year and up from $0.5 million in Q1 2024. Professional fees of $1.9 million compared to $3.7 million in Q1 2024 and $2.2 million in Q2 2023. The $1.8 million decrease versus Q1 2024 is because incremental expenses were incurred in Q1 2024 from the restatements for 2021, 2022 and the first quarter of 2023 and from legal fees related to litigation. The costs from completing the restatements did not recur in Q2 and legal fees from litigation decreased. Regarding the Catalyst lawsuit that was dismissed on June 24th, 2024, please note that on August 7th, 562 Discount Med, Inc. filed a Notice of Appeal of the judgment of dismissal following an order granting a motion for judgment on the pleadings without leave to amend. We will disclose further developments in this case as merited. Depreciation and amortization in Q2 2024 were $3.7 million, consistent with Q1 and up slightly from $3.6 million in the same period last year. Adjusted EBITDA was a record high $12.4 million in Q2, above the high end of guidance of $10 million to $12 million. This increase versus expectations was due primarily to the higher gross margin discussed earlier. Operating cash flow was $8.9 million, consistent with guidance of $8 million to $10 million. Factors affecting operating cash flow included a $4.9 million sequential increase in accounts receivable caused by increased sales from Greenhouse 5 production, and a $3.3 million increase in inventory. The increase in accounts receivable and inventory was somewhat balanced out by a $7.4 million increase in accounts payable and accrued liabilities and this figure includes the bonus accrual. The Company started the quarter with $24.4 million in cash and restricted cash and ended Q2 with $25.9 million, slightly better than guidance of $25 million. We spent $3.9 million in capex in Q2, mainly on completing Phase 2 expansion of Greenhouse 5 and nursery capacity in Greenhouse 1. The Company also paid $1.9 million in preferred stock dividend payments and $1.9 million in principal on the WhiteHawk loan. 2024 Outlook The Company is providing the following guidance for the third quarter of 2024 based on the strength of second quarter results and current trends in 2024. This guidance does not contain any impact from potential Greenhouse 2 expansion. Q3 2024 Outlook Moving into peak growing season of Q3 and with Greenhouse 5 still ramping up production, we expect Q3 revenue to set a new record high of $65 million to $67 million, an increase of 22% sequentially and 37% year-on-year at the midpoint of guidance. We anticipate Q3 biomass production of 185,000 to 195,000 pounds, as production levels in Greenhouse 5 have exceeded expectations. This will represent 27% sequential and 87% year-on-year growth at the mid-point of guidance. We expect visibility on Greenhouse 5's production capabilities to improve as we move through the remainder of the year and as we complete several more planting and harvest cycles in the greenhouse. We project that the average selling price for wholesale biomass will be in the range of $280 to $285 per pound versus an average of $283 in Q2 this year and $336 in Q3 2023. Flower pricing has been weaker than expected since the second half of Q2 and in recent weeks has fallen below the lowest levels seen in 2023. We feel that lower prices in the short term favor Glass House over the long term given our position as the low-cost producer. We also believe it's unlikely prices will remain at these depressed levels over the long run. We project that Q3 2024 cost of production will be $120 per pound, roughly flat versus $118 per pound in Q3 2023. This will be only the second quarter of production from Greenhouse 5 and we are still in the initial ramp up period. We expect combined Q3 retail and CPG revenue to increase by a low single digit percentage versus Q2, as we continue to expect a highly promotional and price driven retail landscape. We expect consolidated gross margin to be in the low 50s, versus 53% in Q2 2024. The third quarter typically sees our highest production and sales of flower versus trim, and that should provide a level of resilience in gross margin. We project that adjusted EBITDA and operating cash flow will both be in the $18 million to $20 million range in the third quarter, helping to push quarter-ending cash and restricted cash balance to $38 million to $40 million, a new high since we bought, retrofitted and began cultivation at the SoCal farm. Capex is expected to be approximately $2 million. We will also make $1.9 million in dividend payments and $1.9 million in debt amortization payments. 2024 Fiscal Year Outlook We are revising revenue guidance for 2024 down to $205 to $210 million from the previous $215 million to $220 million, which is 29% year-on-year growth at the mid-point of guidance. This revision is entirely due to the current wholesale biomass pricing environment and the resulting downward revision to guidance for average wholesale pricing for the remainder of the year. We are reducing projected 2024 Adjusted EBITDA to $40 million to $45 million from the previous ‘exceeding $50 million' and moving operating cash flow guidance down to the low $30 million range from the previous mid $30 million range. Consistent with our previous guidance, we expect cash flow to grow at a slower rate than Adjusted EBITDA due to the increased working capital requirements associated with starting up Greenhouse 5. This guidance does not include the $11.5 million ERTC refund we expect to receive later this year. We are raising our guidance range for wholesale biomass production by 50,000 pounds to 575,000 to 585,000 pounds, which represents a 63% increase over 2023 at the mid-point of guidance, as Greenhouse 5 output has exceeded our original expectations. Cost per pound is projected to be $130 which is lower than 2023 cost per pound of $136. We are revising our projected average selling price down to $275 to $280 per pound versus the prior guidance of between $310 and $315 per pound, due to the current pricing trend as described earlier. Combined revenues from Retail and CPG are projected to increase by a mid-single digit percentage year-on-year in the second half of the year as we expect our retail pricing initiative to drive higher sales as foot traffic builds. Financial results and analyses will be available on the Company's website on the ‘Investors' and ‘News & Events' drop down menus (www.glasshousebrands.com) and SEDAR+ (www.sedarplus.ca). Unaudited results, unless otherwise stated, all results are in U.S. dollars. Net Income / Loss   (in thousands) Q2 2023   Q1 2024   Q2 2024 Revenues, Net $ 44,665     $ 30,100     $ 53,938   Cost of Goods Sold   20,293       17,574       25,264   Gross Profit   24,372       12,526       28,674   % of Net Revenue   55 %     42 %     53 %             Operating Expenses:           General and Administrative   13,055       13,528       17,366   Sales and Marketing   997       477       682   Professional Fees   2,200       3,663       1,860   Depreciation and Amortization   3,570       3,716       3,723   Impairment   1,328       —       —   Total Operating Expenses   21,150       21,384       23,631   Income (Loss) from Operations   3,222       (8,858 )     5,043   Interest Expense   2,547       2,206       2,593   Loss on Change in Fair Value of Contingent Liabilities and Shares Payable   19,100       6,465       (7,910 ) Other (Income) Expense, Net   1,234       (94 )     118   Total Other (Income) Expense, Net   22,881       8,577       (5,199 ) Income Taxes   5,293       834       203   Net Income (Loss) $ (24,952 )   $ (18,269 )   $ 10,039     Adjusted EBITDA   (in thousands) Q2 2023   Q1 2024   Q2 2024 Net Income (Loss) (GAAP) $ (24,952 )   $ (18,269 )   $ 10,039   Depreciation and Amortization   3,570       3,716       3,723   Interest Expense   2,547       2,206       2,593   Income Tax Expense   5,293       834       203   EBITDA (Non-GAAP)   (13,542 )     (11,513 )     16,558   Adjustments:           Share-Based Compensation   1,532       3,272       3,621   Stock Appreciation Rights Expense   14       345       51   (Gain) Loss on Equity Method Investments   (36 )     (18 )     94   Change in Fair Value of Derivative Asset   143       (113 )     (32 ) Impairment Expense for Intangible Assets   1,328       —       —   Change in Fair Value of Contingent Liabilities and Shares Payable   19,100       6,465       (7,910 ) Loan Amendment Fee   1,000       —       —   Adjusted EBITDA (Non-GAAP) $ 9,539     $ (1,562 )   $ 12,382     Select Cash Flow Information   (in thousands) Q2 2023   Q1 2024   Q2 2024 Net Income (Loss) $ (24,952 )   $ (18,269 )   $ 10,039   Depreciation and Amortization   3,570       3,716       3,723   Share-Based Compensation   1,532       3,272       3,621   Impairment Expense for Goodwill and Intangibles   1,328       —       —   Loss on Change in Fair Value of Contingent Liabilities and Shares Payable   19,100       6,465       (7,910 ) Other   1,885       508       1,326   Cash From Net Income (Loss)   2,463       (4,308 )     10,799   Accounts Receivable   (2,078 )     981       (4,864 ) Prepaid Expenses and Other Current Assets   550       418       (911 ) Inventory   (2,008 )     (2,371 )     (3,292 ) Other Assets   (6 )     105       71   Accounts Payable and Accrued Liabilities   4,013       2,897       7,366   Income Taxes Payable   5,182       309       (476 ) Other   149       94       207   Working Capital Impact   5,802       2,433       (1,899 ) Operating Activities Cash Flow   8,265       (1,875 )     8,900               Purchases of Property and Equipment   (205 )     (2,405 )     (3,912 ) Other   (233 )     —       —   Investing Activities Cash Flow   (438 )     (2,405 )     (3,912 )             Proceeds from the Issuance of Preferred Shares and Notes Payable   (1 )     —       —   Payments on Notes Payable, Third Parties and Related Parties   (13 )     (1,888 )     (1,890 ) Distributions to Preferred Shareholders   (1,376 )     (1,937 )     (1,936 ) Other   (115 )     (11 )     309   Financing Activities Cash Flow   (1,505 )     (3,836 )     (3,517 )             Net Increase (Decrease) in Cash, Restricted Cash and Cash Equivalents   6,322       (8,116 )     1,471   Cash, Restricted Cash and Cash Equivalents, Beginning of Period   16,368       32,524       24,408