Release Date: May 14, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Revenue for Q1 2024 was $30.1 million, surpassing the guidance of $28 million to $29 million.
- Production exceeded expectations with over 61,300 pounds of biomass produced, 28% higher than the same quarter last year.
- Cost per pound was $182, 7% below the same period last year and below guidance of $185.
- The launch of the Allswell brand and strategic pricing plan significantly boosted retail and own brand sales, making Allswell the most consumed cannabis brand in California in April.
- Glass House Brands Inc successfully managed the operational challenges of turning on production at Greenhouse 5 while maintaining cultivation at other facilities.
Negative Points
- Adjusted EBITDA was negative $1.6 million, although better than the projected negative $2 million to $4 million.
- Operating cash flow was negative $1.9 million, despite being ahead of the guided negative $3 million to negative $4 million.
- The average selling price per pound decreased to $282 from $290 per pound in the first quarter of last year.
- Retail gross margin declined to 53% in Q1 from 54% in the previous quarter, with expectations of further reductions.
- The company faces challenges from high competition and pricing pressure in the retail and wholesale CPG space, potentially worsening throughout 2024.
Q & A Highlights
Q: As we look at the environment in California and the attrition in retail and CPG, do you think you might get more aggressive with broadening your retail distribution based on some acceleration in attrition?
A: Kyle Kazan, CEO, mentioned that while they do not plan to own more than their current 10 retail stores, they anticipate expanding their footprint through management rather than ownership. This strategy is expected to enhance their margin by providing pricing power and attractive offerings to store owners.
Q: Can you comment on the potential upside from Greenhouse 5 based on its performance so far?
A: Kyle Kazan expressed optimism about the output from Greenhouse 5, noting it as a new source of biomass that has exceeded expectations. Graham Farrar, President, added that the early performance suggests it might be their best greenhouse yet, although they are maintaining conservative estimates for now.
Q: What trends are you currently seeing in pricing, and what changes do you expect in the second half of the year?
A: Kyle Kazan explained that they anticipate typical seasonal pricing pressures as production increases in the latter half of the year, similar to previous years. They continue to monitor the market closely, especially with the new biomass production from Greenhouse 5.
Q: Regarding the costs, particularly G&A and professional fees, are there any one-time aspects that might not recur in future quarters?
A: Mark Vendetti, CFO, clarified that a significant portion of the costs in Q1 were due to a restatement process, which is not expected to recur. There were also higher litigation fees, but the restatement costs should decrease moving forward.
Q: How is the added production capacity being absorbed by the market? Are there new customers, or is it the established ones increasing their orders?
A: Graham Farrar noted that the market remains receptive, with established customers increasing their orders and some new customers coming on board. The decrease in cultivation licenses has not led to a decrease in demand, which remains consistent or slightly up.
Q: Can you provide more details on the strategic pricing initiative's impact on foot traffic and sales?
A: Kyle Kazan shared that the $9.99 pricing strategy for their Allswell brand is intended to be permanent, aiming to offer everyday value to customers. While specific data on repeat customers wasn't available, the initiative has led to increased foot traffic and slightly smaller basket sizes due to the lower pricing.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
