Glass House Brands Inc. Subordinate Voting Shares

Good afternoon, ladies and gentlemen. Welcome to the Glass House Brand's fourth quarter and full year 2025 earnings call. Matters discussed during today's conference call may constitute forward-looking statements that are subject to the risks and uncertainties relating to Glass House Brand's future financial or business performance. Actual results could differ maturely from those anticipated in those forward-looking statements. The risk factors that may affect results are detailed in Glasshouse Brands Periodic Filings and Registration Statement. These documents may be accessed via the SADAR Plus database. I'd also like to remind everyone that this call is being recorded today, Wednesday, March 24, 2026. On today's call, we have Kyle Kazan, Co-Founder, Chairman, and Chief Executive Officer of Glasshouse Brands. and Chief Financial Officer Mark Vendetti. Following prepared remarks, management will open up the call to analyst questions. Also joining for questions is Rem Farrar, co-founder and president. And with that, I'll turn the call over to Kyle Kazak.

Thank you, Operator, and a hearty hello to all of you for joining today's call. For greater detail and results, please refer to our fourth quarter and full year earnings press release and full year financial filings. I am pleased to be speaking with you today. 2025 was a year of great progress and achievement for the US cannabis industry and our company. It was also a year of challenges due to the events of this summer. Our entire team continues to rise to meet those challenges. And because of that, I'm confident that we have built a stronger foundation for future growth. I am excited for the days to come. Our first half 2025 results, and particularly those of the second quarter, represented a new high watermark of execution across numerous key metrics, including biomass production scale, cost of production, and operating cash flow yield. This strength provides a blueprint of achievable results for this company, and those results are just the beginning. 2025 was also the first full year of our strategic pricing model. This model is highlighted by our everyday, out-the-door $9.99 price, including tax, for a farm-fresh one-eighth of our Allswell branded flour. The pricing model, combined with our team's strong execution, allowed our retail stores to consistently outperform the California market with same-store 10% year-over-year sales growth versus a 5% state decline in sales according to Headset. Meanwhile, Allswell became the top-selling flour brand in California by volume. California remains the world's most fiercely competitive cannabis market, so our strength in flour, and particularly our Allswell brand, is something that we take great pride in. No one anywhere matches Glasshouse flour on price and low-cost quality. In 2025, we took steps to solidify our balance sheet and improve our financial flexibility and future cash generation. In March, we secured a new $50 million five-year senior secured credit facility to replace our existing higher interest debt, while in July we refinanced our high interest rate Series B and C preferred equity with the creation of a fully subscribed Series E offering. The Series E preferred equity carries a 12% interest rate paid annually, which replaced the 22.5 cumulative rate for the Bs and the Cs, inclusive of the payment in kind function. In total, these financings meaningfully de-risked our balance sheet without diluting investors and ensured that future capital raises would only be for strategic additions to the business. We also commenced a collaboration with the University of California at Berkeley to explore hemp-related research with aims that include the development of novel medicinal products. To our knowledge, this is the first and only collaboration of its kind in the industry, and we will leverage the experience gained as we proceed with our commercial hemp strategy and participate in any future CBD reimbursement programs. Unfortunately, our second half and full-year results were impacted by unexpected events and the ongoing response to those events. As most on this call are aware, two of our farms were raided by federal agents on July 10th as part of a broader immigration crackdown for the California agriculture industry. In response to those events, we made the hard decision to completely revamp hiring and staffing practices for both employees and third-party labor contractors moving forward. We did this voluntarily, and the resulting practices go well above and beyond what is required by both federal and state law. As outlined in prior calls, changes made and the resulting temporary staffing shortages prompted our scaling back of new planting and production in the second half of the year. Inclusive within the production, we had to delay some processing, which resulted in deteriorated product being available for sale. In the fourth quarter, we sold off the last of this older inventory. Fourth quarter employee results reflect the impact of this temporary scale back. Fourth quarter revenue was $39 million. While in line with guidance and our expectation, this was down meaningfully from $53 million last year during the same period. Full year 2025 revenue was $182 million, down from $201 million in 2024. For both the fourth quarter and full year, the wholesale segment was where we suffered the significant drag to results as we produced reduced volumes and quality of biomass per sale. For the fourth quarter, we produced 159,000 pounds of biomass ahead of expectations, yet down from the 165,000 last year. For the full year, we produced 666,000 pounds, roughly 20% below where we were tracking at the start of July. Average fourth quarter selling price was $146 per pound, down from $220 in the fourth quarter last year, while full-year average selling price of $177 per pound compared with $245 in 2024. I refer to a glass-out selling price in these comments. It's important to note that while California pricing remains challenged, year-over-year declines in state pricing moderated in the second half of the year. So the weaker sales prices I referenced reflect our deteriorated product being available for sale and an unfavorable shift in our genetic strain mix. When we turned the farms back on for planting, our strain selection criteria was focused on those that we could quickly scale and not our usual eye on yield. For 2026, our post-harvest processing process has returned to normal levels. Meanwhile, these temporary conditions also caused an elevated cost of production. Fourth quarter cost of production was $129 per pound, up from $110 last year, while full year 2025 cost of production was $111 above our annual production cost target of $95 per pound. Lower selling prices and higher cost of production and wholesale dragged on our overall margins, resulting in a total reported gross margin for the fourth quarter of roughly 35%, and an adjusted EBITDA loss of $3.3 million. Both were well below seasonal and recent levels. For the full year, gross margin was 42%, while adjusted EBITDA was approximately $17 million. For comparative purposes, at the end of the second quarter on a full-year basis, our full-year results were tracking well above our 2025 guidance at the time of $225 million in revenue within adjusted EBITDA in the mid-$40 million range level. Looking ahead, Mark will provide explicit guidance, but I am pleased to say that these short-term hurdles are today largely behind us. We anticipate very strong growth in 2026 with progressive revenue scaling during the course of the year. Growth comes before factoring in the potential benefit of any sales outside of California for our cannabis plants, something that we continue to believe is achievable in the near term or any contributions from hemp sales. We have hemp plants growing and anticipate an initial harvest in the second quarter. We ended 2025 fully planted in each of our legacy greenhouses and with the first one-third of greenhouse two planted, giving our cultivation team the most acreage planted in Glass House's history. That acreage is now yielding at nearly full capacity, and you will see the full benefit of that scale reflected initially in products sold within the second quarter of 2026. The cultivation team, led by Graham Farrar, has done a remarkable job of getting the greenhouses back on track to full capacity in a short period of time. In the three months following the raid, the number of cannabis plants in the greenhouses dropped 60%. Since bottoming out in early October, we have now roughly 20% more plants compared to early July, thanks to Greenhouse 2, and expect to add another 40% when Greenhouse 2 is fully planted by the end of the second quarter. In addition, we accelerated expansion plans with the build-out of the remaining greenhouses. two-thirds of Greenhouse 2 and the CapEx light retrofit and build-out of Greenhouse 4, our first commercial hemp endeavor. With current planting, we will harvest at roughly one-third capacity for Greenhouse 4 and will expand in the second half of this year. The second two-thirds of Greenhouse 2 will contribute to second half results while Greenhouse 4 is now planted. We expect the first crops to be available for sale this summer with plans to supply international hemp and smokable CBD markets in the second half of this year. We are in active discussions with customers, and while we are not ready to provide explicit guidance on hemp contributions this year, we are confident that product will be sold at favorable prices relative to those currently achievable with California cannabis. Long term, We plan for greenhouse 4 production to be an eventual supplier to the reimbursable CBD market while also planning for the development of our final greenhouse, which is greenhouse 3. Meanwhile, even with the staffing changes and more stringent controls we've implemented, our long-term cost structure remains intact. There has been a learning curve for both new employees and third-party labor contractors, but staff gain valuable experience every day, and based on the progress seen, we do not foresee a meaningful change in the cost of labor moving forward. I remind you of our $95 long-term annual target level for cost production. We expect to be below that level in total for the final three quarters of 2026. Our low-cost production capabilities stem from our consolidated scale of capacity, the skill of our seasoned leadership team, and favorable weather conditions in California. We will never have to pay the high and growing energy bills of indoor piers, nor do we rely on third-party water supply. It is these benefits that have sustained us despite challenging California cannabis market conditions and will further separate the company whenever prohibitions are removed to open new markets. In addition to our operating results, there were many positive developments in our industry during 2025. On December 18th, President Trump signed an executive order to reschedule cannabis to a Schedule III classification and authorized the development of a pilot program for reimbursable TBD products for Medicare participants. This order represents the most significant progress on drug policy reform in the past 50 years and reflects a long overdue common sense acknowledgement of the beneficial medical and therapeutic properties of the cannabis plant. We are extremely pleased with these advancements as rescheduling and the reimbursable CBD program will permit greater normalization for the industry. Importantly, it should allow us to sell California-grown production outside the state for the first time, greatly expanding our addressable market and allowing us to achieve more favorable pricing dynamics. As we continue to await Attorney General Kambandi's final execution of this change, we are actively preparing for the opportunities ahead. We have meaningfully expanded our total cultivation capacity. We understand that reclassification of cannabis to Schedule III under the current administration can provide opportunities to export medical cannabis into international markets. As such, we have signed an agreement with a good agriculture and collection practices or otherwise known as GACP consultant and are progressing towards a compliance audit. We anticipate that GACP will be a requirement for producers supplying the growing EU medical market and see it as a place where we can be strategically well-positioned. We are also in active discussion with distribution partners in a number of countries for cannabis and hemp. Also, in anticipation of the final ruling on rescheduling, we have established a special committee within our board of directors. The committee consists of Graham, directors Jay Nichols and Jocelyn Rosenwald, along with the newest addition to our board, Allison Payne, the CMO of Heineken USA, along with me. The committee is tasked with oversight of new product and business opportunities beyond our legacy California cannabis business and immediate expansion areas, including the development of ongoing and future partnerships with companies in more traditional industries, including tobacco, alcohol, and cosmetics. We believe widespread adoption of cannabinoid products within traditional consumer product industries is coming. We are in active discussion to ensure that whatever form that takes, it's glasshouse-produced cannabinoids inside ensuring greater distribution and speed to market. With that, I'll turn the call over to Mark Venditti, our Chief Financial Officer, to discuss our financial results for the quarter in detail. Mark? Thank you, Kyle, and welcome, everyone. As Kyle highlighted, fourth quarter revenue was 38.9 million compared to 53 million in the same period last year. The decline stems from wholesale segment challenges that came as a result of step-back decisions made in the third quarter. We finished near the top of our revenue guidance for the quarter of between 37 million and 39 million, and would have exceeded it but unexpectedly had to switch our CPG distributor in December, which decreased sales for several weeks and hurt revenue by between half a million and $1 million. In addition, we had a loyalty program points adjustment in the quarter, which decreased retail sales by approximately half a million. These decreased gross margin by a similar amount. For full year 2025, revenue was 182 million, compared to 200.9 million reported in 2024 as we produced at a lower overall scale. We produced 159,000 pounds of biomass the fourth quarter, ahead of our 145,000 pounds of guidance, but down from 165,000 in the prior year period. For the full year, production was 666,000 pounds, up roughly 10% from full-year 2024 levels, but down meaningfully from the 800,000-pound level we were tracking to going into the summer. Because of the reduced production volume and related inefficiencies, production cost per pound was $129 in the fourth quarter, roughly flat sequentially, but up from $110 last year. For the full year, cost of production was $111 per pound. We sold 155,000 pounds of wholesale biomass in the quarter, down from 165,000 pounds in the same period last year. For the full year, we sold roughly 643,000 pounds, up from 568,000 pounds in 2024. The average fourth quarter selling price for BioNav sold was $146 per pound versus $220 last year, while the full year selling price was $177 per pound. Year-over-year price declines reflect continued California pricing challenges. However, more significantly, the sequential decline can be attributed to an unfavorable mid-shift from forward and trend within the production mix and the product quality issues Kyle mentioned. For the full year, flower mix was in the high 20% range, while under normal conditions, it would have been expected to be in the high 30% range. As a reminder, we have been selling higher levels of trim this year on account of improved cultivation practices, which allow us to harvest and sell trim material that would have previously been disposed of. This has the effect of lowering our AFPs if the additional material is predominantly trim, which garners lower average selling prices. The greater trim volumes that were exacerbated in the second half of last year due to deterioration in product that was available for sale because of delays in processing as we faced temporary staffing shortages. As we move forward, and bring on greenhouse two, we expect a new normal 4% of sales in the mid-30% range. Fourth quarter consolidated gross profit was $13.2 million, and gross margin was 34%. The gross margin compared to 43% in fourth quarter 2024, with decline stemming from the lower average selling prices and higher production costs in the wholesale business. Gross margin within our retail segment improved year over year as a reflection of continued strong execution with our retail stores, and despite a loyalty point throughout. For the full year, 2025 gross margin was 42%, down from 48% in 2024, which equals the level we were tracking to heading into the summer. Fourth quarter adjusted EBITDA was negative 3.3 million, in line with the prior quarter, but down from $9 million in the fourth quarter last year. Adjusted EBITDA reflects the factors that impacted our gross margin performance, as well as a modest increase in operating expenses. For the full year, adjusted EBITDA was $17 million, less than half of 2024 reported adjusted EBITDA, and the mid-40s level, we were guided in reporting first quarter results. Fourth quarter operating cash flow was negative 3.7 million, while for the year operating cash flow was 11.4 million. Turning to the balance sheet, we ended 2025 with 23.4 million in cash and restricted cash, compared to 29.8 million last quarter and 36.9 million at the end of 2024. Inclusive in cash spending was roughly 2 million in CapEx, which funded the continued build out of Greenhouse 2. Additionally, the final cash number included approximately 2 million raised from the use of our outstanding ATM and 2 million received from ERTC tax credits. In addition, we paid roughly 2 million in federal income tax. For the full year, we received roughly 10 million in ERTC tax credits, and have roughly 3 million in anticipated receipts outstanding. We do not have clarity on the timing of any subsequent ERTC tax credit receipts. In December and early January of 2026, we completed our outstanding ATM receiving net proceeds of approximately $22 million. The shares were primarily issued to existing long-term investors with proceeds from the rate primarily going to fund the build-out of the remaining two-thirds of greenhouse two in our greenhouse four expansion. Turning to guidance, as Kyle discussed, we ended the year back to being fully planted with legacy greenhouses and planted the first one-third of greenhouse two, giving the cultivation team the most acreage planted in glasshouse history. The expanded cultivation and production will begin to be reflected in results during the first quarter, and thereafter we are posed for meaningful growth based off our increased scale. Additionally, results will reflect incremental contributions from the final two-thirds of greenhouse two within the second half of the year, while we will also see initial contributions from our hemp commercial initiative with initial hemp plants expected to be harvested in late second quarter and contributing to results beginning in the third quarter. I remind that the total greenhouse two is capable of producing at roughly 300,000 pounds annually biomass once fully operational. Our hemp greenhouse, greenhouse four, will produce at a lesser scale given that prioritization of speed to market over greater efficiency. In time, we will further enhance the greenhouse to enable greater production capacity. We anticipate first quarter revenue to be approximately 39 million as we produce approximately 138,000 pounds of biomass, reflecting typical winter seasonality and the partial first quarter contribution of ramp scale. First quarter average selling price for wholesale biomass is assumed to be approximately $167 per pound, down from 192 last year, Our cost of production will be approximately $161 per pound versus 108 last year. As Kyle referenced, starting in Q2, we anticipate our cost of production will be below our long-term annual target level of $95 per pound over the remainder of the year. As a result of the higher cost of production and lower sales price, we anticipate Q1 gross margin to be approximately 29%, which compares to 45% last year. Full-year 2026 revenue is forecasted to be between $235 and $245 million. While importantly, we note that for the second half of the year, we anticipate the company will be operating at almost a $300 million annual revenue run rate. Full-year gross margin is projected to be roughly 48% this year. and full-year adjusted EBITDA is projected to be in the high $40 million range. Within our assumptions, full-year wholesale biomass production is forecast to be approximately 1 million pounds of biomass, which is a 48% increase to 2025. We expect Q2 production to increase high single-digit percent versus Q2 2025, and production in the second half of 2026 be more than double the second half of 2025. With the increased production, we expect the cost of production of approximately $100 per ton, which is a 10% decrease to 2025. Full-year average selling price is expected to improve to the mid-180s per pound from 177 in 2025, as we expect quality of mix to improve versus 2025. particularly the second half of the year when compared to 2025. I remind you that anticipated hemp contributions are incremental to our forecast. At this time, we are still deciding on the appropriate end market for supply. We anticipate, no matter the end market, pricing dynamics for hemp to be favorable to the cannabis prices achieved in California. We expect first quarter ending cash to be approximately 27 million, while we forecast 2026 full-year ending cash to exceed 50 million as we generate meaningful operating cash flow in the final two quarters this year. The forecast includes approximately 20 million CapEx to complete the full retrofit of greenhouse two, including adding new high-efficiency, low-energy lighting and a CapEx life retrofit of greenhouse four for the hemp production. It also assumes we continue to pay the dividends associated with the preferred equity series D and E, totaling 11.6 million in 2026. And with that, I turn the call back to Kyle for his closing remarks before opening up the call to Q&A. Thank you, Mark. As many of you know, last year we lost George Raveling, a valued member of Glasshouse's board of directors, the Glasshouse family, and someone who had a measurable impact on my life. While I could not be happier with the initial contributions from our newest board member, Allison Payne, I miss Coach dearly. Coach joined the board when we went public in 2021 and brought with him extensive experience in marketing and corporate governance, learned during his Hall of Fame basketball coaching career, and time as a senior executive at Nike. Additionally, Coach had a long and sought-after career as a motivational speaker, and one of his favorite topics was resiliency and the importance and power of having a team or workforce that can be steadfast and productive in the face of challenge. I think of this topic as I reflect on the incredible effort put forth by the entire Glasshouse family to come back from the events of last summer and to expand in scale and business capacity. We could not have done it without each and every one of you from our team members and workers to customers, business partners, and investors. I thank you for your support and look forward to the days ahead. While we applaud President Trump's signing of the executive order to reschedule cannabis, we appeal to him to pardon those many people sitting in federal prison right now for nonviolent cannabis offenses. As President Trump pardoned our current pardon czar, Alice Marie Johnson, and signed the First Step Act into law, we believe that he will give these people their lives back. I am proud to work with my friend, Weldon Angelos, and his Project Mission Green to release Parker Coleman and Ali, or otherwise known as Jose Valera Jr., among many others. Finally, I remind everyone that we once again are planning to hold our annual investor session at the Camarillo Farm. This year, we have scheduled the event for Thursday, June 18th, and I genuinely hope you can make it and we can meet you in person at the farm. Thank you again, and I will now ask the operator to open the line for questions. Operator?

Thank you. As a reminder, to ask a question, you will need to press star, then the number 1 on your telephone keypad. And if you would like to withdraw your question, press star 1 again. Your first question comes from the line of Frederico Gomez with ATD Cormac. Your line is open.