Glass House Brands Inc. Subordinate Voting Shares

Ladies and gentlemen, today's call is scheduled to begin momentarily. Until that time, your lines will again be placed on music hold. Thank you for your patience. Thank you for watching. Good afternoon, ladies and gentlemen. Welcome to the Glass House Brands' second quarter 2026 earnings call. Matters discussed during today's conference call may constitute forward-looking statements that are subject to risks and uncertainties related to Glass House Brands' future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. The risk factors that may affect results are detailed in Glasshouse Brands' periodic filings and registration statements. These documents may be accessed via Cedar Plus database. I'd also like to remind everyone that this call is being recorded today, Thursday, August 13, 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 Graham Farrar, co-founder and president. And with that, I'll turn the call over to Kyle Kazan.

Good afternoon. Thank you, operator, and to all of you for joining today's call. For greater detail on results, please refer to our second quarter 2026 earnings press release. Before I discuss results, I want to acknowledge the quarter's landmark event within our industry, the rescheduling of medical cannabis to Schedule III in late April. This represents the most important drug reform in my lifetime and overdue common sense drug regulation. I applaud President Trump and his administration for progressing with this change and remain encouraged by the rapid response from administrators in both California and at the DEA in updating systems, opening new licenses, and registration. Changes made to date have not been just lip service. They appear to be designed to produce tangible results for industry participants and, more importantly, patients. We are confident that subsequent updates will lead to an eventual normalization of operations for consumers, and cannabis operators. We are optimistic for further legislative progress to come in connection with the Administrative Law Judge, or ALJ, hearings regarding the rescheduling of adult use cannabis, which concluded last month, and anticipate further regulatory updates from both the State of California and the DEA in coming months. With that said, while we favor freedom for the patients and plants, we at Glass Tops do not require adult use rescheduling. We are registered with the DEA and operate today under a Schedule III designation. We are confident that medical cannabis rescheduling is sufficient to support interstate commerce between companies with appropriately registered DEA licenses and export to international medical cannabis markets. The opening of interstate commerce and export dramatically expands our addressable market size and unlocks profitability and cash generation potential at a magnitude that is beyond what is achievable with exclusive California operations. California is the most difficult cannabis market on the planet on account of fierce competition, high regulatory costs and taxes, and low wholesale prices, which stem in large part from illicit competition. It also has the most discerning cannabis consumers in the world who know great marijuana. We survive and grow despite the challenge on account of our low cost, large scale production model and because at our farms we produce top quality cannabis flower. In addition to our Allswell brand remaining a top seller in California measured by unit sales, we continue to win awards for quality in the state. In July at the 2026 California State Fair Cannabis Awards. We won 17 individual awards within the Mixed Light Flower category, showcasing the quality and consistency of our cultivation. I take my hat off to the cultivation team because winning awards while competing with California growers, who are the very best in the world, is an amazing accomplishment. I would compare it to winning the MVP at the All-Star Game. We are confident that our products will sell for premium prices in other markets. Whether in other US states or Europe, we know that consumers outside California want our and other California-grown products. And we know that continuing to win in our home state will be key to large demand for our products worldwide as the walls come down. In addition, we believe rescheduling will soon enable us to supply academic and research institutions with cannabis, assisting in their efforts to further unlock the therapeutic power of the plant. This includes our partners at UC Berkeley with whom we've been working on novel medical development with hemp for more than a year. To best take advantage of medical cannabis rescheduling, we have made significant changes to the business, our licenses and operating structure, including registering our cultivation and processing licenses with the DEA. as I mentioned previously, and converting all of our cultivation and processing licenses to state medical licenses. In addition, we completed a deconsolidation transaction whereby we fully separated our retail operations. Mark will discuss the direct impact on reported results later in the call, but our former retail business consisting of 10 stores is now a fully independent entity and our remaining business is now fully medically licensed and Schedule III compliant. The finance and legal team did an outstanding job in deconsolidating our legacy retail business. The deconsolidation resulted in our being able to uplift to the New York Stock Exchange. They are unsung heroes. I thank the retail team for their years of hard work and service. We supply these stores, still own a 90% economic interest in them. and look forward to further collaboration in the future. They are on the front line with the most discerning cannabis consumers on the planet and serve them extremely well. In connection with the deconsolidation, we applied for and successfully uplisted our USOTC listed equity share center to the New York Stock Exchange commencing trading on June 30th under our new ticker GLAS. The listing results custody and trading liquidity constraints for investors and reflects an important milestone for Glasshouse and the industry overall. We are proud of the listing and are excited to announce that our team will be in New York on the exchange floor for a bell-ringing ceremony on August 28th. Turning to second quarter results, revenue was $47 million. I note that this is below guidance of $55 to $60 million. However, our original guidance included retail revenue, which, as I mentioned, has been deconsolidated from results. Retail revenue through the date of deconsolidation was $10 million. Gross profit was $15.8 million, up from $4.1 million in the first quarter. Gross margin was up from 14% in the first quarter, but down from 55% in the second quarter of 2025. The lower gross margin stemmed from an unfavorable trim mix, particularly later in the quarter, and slightly higher cost of production versus guidance. Retail gross margin through the date of deconsolidation was approximately 50% for the quarter. Adjust EBITDA for the second quarter was $5.7 million. On the mix, there are three parts of the plant which are sold, the flower, smalls, and trim. While all have value, flower and smalls derive the most, Well, trim by far the least. This quarter, our mixed percentage of trim was meaningfully higher than our historical levels, better than quarter one, but clearly off of our best. There are three primary drivers of the current higher trim level. Coming out of last year's disruption, we refilled our nursery with the strains that we were able to source quickly rather than the varieties we would have normally planted. These source strains are producing higher levels of trim, We are now back to our planned genetics, which we expect will get us back closer to historical levels. It is important to remember that as we are the largest cultivator on this planet, nobody who supplies clones was prepared to restock us, so we had to work with a myriad of suppliers in a bit of a scramble to fully replant. Second, our workforce. We have hired and trained a large number of new people, estimated over 90% through the rebuild, who continue to gain valuable experience. Bringing the remaining two-thirds of Greenhouse 2 online required adding many more new workers, so a bigger share of the team remains early on their learning curve. Both are improving with time, and we are already seeing improvement. Plus, we are happy to have another greenhouse online. Finally, one of our co-gens has been offline, which is our primary source of CO2. This had a larger impact than expected that is being repaired and we expect to have it back online within this quarter. We are aggressively moving forward on additional labor training, maintenance updates and upgrades to the facility to help address all of these issues. The retail exit and higher trim mix offset meaningful gains in returning to more fully efficient operations at our farms. We've produced 246,000 pounds of biomass during the quarter. A record for the company and ahead of our 240,000 pound guidance and the 231,000 pounds we produced last year. We will see a further scaling of production for the second half of the year as we begin to get a full contribution from greenhouse two at the end of this quarter. And we remain on track to produce 1 million pounds of biomass and will exit this year at a more than 1.1 million pounds of biomass run rate. Remember, The reference production levels do not include hemp contributions and that we still maintain a vacant sixth greenhouse to develop at our Camarillo farm. Second quarter cost of production was $122 per pound, reflecting significant improvements from the $175 per pound reported in the first quarter and the $129 level from the second half of last year. The improvement comes from the fact that our less than fully seasoned workforce gains valuable experience every day, and we are seeing the benefit in volume from expansion efforts undertaken in the first half of this year. We expect to set new harvest records in the second half of this year, producing more than 600,000 pounds. I note that in anticipation of beneficial opportunities ahead, we put the pedal down on expansion this year, including a full replanting of scaled back operations, Training newer people poses a real challenge, one the team has made significant progress on. For the second half of the year, we anticipate a further reduction in cost per pound results in connection with higher production scale. We expect to exit the year with the cost of production below the $100 per pound level. Longer term, on an annual basis, our $95 a pound production target cost remains achievable, as we will never have to pay the high price and growing energy bills of warehouse operations. And we do it at a scale that no one else comes close to. It is these benefits that have sustained us despite challenging California cannabis market conditions and makes us an ideal supply partner for the operations in other markets which rely heavily on far more expensive cultivation inside of warehouses. More importantly, our Michael Jordan of growing cannabis, Graham Farrar, has launched an upgrade process for our existing greenhouses, including optimizing greenhouses five and six to the latest version of the UltraClema system, adding additional screens and environmental controls. We expect these upgrades will give us enhanced control over climate, allowing us to utilize even more of the natural Southern California sun and increasing our yields from our existing footprint. Those two greenhouses are the backbone of our operations, and like everything technical, capital improvements are necessary. In this case, the cultivation team has found ways to optimize as part of upgrading which will give even better tools to our growers. Since nobody has grown cannabis at this scale while utilizing the sun and fresh ocean air, every tool which can improve their utilization of mother nature drives more consistency for our plants. Meanwhile, our average wholesale selling price for the quarter was $211 a pound Up from 206 last year and well ahead of guidance at $185 to $190 per pound. We continue to see modest California pricing improvements year over year, albeit still at deflated levels compared with prior years and the national average. As we and other California operators eventually sell products outside the state, we expect California pricing to improve while simultaneously seeing an indirect decline in illicit market supply. Premium Pricing within Compliant Channels presents a nice carrot for any opportunistic, illicit market operator. In addition to cannabis cultivation and wholesale distribution, in the second quarter, we commenced initial commercial operations for hemp. We completed an initial harvest from greenhouse four and had initial sales. While, as expected, these sales were not material to second quarter results, They reflect a historic step for the company as it represents the first planned sale of any glasshouse product outside of California and provides an operational test for future near-term medical cannabis sales in new markets. We are closely monitoring a potential longer-term push-off of the federal hemp ban connected to recent congressional action, which delayed a federal ban on intoxicating hemp from November until December of this year. A long-term or permanent end to the hemp ban could present an exciting opportunity for Glasshouse to supply the existing multi-billion dollar market, leveraging our core competency of producing low-cost, high-quality cannabinoids. We support a federal one-plant rule, which includes hemp. Consumers want cannabis no matter what it is called, and driving consumers into the illicit market is a bad solution for society. As regulators remain dynamic in this space, we are evaluating the best next steps pending the updated regulations and where our facilities and expertise can best be leveraged. This includes possibly changing strain production priorities as we put our focus on where we can maximize the value of our facilities and team. We will provide further updates as these regulations develop. As I have previously stated, Whatever the end market, we aim to compliantly grow cannabinoids for sale in whatever markets offer us the highest possible price, and that may end up including intoxicating hemp. Now, before I turn the call over to Mark Vendetti to discuss financial results in greater detail, I want to take a moment to thank our entire team at Glasshouse. Between getting farm operations back on track, accelerating expansion efforts and preparing for the opportunities presented by rescheduling. The team has worked diligently to put the company in a position to achieve long-term success. I am proud to lead this group and am consistently impressed with the grit and determination displayed by each team member. I do not have a crystal ball that presents an exact timeframe for when interstate commerce and exports will occur, but I promise you that we are working diligently to prepare for those opportunities. I'll share some of those efforts. We formally engaged Pharma Compliance Group, led by Matt Murphy, to work with the regulators of jurisdictions outside of California so that we may ship our cannabis to those markets. Matt has been successful in building those bridges in the past, and we are confident that under Schedule 3, we can legally deliver medical marijuana to medical jurisdictions with willing participants. Matt is a former senior DEA official who served as Chiron's Chief Compliance Officer helping that company become Columbia's first medical cannabis producer to comply with DEA security and compliance protocols as an exporter of compliant products to Europe. As we aim to develop and implement track and trace processes that comply with existing closed-loop California systems and enable us to distribute outside the state, we will lean on Matt's experience and expertise Furthermore, we hope that MAC can assist federal and state regulators throughout the country, providing a pathway to better understand and implement viable regulatory frameworks. When it comes to intrastate commerce under developed states facing real inefficiency problems, it is economically inefficient and environmentally damaging to develop cultivation capacity for cannabis programs that are and will be expanded in response to rescheduling When supply already exists along the west coast of the United States, which could better fill demand more clearly and for cheaper. Scanning of local cultivation also slows new patient access to a plant that has been proven to contain beneficial therapeutic capabilities. Delaying and reducing access to the no regulators goal. We are in regular discussions with California regulators to develop a system for tracking cannabis sales as happens for all other Schedule III drugs for both out-of-state and international market sales. We are engaging with potential future customers about supply agreements for distribution of products and are collaborating with potential production and distribution partners. We continue to progress towards a good agriculture and collection practices, otherwise known as GACP, compliance audit at the farms. This is a prerequisite for European medical cannabis market supply. As mentioned before, we will continue to invest in our greenhouses for the long term in order to further optimize our farms. Leaning on Graham's tech background and his embedded Moore's Law mentality, the near term will include adding additional cooling capacity, and Airflow for Greenhouses 5 and 6, Better Shade and Light Management at Greenhouse 6 and bringing one of our co-generations back online. These are all focused and significant investments that we expect will reduce our cost per pound, increase our yields and improve the flower next we grow. I am committed to making sure that our cultivation team always has the very best tools so that we make our former selves obsolete as we are an ag tech company more than anything else. We're always in search of ways for us to be an even lower cost grower with even better quality. That is embedded in our 10-year-old DNA. We are working with a team at UC Berkeley to evaluate possible technology additions to ensure greater automation, including AI upgrades. This thinking will be at the heart of planning the retrofits of Greenhouses 3 and 4, as well to ensure that they are state-of-the-art so that we may do more with less. As we're working to open up markets outside the state of California, we're also looking at opportunities for expansion outside of our existing farms so that we are prepared when demand far exceeds our supply. I look forward to updating everyone further on out-of-state progress whenever possible and appropriate. With that, I'll turn the call over to Mark Vendetti, our Chief Financial Officer, to discuss our financial results Thank you, Kyle. Good afternoon, everyone. As Kyle mentioned, during the quarter, we completed a deconsolidation transaction whereby we spun out our retail operations. Our former retail business is now fully independent, and our remaining business is fully medically licensed under a Schedule III designation. Due to the deconsolidation, our reported financial results include retail results as discontinued operations through June 11 and as an equity method of investment beginning June 12. Second quarter revenue was 47 million, down from 47.6 million in the same period last year. Both periods exclude retail revenue. Retail revenue was 10 million through the date of deconsolidation Down from 12 million for the entire quarter last year. Within reported revenue, 41.7 million stem from wholesale biomass, while 5.3 million was CPG sales. This compares to a 42.1 million and 5.5 million in second quarter of sales for 2025 respectively. We produced 246,000 pounds of wholesale biomass in the second quarter. Up from 152,000 in the first quarter and 231,000 pounds last year. As a reminder, we measure production weight on sellable product. As we look forward, we continue to anticipate further production growth on a sequential basis due to increases created by more sunlight and as the final new cultivation capacity from Green Health II comes online this quarter. Driven by increased scale and achieved operating efficiency production cost per pound was $122, down from $175 in the first quarter and $129 level from the second half of 2025. Second quarter cost per production, while improved from recent periods, is above last year's 91 record low second quarter level A number that we remain confident is achievable with improved workforce efficiency and production scale. We sold 198,000 pounds of wholesale biomass in the quarter, up significantly from 140,000 in the first quarter, but still down from 204,000 last year. In the second quarter, selling price for biomass sold was $211 per pound versus 206 last year, as California pricing improved as the quarter progressed compared to last year and was up slightly during this period. Second quarter consolidated gross profit was $15.8 million and gross margin was 34%. To clarify, the gross margin guidance previously provided with the high 40 level included retail. The underperformance was attributable to the higher proportion of trim within the production mix and higher than anticipated cost of production. Retail gross margin through the date of deconsolidation was approximately 50% for the quarter. Adjusted EBITDA for the period was 5.7 million, down from 18.1 million in the second quarter last year, but up almost 10 million from the loss of 4.2 million in the first quarter of this year. Adjusted EBITDA reflects the factors that impacted gross margin performance as well as a modest increase in cash operating expenses. The second quarter operating cash flow was 139,000. We ended the quarter with 22 million in cash and restricted cash compared to 23.4 million at year-end 2025. Inclusive in the reported cash position is approximately a 6 million reduction that moved with the company's former retail operations as part of the deconsolidation transaction, as well as $4.9 million raised during the quarter through the company's ATM facility. Subsequent to quarter end, we raised an additional $10 million in proceeds from the accelerated call of the company's Series B and C preferred equity warrants and $1.6 million from the ATM. In June, warrant holders were given a 30-day notice of Expiration on July 23rd, and were provided an option to convert on either a cashless or for cash basis. In total, we issued 7.4 million shares from the redemption of the Series B, C, and D warrants. The accelerated warrant conversion followed the redemption of the company's SPAC warrants shares in May. Through the redemption, the company terminated 30.6 million warrants in exchange for the issuance of 362,000 shares. Both the conversion and redemption highlight recent efforts to meaningfully simplify our cap table. In total, 7.8 million shares were issued for the redemption of all warrants. As previously mentioned, we've had discussions with our tax advisors regarding the implications of Rescheduling on Taxes, specifically the elimination of the 280E tax burden on medical cannabis. Going forward, the company will no longer need to recognize 280E in its future tax provisions. Through June 30, the company has included $38 million of uncertain tax provisions on its balance sheet but has taken the position that 280E does not apply when making cash tax payments. Turning to forward-looking expectations. On account of the deconsolidation transaction and elimination of retail from financial results, the guidance we previously provided, full-year revenue, gross profit, and adjusted EBITDA should no longer be relied upon. At this time, we are not updating guidance as we await greater clarity on the timing of potential sales outside the state of California and further our hemp strategy as well as expansion initiatives at the farm. We continue to plan to produce approximately 1 million pounds of biomass this year. We expect to exit the year with a cost of production below $100 per pound while noting the company's long-term $95 cost of production target remains intact. And with that, I turn the call back to Kyle for his closing remarks before opening up this call to questions and answers. Kyle. Thank you, Mark. And again, thank you for joining us today and to all of our investors for their continued support. I am encouraged by medical rescheduling and what I'm hearing about adult use. I believe ongoing reforms represent a true breakthrough for the industry and may well prove to be just the beginning of a change and long-anticipated normalization for this industry. I am genuinely optimistic for the months and years ahead. I am hopeful that we will also see social reform and appeal upon the president to pardon the many people that remain incarcerated in federal prison for nonviolent cannabis offenses. Just as he did with his current pardon czar, Alice Marie Johnson, and my friend and advisor, Weldon Angelos, among many others, President Trump can correct a wrong and give these people their lives back, many of whom are staring bleakly at a nightmare future of decades more behind bars. I hope the President shows compassion as the war on cannabis won't truly end until these people are brought home. People like Parker Coleman, who is serving a life sentence for nonviolent cannabis sales, and Jose Valero Jr., who has served years for selling less than eight pounds of cannabis. Jose is also a nonviolent offender. One request for all cannabis investors listening. Please take a moment and call your congressperson and ask them to request that President Trump grant clemency to all nonviolent federal cannabis prisoners. These requests make a difference as I communicate with several of these people who are living that nightmare right now. It is sincerely appreciated. Let's not leave them behind. Thank you again, and I will now ask the operator to open the line for questions.

To ask a question, simply press star 1 on your telephone keypad. Again, that is star 1 to ask a question. Our first question comes from the line of Kenric Teague with Canaccord Genuity. Please go ahead.