Glass House Brands is the only dedicated California exposure in the Green Giants portfolio. California is a massive market that has been suffering due to inept regulation, excessive taxes and a lack of retail outlets. The result has been near collapse in the wholesale markets— flower prices have fallen 50% over the last six months.
While the big players have been suffering, it’s becoming an extinction event for many smaller shops. These circumstances create an excellent environment for the more capitalized companies to acquire smaller, suffering operations for compelling prices. This is exactly what occurred with Glass House and Plus.
According to BDS Analysts (BDSA), Glass House was the number one ranked California flower brand in the third quarter of 2021. They specialize in “mixed light” flower that benefits from the near ideal growing climate in Carpinteria. Many find their flower to have potency and bag appeal that rivals indoor, with a price tag closer to sun grown.
Plus is an edibles business with a strong position in California and Nevada. BDSA states that in Q3 they were number four in California by sales, while Brightfield states that they are number one in the state according to top-of-mind awareness.
The deal was struck for $25.6mm and is being financed through unsecured convertible debt and equity, plus additional performance-based compensation. You can read the full press release here.
Broadly, I see the deal as positive. Plus filed for protection from creditors in September 2021 and since has been trading for cents on the dollar. Back in 2019 Plus was a $5 stock, since September it’s been locked in around $0.36, a roughly 93% collapse.
Plus has popular products—I’m in California and regularly see their sleep-inducing formulation and strain-specific offerings on local shelves. Glass House can begin immediately putting Plus in their retail locations and begin pushing them through their distribution network to an additional 700 stores. Lack of distribution was one of the biggest challenges in the past for Plus.
My initial concerns center around taking on additional credit obligations when they just borrowed $100mm to finish the world’s largest greenhouse. With wholesale prices very depressed, it’s been harder for California operators to generate cash flow. Adding debt creates more interest expenses, which is one more hurdle when trying to turn profits. Clearly, Glass House feels the benefits of gaining market share and expanding their portfolio outweighs the additional credit risks.
Glass House now has the number one flower brand and number four selling edibles brand in the world’s largest cannabis market. California feels broken right now, but this won’t last forever. We’ll get more retail, traditional market sales will convert to the legal market and wholesale prices will improve. As this slowly unfolds, we expect Glass House to be rewarded for their bold moves.