Le Lézard
Classified in: Business
Subjects: ERN, MAT

Glass House Brands Reports Record Third Quarter 2023 Financial Results


LONG BEACH, CA and TORONTO, Nov. 13, 2023 /CNW/ - Glass House Brands Inc. ("Glass House" or the "Company") (NEO: GLAS.A.U) (NEO: 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 its third quarter ending September 30, 2023.

Third Quarter 2023 Highlights
(Unless otherwise stated, all results and dollar references are in U.S. dollars)

Management Commentary

"The third quarter of 2023 was another highly successful quarter for the Company as we achieved record levels of revenue and positive Adjusted EBITDA for the second consecutive quarter," stated Kyle Kazan, Co-Founder, Chairman and CEO of Glass House.

"We achieved record revenue of $48 million, largely driven by an increase in production, which grew 36% from Q3 2022 to over 101,000 pounds. This is quite impressive given we were able to accomplish this with the same cultivation capacity we had from last year. We are also very pleased as our Adjusted EBITDA reached a record high of $10.7 million in the third quarter, compared to negative $2.7 million in the same period last year."

"On the production side, we achieved a record low of $118 per pound this quarter, and this accomplishment has given us an even greater sense of confidence that we are well on our way to achieve our goal of less than $100 per pound. Driving down the cost of production, while staying focused on quality, is the key to cash flow generation, the key to taking advantage of our dominant position in the market, and the key to thriving in this industry, giving Glass House the ability to further deliver strong operational and financial results."

"Our outlook continues to be bright as we build upon the successes we have already achieved through the first three quarters of 2023, and I'm happy to re-affirm that we'll complete the retrofit of Greenhouse 5 at the SoCal Farm in Q1 2024, with revenue beginning in Q2 2024. We believe that our positioning as a very large, vertically-integrated California cannabis company with a core competency of amazing, cost-efficient premium flower cultivation will allow us to continue to drive shareholder value ? especially given that we already own the millions of square feet of additional greenhouse facilities which will drive our expansion."

Third Quarter 2023 Operational Highlights

Subsequent Event

Q3 2023 Financial Results Discussion

Net revenues for Q3 2023 were $48.2 million, 71% growth versus Q3 2022 and an 8% sequential increase versus Q2 2023. This result was 3% higher than the high end of our Q3 2023 guidance range of $45 million to $47 million.

Wholesale biomass revenue of $33.8 million increased 142% versus Q3 2022 and was up 10% sequentially versus Q2 2023. In the quarter, biomass weight sold increased 47% year-on-year and 12% sequentially to 100,661 pounds of equivalent dry weight. The increase in weight available for sale was driven by a 36% increase in production versus last year to 101,825 pounds as a result of incremental production from the Company's SoCal farm. This quarter was a meaningful marker of our progress over the past twelve months, as the third quarter of last year was the first full quarter of operations for Greenhouse 6 at the SoCal Farm.

Retail revenue in Q3 2023 of $10.1 million increased 56% year-over-year and was flat on a sequential basis. The year-over-year increase was primarily a result of incremental revenues from four retail locations we acquired in Q3 2022, and from three new stores ? Farmacy Isla Vista which opened in mid-December last year, Farmacy Santa Ynez which opened in January, as well as NHC Turlock which opened in late April 2023.

Wholesale CPG revenues were $4.3 million, a decrease of 45% compared to the prior year and an increase of 9% sequentially. The retail and brand segments of the California market continue to be distressed, and we are maintaining our strategy of only selling to stores that pay. This approach has kept our accounts receivables risk low.

Consolidated gross profit was $26.0 million, or 54% of net revenues, compared to $8.7 million, or 31%, in Q3 2022 and $24.4 million, or 55% in Q2 2023. The year-on-year increase in gross margin was driven primarily by wholesale biomass average selling price reaching $336 per pound in Q3 2023 versus $204 per pound in Q3 2022 and the sale of approximately 32,100 more pounds of biomass in Q3 2023 versus Q3 2022. The two key drivers of the sequential increase in gross margin dollars were cost of production falling to $118 per pound in Q3 2023 from $139 per pound in Q2 2023 and the sale of approximately 10,500 more pounds of biomass in Q3 2023 versus Q2 2023.

General and administrative expenses were $15.2 million for the quarter compared to $13.1 million in Q2 2023 and $11.5 million in Q3 2022. The main reason for the increase was $2.5 million more of bonus and stock compensation expense during Q3 2023 than in the previous quarter based on our year-to-date performance. 

Sales and marketing expenses were approximately $0.6 million down 31% year-on-year and 44% sequentially. Professional fees were $1.7 million, down 40% year-on-year and 22% sequentially. We have made a conscious effort to reduce external consulting and legal fees over the past year and are happy to see this result.

Depreciation and amortization in Q3 2023 were $3.7 million, up slightly from $3.6 million in Q2 2023 and up from $3.4 million in the same period last year.

Adjusted EBITDA was $10.7 million in Q3 2023, compared to Adjusted EBITDA of $9.5 million in Q2 2023. Cumulative Adjusted EBITDA for the first three quarters of the year reached $20.1 million, compared to $(18.8) million in the same period last year. This improvement has been driven by top-line growth and reduced cultivation cost per pound of biomass, resulting in higher gross margin, as well as by disciplined management of operating expenses.

We generated a record $9.1 million in cash from operations in Q3 2023, which is 11% more than the $8.3 million generated in Q2 2023 and a significant improvement over the negative $8.2 million in Q3 of last year. Through the first 3 quarters of this year, we have produced a cumulative $21.8 million in operating cash flow versus negative operating cash flow of $31.5 million in the same period last year.

Capital spending was $4.9 million in Q3 2023, as the Company began the retrofitting of Greenhouse 5. Q2 2023 capital spending was $0.2 million.

2023 Outlook

The Company is providing the following guidance for the fourth quarter of 2023 based on the strength of our third quarter results and current trends in the fourth quarter of 2023.

Q4 2023 Outlook

We expect total revenue to be between $38 million and $40 million, a 21 percent increase from Q4 last year but a 19% decline from the previous quarter at the mid-point of guidance. The expected sequential decline in revenue is caused mainly by a decrease in flower as a percent of total biomass production. The last few months, which represent a significant portion of the growing season for Q4, have seen a combination of unseasonably low sunlight, high humidity and higher temperatures, which is a particularly difficult set of conditions for cannabis cultivation. While we will far exceed our production compared to Q4 2022, we expect that these conditions will result in a lower percentage of flower than is typical for Q4, effectively reducing overall selling price. We typically expect flower to account for 40%+ of the production and volume sales this time of year, but we expect this figure to fall to the mid-30% range in Q4 2023. As a result, we are guiding for ASP to fall to $270 per pound in Q4 versus $336 per pound in Q3, which we expect will result in roughly an $8 million to $9 million reduction in revenue versus our previous guidance.

Retail and CPG Q4 2023 revenues are expected to be roughly consistent with Q3 2023 sales of $14.3 million.

We expect to produce between 100,000 to 102,000 pounds of biomass in Q4 which is slightly lower than Q3 2023 at the midpoint of guidance. We continue to guide for a second half cultivation cost of $120 per pound.

Given the reduced Q4 2023 revenue expectations and the need to make approximately $5 million in income tax payments in Q4 2023 for tax year 2022, we expect to have negative $2 million to $5 million operating cash flow in Q4 2023 and Adjusted EBITDA in the range of $5 million to $7 million.

The Phase 2 expansion into Greenhouse 5 at the SoCal Farm will have no impact on revenue or costs in Q4 2023. We estimate Capex spending in the quarter associated with the Phase 2 expansion to be approximately $6 million. Also note that we are reaffirming our guidance on timing related to Greenhouse 5 production and revenue.  We expect to have plants in Greenhouse 5 by early 2024, with the first sale projected for Q2 2024. Once operational, we expect Greenhouse 5 will increase our annual cultivation capacity by roughly 250,000 pounds to a total of 600,000 pounds.

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).

Unless otherwise stated, all results are in U.S. dollars.

Net Income / (Loss)

 (000's) 


Q3 2022

Q2 2023

Q3 2023






 Revenues, net 


$                28,257

$                44,665

$                48,187

 Cost of goods sold 


$                19,531

$                20,293

$                22,176






 Gross profit 


$                  8,726

$                24,372

$                26,011

 % of Net Sales 


31 %

55 %

54 %






 Expenses: 





 General and administrative 

$                11,546

$                13,054

$                15,187

 Sales and marketing 


$                     804

$                     997

$                     555

 Professional fees 


$                  2,834

$                  2,200

$                  1,706

 Depreciation and amortization 

$                  3,441

$                  3,569

$                  3,676

 Impairment 



$                  1,328

$                          -






 Total expenses 


$                18,626

$                21,149

$                21,124






 Gain (Loss) from Operations 

$                 (9,900)

$                  3,223

$                  4,887






 Interest Expense 


$                  2,672

$                  2,547

$                  2,159

 Other expense 


$               (30,370)

$                20,336

$                 (3,556)






 Total other expense 


$               (27,698)

$                22,883

$                 (1,397)






 Provision for income taxes 

$                  2,630

$                  5,246

$                  6,495






 Net income (Loss) 


$                15,169

$               (24,905)

$                    (210)

 

Adjusted EBITDA

 (000's) 


Q3 2022

Q2 2023

Q3 2023






 Net income (loss) 


$                15,169

$              (24,905)

$                  (210)

 Interest 


$                  2,672

$                 2,547

$                 2,159

 Depreciation and amortization  

$                  3,441

$                 3,569

$                 3,676

 Taxes 


$                  2,630

$                 5,246

$                 6,495

 EBITDA (non-GAAP) 


$                23,911

$              (13,544)

$               12,119






 Share-based Compensation Expense 

$                  2,812

$                 1,532

$                 2,565

 Stock Appreciation Rights Expense 

$                          -

$                      14

$                      86

 Loss on Equity Method Investments 

$                     871

$                     (36)

$                     (91)

 (Gain) Loss on Change in Fair Value of Derivative Liabilities 

$                       25

$                    143

$                      93

 Impairment Expense 


$                          -

$                 1,328

$                         -

 Loss on Extinguishment of Debt 

$                          -

$                         -

$                         -

 Loss on Disposition of Subsidiary 

$                          -

$                         -

$                         -

 Non-Operational Startup Costs 

$                    (131)

$                         -

$                         -

 Change in Fair Value of Contingent Liabilities 

$               (31,122)

$               19,100

$                (4,024)

 Non-Operational Notes Receivable Bad Debt Reserve 

$                          -

$                         -

$                         -

 Loan Amendment Fee 

$                          -

$                 1,000

$                         -

 Acquisition Related Professional Fees 

$                     935

$                         -

$                         -

 Adjusted EBITDA (non-GAAP) 

$                 (2,699)

$                 9,538

$               10,748

 

Select Balance Sheet Information

 (000's) 


Q3 2022

Q2 2023

Q3 2023






 Cash, Cash Equivalents and Restricted Cash 

$               17,536

$               22,690

$               37,893

 Accounts receivable, net 

6,787

3,589

4,199

 Prepaid expenses and other current assets 

7,590

4,317

4,735

 Inventory 


12,749

16,699

12,838

 Current portion of notes receivable 

600

-

-

 Total Current assets 


$               45,263

$               47,295

$               59,665

 Operating and finance lease right-of-use assets, net 

10,293

12,212

11,179

 Investments 


4,492

2,018

2,110

 Property, plant and equipment, net 

215,848

211,134

212,813

 Intangible Assets, Net and Goodwill 

68,548

46,797

52,297

 Deferred Tax Asset 


736

1,569

-

 Other assets 


3,671

3,574

3,530

 Total Assets 


$             348,851

$             324,599

$             341,593






 Accounts payable and accrued liabilities 

$               23,012

$               28,032

$               27,744

 Income taxes payable 


11,057

14,736

20,640

 Contingent earnout liability 

12,933

32,714

28,684

 Shares payable 


8,226

8,595

8,561

 Current portion of operating and finance lease liabilities 

1,194

1,506

1,875

 Current portion of notes payable 

70

49

50

 Total current liabilities 

$               56,493

$               85,632

$               87,554

 Operating and finance lease liabilities, net of current portion 

9,160

10,855

9,502

 Other non-current liabilities 

1,796

5,013

5,805

 Deferred tax liabilities 


-

-

3,830

 Notes payable, net of current portion 

62,407

63,632

63,872

 Total Liabilities 


$             129,856

$             165,132

$             170,563

 Preferred Equity Series B and C 

42,692

59,839

72,436

 APIC, Accumulated Deficit and Non-Controlling Int. 

176,303

99,629

98,594

 Total Shareholders' Equity 

218,995

159,468

171,031

 Total Liabilities and Shareholders' Equity 

$             348,851

$             324,599

$             341,593

 

Equity Table 

 (000's) 

 Q3 23 

 Q2 23 

 Change 

 Comments 






 Total Equity and Exchangeable Shares 

70,184

70,030

154

Plus Performance RSU's (1.3M), Exercise of RSU's and
Convertible Notes 

 Total Warrants 





 Series D 

2,180

-

2,180


 Series C 

1,000

1,000

-

Exercise price of $5.00 with an expiration date of  August 2027 

 Series B 

10,000

10,000

-

Exercise price of $5.00 with an expiration date of  August 2027 

 Series A 

2,654

2,654

-

Exercise price of $10.00 with an expiration date of June 2024 

 SPAC 

30,665

30,665

-

Exercise price of $11.50 with an expiration date of June 2026 

 Total Warrants 

46,499

44,319

2,180







 Stock Options 

1,436

1,436

-

Exercise Price between $2.26 and $4.60 with expiration 
dates from October 2024 to October 2026 

 RSU's 

3,209

1,663

1,546

Up to 3-year vesting through 2026 

 Total 

4,645

3,099

1,546







 Share Price at Quarter End 

$               4.55

$               3.30

$               1.25







 Convertible Debentures 



 Series A 

$          11,895

$          11,895

$                    -

8% semi annual interest, cash or shares, higher of 10
day VWAP 5 trading days prior to pay date or $4.08,
Maturity 4/15/27 

 Series B 

$             4,111

$             4,111

$                    -

8% semi annual interest, cash or shares, lower of 10 day 
VWAP 5 trading days prior to pay date or $10.00,
Maturity 4/15/27 

 Total 

$          16,006

$          16,006

$                    -


 # of Shares if converted assuming share price at
 quarter end 

3,518

4,161

(643)


 

Select Cash Flow Information

 (000's) 


Q3 2022

Q2 2023

Q3 2023






 Net Income (Loss) 


$                  15,169

$                (24,905)

$                    (210)






 Share-based compensation 


$                    2,812

$                    1,532

$                  2,565

 Depreciation and amortization 

$                    3,441

$                    3,569

$                  3,676

 Other 


$                 (28,886)

$                  22,261

$                 (3,217)






 Cash From Net Income (Loss) 

$                   (7,465)

$                    2,456

$                  2,814






 Accounts receivable 


$                   (3,295)

$                      (924)

$                 (1,124)

 Prepaid expenses and other current assets 

$                   (1,781)

$                       310

$                    (417)

 Inventory  


$                    1,155

$                   (1,768)

$                  3,861

 Other assets  


$                        (66)

$                          (6)

$                      (48)

 Accounts payable and accrued liabilities  

$                       629

$                    2,800

$                 (2,447)

 Income taxes payable 


$                    2,429

$                    5,324

$                   5,904

 Other 


$                       165

$                         73

$                      518






 Working Capital Impact 

$                      (764)

$                    5,808

$                   6,246






 Operating Cash Flow 

$                   (8,229)

$                    8,265

$                   9,060






 Purchases of property and equipment  

$                   (3,206)

$                      (206)

$                  (4,938)

 Other 


$                    3,173

$                      (233)

$                        55

 Net Investing Activities 

$                        (33)

$                      (438)

$                  (4,882)






 Distributions to Preferred Shareholders 

$                    (1,136)

$                   (1,376)

$                  (1,647)

 Other 


$                     9,482

$                      (129)

$                  12,672

 Net Financing Activities 

$                     8,347

$                    (1,505)

$                  11,025






 Cash Change 


$                          85

$                    6,322

$                  15,203






 Cash and cash equivalents, beginning of period 

$                   17,451

$                  16,368

$                  22,690






 Cash and Cash, Equivalents, End of Period 

$                   17,536

$                  22,690

$                  37,893

 













 Revenue 

 (000's $) 

Q122

Q222

Q322

Q422

Q123

Q223

Q323


FY21

FY22














 Retail (B2C) 

$  4,858

$  4,839

$  6,440

$10,593

$  9,373

$10,073

$10,058


$21,734

$26,731


 Wholesale CPG (B2B) 

$  3,992

$  4,945

$  7,862

$  5,989

$  5,182

$  3,954

$  4,290


$25,543

$22,788


 Wholesale (Biomass (B2B) 

$  5,122

$  6,689

$13,954

$15,607

$14,467

$30,639

$33,839


$22,169

$41,373


 Total 

$13,972

$16,473

$28,257

$32,189

$29,022

$44,665

$48,187


$69,447

$90,891














 Sequential % Change 









 Retail (B2C) 

-5 %

0 %

33 %

64 %

-12 %

7 %

0 %





 Wholesale CPG (B2B) 

-41 %

24 %

59 %

-24 %

-13 %

-24 %

9 %





 Wholesale (Biomass (B2B) 

-21 %

31 %

109 %

12 %

-7 %

112 %

10 %





 Total 

-24 %

18 %

72 %

14 %

-10 %

54 %

8 %

















 % change to LY 











 Retail (B2C) 

-3 %

-24 %

23 %

106 %

93 %

108 %

56 %


50 %

23 %


 Wholesale CPG (B2B) 

-31 %

-19 %

13 %

-11 %

30 %

-20 %

-45 %


93 %

-11 %


 Wholesale (Biomass (B2B) 

14 %

8 %

180 %

140 %

182 %

358 %

142 %


8 %

87 %


 Total 

-8 %

-12 %

65 %

75 %

108 %

171 %

71 %


44 %

31 %














 Gross Profit 


 (000's $) 

Q122

Q222

Q322

Q422

Q123

Q223

Q323


FY21

FY22














 Retail (B2C) 

$  2,084

$  2,037

$  2,651

$  4,482

$  4,871

$  5,487

$  5,594


$  9,419

$11,253


 Wholesale CPG (B2B) 

$     655

$       89

$  1,078

$    (917)

$     921

$     239

$     241


$  5,174

$     905


 Wholesale (Biomass (B2B) 

$    (400)

$ (1,872)

$  5,011

$  6,661

$  6,165

$18,646

$20,176


$  1,427

$  9,400


 Total 

$  2,339

$     254

$  8,726

$10,219

$11,956

$24,372

$26,011


$16,019

$21,538














 % of Revenue 












 Retail (B2C) 

43 %

42 %

41 %

42 %

52 %

54 %

56 %


43 %

42 %


 Wholesale CPG (B2B) 

16 %

2 %

14 %

-15 %

18 %

6 %

6 %


20 %

4 %


 Wholesale (Biomass (B2B) 

-8 %

-28 %

36 %

43 %

43 %

61 %

60 %


6 %

23 %


 Total 

17 %

2 %

31 %

32 %

41 %

55 %

54 %


23 %

24 %














 Wholesale Biomass Production and Cost per Pound 


Q122

Q222

Q322

Q422

Q123

Q223

Q323


FY21

FY22














 Equivalent Dry Pounds of Production 

16,729

25,173

74,624

75,344

48,099

103,336

101,825


96,785

191,870


 % change to LY 

7 %

9 %

164 %

153 %

188 %

311 %

36 %


79 %

98 %














 Cost per Equivalent Dry Pounds 

$     238

$     159

$     134

$     127

$     196

$     139

$     118


$     189

$     143


      of Production 











 % change to LY 

-2 %

-18 %

-25 %

-24 %

-18 %

-12 %

-12 %


-14 %

-24 %














 Ending Operational Canopy (000 sq. ft) 

332

332

959

959

959

959

959


332

959














 Wholesale Biomass Sold and Average Selling Price per Pound 


Q122

Q222

Q322

Q422

Q123

Q223

Q323


FY21

FY22














 Equivalent Dry Pounds Sold 

17,894

19,859

68,512

66,127

49,923

90,174

100,661


69,153

172,392


 % change to LY 

41 %

38 %

265 %

184 %

179 %

354 %

47 %


-11 %

149 %














 Equivalent Dry Pounds Sold  

$     188

$     237

$     204

$     236

$     290

$     340

$     336


$     233

$     218


      Average Selling price 









 % change to LY 

-29 %

-30 %

7 %

29 %

54 %

43 %

65 %


-56 %

-6 %














 Equivalent Dry Pounds Average Selling Price excludes the impact of cultivation tax. 

 

Conference Call
The Company will host a conference call to discuss the results today, November 13, 2023 at 5:00 p.m. Eastern Time.

Webcast:                        Register Here
Dial-In Number:             1-888-664-6392
Conference ID:              14375281 
Replay:                          1-888-390-0541
Replay Code:                 519275#
(replay available until 12:00 midnight Eastern Time Monday, November 20, 2023)

Non-GAAP Financial Measures

Glass House defines EBITDA as Net Loss (GAAP) adjusted for interest and financing costs, income taxes, depreciation, and amortization. Adjusted EBITDA is defined as EBITDA excluding share-based compensation, stock appreciation rights expense, loss (income) on equity method investments, change in fair value of derivative liabilities, change in fair value of contingent liabilities, acquisition related professional fees, and non-operational start-up costs.

EBITDA and Adjusted EBITDA are presented because management has evaluated the financial results both including and excluding the adjusted items and believe that the supplemental non-GAAP financial measures presented provide additional perspective and insights when analyzing the core operating performance of the business. Such supplemental non-GAAP financial measures are not standardized financial measures under U.S. GAAP used to prepare the Company's financial statements and might not be comparable to similar financial measures disclosed by other companies and, thus, should only be considered in conjunction with the GAAP financial measures presented herein.

The Company has provided a table above that provides a reconciliation of the Company's net loss to Adjusted EBITDA for the three months ended September 30, 2023 compared to three months ended September 30, 2022 and three months ended June 30, 2023.

Footnotes and Sources:

  1. EBITDA and Adjusted EBITDA are non-GAAP financial measures that are not defined by U.S. GAAP and may not be comparable to similar measures presented by other companies. Please see "Non-GAAP Financial Measures" herein for further information and for a reconciliation of such non-GAAP measures to the closest GAAP measure.
  2. Equivalent Dry Pound Production includes all dry production (flower, smalls and trim) plus equivalent dry weight for wet weight and fresh frozen not converted into dry weight by the Company.
  3. Cost per Equivalent Dry Pound of Production, is the application of a subset of Costs of Goods Sold for cannabis biomass production (including all expenses from nursery and cultivation to curing and trimming - the point at which product is ready for sales as wholesale cannabis or to be transferred to CPG) applied to the Company's metric of dry production which includes all dry production (flower, smalls and trim) plus equivalent dry weight for wet weight and fresh frozen that is not converted into dry goods by the Company.
ABOUT GLASS HOUSE

Glass House is one of the fastest-growing, vertically integrated cannabis companies in the U.S., with a dedicated focus on the California market and building leading, lasting brands to serve consumers across all segments. From its greenhouse cultivation operations to its manufacturing practices, from brand-building to retailing, the company's efforts are rooted in the respect for people, the environment, and the community that co-founders Kyle Kazan, Chairman and CEO, and Graham Farrar, Board Member and President, instilled at the outset. Through its portfolio of brands, which includes Glass House Farms, PLUS Products, Allswell, Forbidden Flowers, Field and Mama Sue Wellness, Glass House is committed to realizing its vision of excellence: outstanding cannabis products, produced sustainably, for the benefit of all. For more information and company updates, visit www.glasshousebrands.com and https://glasshousebrands.com/press-releases/.

Forward Looking Statements

This news release contains certain forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to herein as "forward-looking statements"). Forward-looking statements reflect current expectations or beliefs regarding future events or the Company's future performance or financial results. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "continues", "forecasts", "projects", "predicts", "intends", "anticipates", "targets" or "believes", or variations of, or the negatives of, such words and phrases or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. Forward-looking statements in this news release include, without limitation, the company's: ability to further deliver strong operational and financial results; positioning as a very large, vertically-integrated California cannabis company with a core competency of amazing, cost-efficient premium flower cultivation will allow it to continue to drive shareholder value; guidance that revenues will be $38 to $40 million in Q4 2023 and that the expected sequential decline in Q4 2023 revenue versus Q3023 will be caused mainly by a decrease in flower as a percent of total biomass production; projection that the set of conditions of unseasonably low sunlight, high humidity and higher temperatures will result in flower as a percent of the total production and volume sales of biomass in Q4 2023 being in the mid-30% range versus a typical 40%+ for this time of year, effectively reducing overall ASP to $270 per pound in Q4 2023 versus $336 per pound in Q3, and resulting in roughly an $8 million to $9 million reduction in revenue versus previous guidance; guidance that retail and CPG Q4 2023 revenues will be roughly consistent with Q3 2023 sales of $14.3 million; guidance that it will produce between 100,000 to 102,000 pounds of biomass in Q4 2023 and that cultivation cost per equivalent dry pound of biomass will be $120 for the second half of 2023; guidance that it will create negative operating cash flow of $2 million to $5 million in Q4 2023 and positive Adjusted EBITDA in the range of $5 million to $7 million; guidance that the Phase 2 expansion into Greenhouse 5 at the SoCal Farm will have no impact on revenue or costs in Q4 2023; estimate that Q4 2023 Capex spending associated with the Phase 2 expansion will be approximately $6 million; projection that it will complete the retrofit of and have plants in Greenhouse 5 at the SoCal Farm in Q1 2024, with the first sale/revenue occurring in Q2 2024; projection that, once operational, Greenhouse 5 will increase annual cultivation capacity by roughly 250,000 pounds to a total of 600,000 pounds; confidence that it is well on its way to achieve a cultivation cost per dry pound of production of less than $100 per pound. All forward-looking statements, including those herein are qualified by this cautionary statement.

Although the Company believes that the expectations expressed in such statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the statements. There are certain factors that could cause actual results to differ materially from those in the forward-looking information, including financial and operational results not proving to be as expected or on the timelines expected; the Company not completing certain proposed acquisition or financing transactions at all, or on the timelines expected; the Company not achieving the synergies expected; and other risks disclosed in the Company's Annual Information Form and other public filings on SEDAR+ at www.sedarplus.ca. Accordingly, readers should not place undue reliance on forward-looking statements.

For more information on the Company, investors are encouraged to review the Company's public filings on SEDAR+ at www.sedarplus.ca. The forward-looking statements and financial outlooks contained in this news release speak only as of the date of this news release or as of the date or dates specified in such statements. The Company disclaims any intention or obligation to update or revise any forward- looking information, whether as a result of new information, future events or otherwise, other than as required by law.

SOURCE GH Group, Inc.


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