Glass House Brands Sees Opportunities as Legal Cannabis Farming Space Shrinks in California
LOS ANGELES–During Glass House Brands’ recent earnings call, CEO Kyle Kazan revealed that the legal cannabis farming space in California is expected to significantly shrink this year, presenting an opportunity for the company to capture more market share. Kazan stated that from June 2022 to the end of April, licensed cultivation capacity in California decreased by over 16 million square feet of canopy, representing a 21% reduction in acreage under cultivation. Additionally, 523 cultivation licenses are up for renewal in May, with another 1,075 up for renewal in June, meaning that one in four active licenses in California will be up for renewal in the next 60 days.
Kazan highlighted that the current provisional licenses for cultivation spaces larger than 22,000 square feet are being phased out. If these businesses are unable to obtain full annual licensure, they will be excluded from the legal market as their provisional permits will no longer be renewed by regulators. Only a small percentage of farms in Monterey County (about 10%) and Mendocino County (1.5%) have successfully converted to annual licenses, indicating the challenges faced by cultivators in the licensing process.
Glass House CFO Mark Vendetti added that brand contraction is also occurring simultaneously in the industry. He noted a reduction of 171 brands with revenue of at least $10,000 in Q1 2023 compared to Q3 2022, representing a 15% decline. Non-vertically-integrated companies are facing challenges with retailers who are not paying, leading to cost pressures and difficulties in collecting incoming cash. Vendetti emphasized that Glass House’s vertical integration has become a significant advantage in this environment.
Glass House President Graham Farrar highlighted the ongoing contraction of the market, which is happening on a weekly basis. He revealed that in the first two weeks of May alone, 107 licenses have already lapsed, indicating cultivators who have chosen not to renew their grow permits. This translates to approximately 1 million square feet of supply that is no longer active in the market. The trend of market contraction continues as the industry evolves.
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