Glass House Brands Inc. 2026 Q2 Earnings Call

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 registrations. 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 the plants, we at Glass House do not require adult use rescheduling, as we built in optionality. 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 U.S. 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 impacts 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 uplist 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 U.S. OTC-listed equity share to the New York Stock Exchange, commencing trading on June 30th under our new ticker, GLAS. The listing resolves custody and trading liquidity constraints for investors and reflects an important milestone for Glass House 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 million-$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. Adjusted 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, while trim by far the least. This quarter, our mix 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 sourced 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 cogens 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 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 2 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 improvement 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 the 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 a cost of production below the $100 per pound level.