John SchroyerCalifornia-based Glass House Brands (CBOE CA: GLAS.A.U) (OTCQX: GLASF) posted a $3.2 million net loss for the third quarter, which ended Sept. 30, but the company also expects tax savings of about $6 million due to a major course change in its federal tax payment strategy – considering itself exempt from 280E.
The Southern California company reported $63.8 million in net revenue for the quarter, an increase of 18% over the second quarter’s $53.9 million and up 32% year-over-year from $48.1 million.
The quarter was a “record setting” one all around, CEO Kyle Kazan said in a press release.
“This included a 128% year-over-year increase in wholesale biomass production, a record low quarterly cultivation production cost of $103 per pound, and robust growth in retail and consumer packaged goods sales,” Kazan said. “Our stores outperformed the market by a massive differential of almost 18 basis points, with Glass House retail sales up 11.5% year over year, compared to a 6.4% revenue decline in the broader California retail market.”
Taking on 280E
In addition to organic market growth, Glass House notified shareholders that it would be realizing federal tax savings of about $6 million for the upcoming fourth quarter because it doesn’t plan to pay the Internal Revenue Service under the much-loathed 280E section. That provision has for decades barred state-legal marijuana companies from claiming standard business deductions available to mainstream businesses, and its potential nullification with federal cannabis rescheduling could mean billions for the cannabis sector as a whole.
Glass House also suggested in the release that it could wind up claiming millions more back from the IRS and is filing amendments to its tax returns in prior years.
“After careful analysis, management has determined that we do not owe taxes for the application of Section 280E, and 2023 federal income taxes have been filed accordingly,” Glass House said. “This decision was made after consulting with external tax and legal counsel. The change will result in about $6 million of cash savings in Q4 2024. The company will also calculate 2024 federal income taxes using this position and is in the process of analyzing prior year federal tax returns to determine the size of potential 280E tax refunds owed to Glass House for the tax years 2022 and earlier.”
With the tax pivot, Glass House joins several other publicly traded cannabis companies to change how they file their federal returns in a deliberate move to save tens of millions in taxes.
Expansion plans
Also during the quarter, Glass House continued expanding its upstream production capabilities, its retail footprint and its CPG market share.
Cultivation harvests at its greenhouses were up 128% to 232,295 pounds of raw cannabis flower, CPG revenue increased 9% for all of 2024 thus far over the first nine months of 2023, and retail revenue was up sequentially to $11.2 million from $10.9 million.
And Glass House is far from done. The company has already planned a new fundraising round for $25 million to fund additional expansion plans, which include a likely entrance into the national hemp market and yet another new greenhouse at its home facility in Santa Barbara, which will be capable of producing 275,000 pounds of marijuana per year once it’s operational.
Wholesale prices have continued to plummet in California, Kazan admitted, but said that’s one of the factors that Glass House has always counted on to drive contraction in the state. The average price of cannabis reached $229 per pound, down from $336 a year ago, and lower than even the company’s earlier guidance of $280 per pound.
“While we expect lower prices to continue in the short-term, longer-term we expect Glass House will benefit, as our company is built to weather market cycles and emerge even stronger,” Kazan said. “Consolidation has always been our thesis, and we see this as an opportunity to expand market share.”
Glass House finished the quarter with $312.7 million in total assets, including $35 million in cash, against $162.9 million in total liabilities.
