Glass House Brands Inc.
Q2 2021 Earnings Call Transcript

Published: 7 Aug 2021

[Operator:]

Good day. And thank you for standing by. Welcome to the Plus Products Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there'll be a question-and--answer session. [Operator instructions] I would now like to hand the conference over to your speaker today, Cole Stewart. Sir, please go ahead.

[Cole Stewart:]

Thank you, operator. Good afternoon and welcome to the Plus Products second quarter 2021 financial results conference call. A replay of this call will be archived on the Plus Investor Relations website at plusproductsinc.com. Before we begin, please let me remind you that during the course of this conference call, Plus' management may make forward-looking statements. These forward-looking statements are based on current expectations that are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. For more information on the company's risks and uncertainties related to these forward-looking statements, please consult the company's MD&A, news release and other regulatory filings available at sedar.com. Any forward-looking statements should be considered in light of these factors. Please also note any outlook we present is as of today and management does not undertake any obligation to revise any forward-looking statements in the future. Any references to market position or market size from third parties during the prepared remarks have been cited in our news release disseminated this afternoon. In addition to the financial information presented in this call, please review the company's second quarter 2021 financial statements and associated notes filed on the company's SEDAR profile at www.sedar.com. With me on the call today are Mr. Jake Heimark, Co-Founder and Chief Executive Officer and Ms. Tessa O'Dowd, Chief Financial Officer. With that, I'd like to hand the call over to Jake.

[Jake Heimark:]

Thank you, Cole. The year so far for Plus has been one of many different accomplishments. We have launched multiple new brands and products addressing various consumer used cases, we have partnered with leading companies to collaborate on new products in market. We switched to a self-service distributor and we expanded our sales team internally. We significantly extended our debt obligations. We have received awards. We have made our first product available internationally and most importantly, we have continued to see this all translate to growing revenues here in our home state in California. The majority of our growth initiatives for the remainder of 2021 will continue to be cantered around California with close attention being paid to potential new markets as they develop. The gray market in California remains active, but we believe that our home state unequivocably remains the most valuable market for building a branded products company in cannabis. As recently as 2019, the state made up 38% of the global adult used cannabis market, according to Arcview and BDS analytics. With a projected market size of $6.4 billion in 2025, California is expected to be over twice as large as the next largest US market. In the second quarter of 2021, with our attention specifically on the California market, we leverage momentum from our distribution transition, expanded our sales team and our special edition products combined to achieve record quarterly sales for Plus. Moving forward, we believe Plus is poised to further capitalize on the consumer brand foundation we have built here in the California cannabis market, According to a Brightfield Brand Health survey conducted in December 2020, 63% of our consumers say that Plus is their favorite gummy brand. 42% of Plus consumers have been using our products for more than one year compared to the next highest brand at 33%, 67% of Plus consumers use the brand at least weekly and 88% of Plus consumers plan to buy our products again. In the second half of 2021, we look forward to expanding and solidifying our position as one of the strongest brands in the California market that we believe will be instrumental in shaping the long-term winners in the national and international cannabis market. With that, I will now pass the call to Tessa O'Dowd to go over our financial results in greater detail. Tessa?

[Tessa O'Dowd:]

Thank you, Jake. Net revenues were $4.83 million in Q2 2021 as compared to $4.33 million for the same period in 2020. Net revenues during the period represents the most sales by the company and in a single quarter. During the period, Plus leveraged the benefits of a self-service distribution partner in California and expanded product offering to increase sales. The company also continued to develop products in Nevada TMC market and nationwide across its hemp derived CBD lines. Gross profits were $1.94 million in Q2 2021, representing a 24% year-over-year increase. The increase was due in part to greater sales volume combined with operating efficiencies and productivity improvements in the California production facility. Gross margin for the period increased year-over-year to 40% as compared to 36% in Q2 2020. The loss from operations was $0.95 million in Q2 2021 as compared to $1.36 million in Q2 2020, an improvement of 30% year-over-year. In Q2 2021, the company more efficiently leveraged advertising promotion and consulting fees to support the business while also introduced -- while also reducing professional fees. Finally the company reported $6.69 million in cash and cash equivalent at June 30, 2021. This cash balance has also been adjusted to reflect the company's semi-annual interest payment of $0.87 million occurring at the end of the period. I will now pass the call over to the operator to open the line for questions.

[Operator:]

[Operator instructions] Your first question comes from Jason Zandberg from PI Financial. Your line is still open.

[Jason Zandberg:]

Thanks for taking my questions. Great quarter. Just wanted to find out if you could provide the number of dispensaries that Plus sold through in Q2 and could you compare that to the last quarter last year?

[Tessa O'Dowd:]

Hi Jason, this is Tessa. I don't have the exact number of dispensaries quarter over quarter, but I can get back to you on that. If you'd like to provide your email address, I can get you the specifics.

[Jason Zandberg:]

Sure. Okay. Nope, no problem. I'll send you the questions from the call. Second question. So this is the second consecutive quarter with 40% plus gross margins. What you attribute this improvement to and if you're comfortable at this point in time with projecting where these gross margins can actually get to,

[Tessa O'Dowd:]

I can speak to the gross profit margin of today the 40%, which is 4% better than Q2 of 2020. It's mainly contributed to more controls and decreases in our price promotions and also a reduction in overhead costs and where we're optimizing labor productivity.

[Jason Zandberg:]

Okay, great. And then finally as you mentioned this revenue level exceeds your previous past, which was Q1 fiscal 2020 or if I'm not mistaken that quarter benefited from some channel loading as you just changed distributors that quarter. Just wanted to get an idea is there any loading in this quarter at all, whether it be at the distributor level or at the retail level?

[Jake Heimark:]

Good question, Jason. And we did benefit from that in Q4 of 2020. I think that it's at this point because we're counting our sales when they go into dispensaries, it's difficult for us to know if dispensaries are loading in and it's important to know of course, that this quarter being the one where April 20 or 4/20, where it's a large holiday in the industry, downtime back and have an uptake in sales may always expect Q2 to be a good quarter, but we don't have reason to believe that there's any loading like there was in Q4 of 2020, because at this point we're counting revenue when it goes to a store and stores tend to have less loading and distributors.

[Jason Zandberg:]

Yeah. Okay. That's great. And then just finally Jake, if you could just comment on the competitive environment for edibles in California, has there been any changes, more competition, less competition or any trends that you can pass on to us?

[Jake Heimark:]

I think the environment in California is an interesting one for edibles. We've seen heavy price promotions as people try to grab market share from both newcomers and established players. As you can tell from Tessa's comments on our gross margin, we've actually gone the opposite route in trying to establish a premium price point without heavy promotion and that relationship with the end customer. We're starting to see the results of that. As far as what happens between here and the end of the year, and if that trend continues of more people entering and more heavy price promotions, or if people start to follow the Plus model remains to be seen, we're actively monitoring data across the industry and actually some regions are looking different than others. And we look forward to continuing to make sure that we're making the right investments in the right spots as I think we were able to show this quarter, we were.

[Jason Zandberg:]

Yeah, no, that's great. And those are great metrics as well equally. Okay. That's all for me. Thanks very much.

[Operator:]

Thank you. Moving on your next question comes from the line of Richard Dodge from National Security. Your line is now open.

[Richard Dodge:]

Yes. Thank you for taking my call. I'm rather new to the name. Just started to look over your company just recently. So some of the basic questions can help me. Do you sell any products right now that are THC and fuse?

[Jake Heimark:]

Thank you, Richard. We do. In fact, the majority of our products are THC based.

[Richard Dodge:]

Okay. And is that both in California and Nevada?

[Jake Heimark:]

Yes. In both California and Nevada, we have licenses and they're operating.

[Richard Dodge:]

Okay. Because on the website, it wasn't really clear what was CBD and what was THC. And are there any other products under development? I am specifically interested in possible products that might come out of your announced relationship with TFF pharmaceuticals, sprint inhale product.

[Jake Heimark:]

So we have a good relationship with TFF and we expect to have updates on the TFF relationships soon and hope to share those with the market. On our product pipeline in general, just like forecasts we have tended to and will continue to not share those until the moment that we feel that they're ready for market. We're excited about our product pipeline, excited for upcoming launches and look forward to being able to share more when we were able to do that.

[Richard Dodge:]

All right. So there's no generic expectations for any part of next year launch.

[Jake Heimark:]

We are not making any announcements today. Okay.

[Richard Dodge:]

All right. Fair enough. Well, thank you. Appreciate it.

[Operator:]

Thank you. Your next question comes from the line of Eric Cascara [ph] a private investor. Your line is open.

[Unidentified Analyst:]

Quick question. Are you having to break out any shifts for the gears pre and post change to the new sales structure?

[Jake Heimark:]

We haven't done that yet. Of course, Q2 was entirely in the new structure and Q4 was entirely in the old structure. And so in some ways, comparing those two is the best way to do it. If you'd like some more detailed information, Tessa and the team can help break that out, but we're quite confident that the move is the right one. It was of course the most difficult thing when transitioning distributors is really, can you increase your revenue line or at least holding the stores that you're in and being able to move up is certainly the right direction.

[Operator:]

[Operator instructions] And there are no further questions at this time. Please continue.

[Jake Heimark:]

Thanks operator. Thanks you all for joining our call today and for your ongoing support of the company, this pivotal time in our development. With that, I'll now turn the call back to the operator to close the lines.

[Operator:]

Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.