GLAS

Good afternoon, ladies and gentlemen. Welcome to the Glass House Brands second quarter 2026 earnings call. Matters discussed during today's conference call may constitute forward-looking statements that are subject to risks and uncertainties related to Glass House Brands' future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. The risk factors that may affect results are detailed in Glass House Brands' periodic filings and registration statements. These documents may be accessed via the SEDAR+ database. I would also like to remind everyone that this call is being recorded today, Thursday, August 13, 2026. On today's call, we have Kyle Kazan, Co-founder, Chairman, and Chief Executive Officer of Glass House Brands, and Chief Financial Officer, Mark Vendetti. Following prepared remarks, management will open up the call to analyst questions. Also joining for questions is Graham Farrar, Co-founder and President.

I will turn the call over to Kyle Kazan.

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 lbs 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 lbs. 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.

Longer term, on an annual basis, our $95 a pound production target cost remains achievable as we will never have to pay the high price and growing energy bills of warehouse operations, and we do it at a scale that no one else comes close to. It is these benefits that have sustained us despite challenging California cannabis market conditions and makes us an ideal supply partner for the operations in other markets which rely heavily on far more expensive cultivation inside of warehouses. More importantly, our Michael Jordan of growing cannabis, Graham Farrar, has launched an upgrade process for our existing greenhouses, including optimizing Greenhouses 5 and 6 to the latest version of the Ultra-Clima system, adding additional screens and environmental controls.

We expect these upgrades will give us enhanced control over climate, allowing us to utilize even more of the natural Southern California sun and increasing our yields from our existing footprint. Those two greenhouses are the backbone of our operations, and like everything technical, capital improvements are necessary. In this case, the cultivation team has found ways to optimize as part of upgrading, which will give even better tools to our growers. Since nobody has grown cannabis at this scale while utilizing the sun and fresh ocean air, every tool which can improve their utilization of mother nature drives more consistency for our plants. Meanwhile, our average wholesale selling price for the quarter was $211 a pound, up from $206 last year, and well ahead of guidance at $185-$190 per pound.

We continue to see modest California pricing improvements year over year, albeit still at deflated levels compared with prior years and the national average. As we and other California operators eventually sell products outside the state, we expect California pricing to improve while simultaneously seeing an indirect decline in illicit market supply. Premium pricing within compliant channels presents a nice carrot for any opportunistic illicit market operator. In addition to cannabis cultivation and wholesale distribution, in the second quarter, we commenced initial commercial operations for hemp. We completed an initial harvest from Greenhouse 4 and had initial sales. While, as expected, these sales were not material to second quarter results, they reflect a historic step for the company as it represents the first planned sale of any Glass House product outside of California and provides an operational test for future near-term medical cannabis sales in new markets.

We are closely monitoring a potential longer-term push-off of the federal hemp ban connected to recent congressional action, which delayed a federal ban on intoxicating hemp from November until December of this year, after the midterm elections. A long-term or permanent end to the hemp ban could present an exciting opportunity for Glass House to supply the existing multibillion-dollar market, leveraging our core competency of producing low-cost, high-quality cannabinoids. We support a federal one-plant rule which includes hemp. Consumers want cannabis no matter what it is called, and driving consumers into the illicit market is a bad solution for society. As regulators remain dynamic in this space, we are evaluating the best next steps pending the updated regulations and where our facilities and expertise can best be leveraged.

This includes possibly changing strain production priorities as we put our focus on where we can maximize the value of our facilities and team. We will provide further updates as these regulations develop. As I have previously stated, whatever the end market, we aim to compliantly grow cannabinoids for sale in whatever markets offer us the highest possible price, and that may end up including intoxicating hemp. Before I turn the call over to Mark Vendetti to discuss financial results in greater detail, I want to take a moment to thank our entire team at Glass House. Between getting farm operations back on track, accelerating expansion efforts, and preparing for the opportunities presented by rescheduling, the team has worked diligently to put the company in a position to achieve long-term success.

I am proud to lead this group and am consistently impressed with the grit and determination displayed by each team member. I do not have a crystal ball that presents an exact timeframe for when interstate commerce and exports will occur, but I promise you that we are working diligently to prepare for those opportunities. I will share some of those efforts. We formally engaged Pharma Compliance Group, led by Matt Murphy, to work with the regulators of jurisdictions outside of California so that we may ship our cannabis to those markets. Matt has been successful in building those bridges in the past, and we are confident that under Schedule III, we can legally deliver medical marijuana to medical jurisdictions with willing participants.

Matt is a former senior DEA official who served as Khiron's Chief Compliance Officer, helping that company become Colombia's first medical cannabis producer to comply with DEA security and compliance protocols as an exporter of compliant products to Europe. As we aim to develop and implement track and trace processes that comply with existing closed-loop California systems and enable us to distribute outside the state, we will lean on Matt's experience and expertise. Furthermore, we hope that Matt can assist federal and state regulators throughout the country, providing a pathway to better understand and implement viable regulatory frameworks. When it comes to interstate commerce, underdeveloped states face real inefficiency problems.

It is economically inefficient and environmentally damaging to develop cultivation capacity for cannabis programs that are and will be expanded in response to rescheduling when supply already exists along the West Coast of the U.S., which could better fill demand more clearly and for cheaper. Standing up local cultivation also slows new patient access to a plant that has been proven to contain beneficial therapeutic capabilities. Delaying and reducing access should be no regulator's goal. We are in regular discussions with California regulators to develop a system for tracking cannabis sales, as happens for all other Schedule III drugs, for both out-of-state and international market sales. We are engaging with potential future customers about supply agreements for distribution of products and are collaborating with potential production and distribution partners. We continue to progress towards a Good Agriculture and Collection Practices, otherwise known as GACP, compliance audit at the farms.

This is a prerequisite for European medical cannabis market supply. As mentioned before, we will continue to invest in our greenhouses for the long term in order to further optimize our farms. Leaning on Graham's tech background and his embedded Moore's Law mentality, the near term will include adding additional cooling capacity and airflow for Greenhouses 5 and 6, better shade and light management at Greenhouse 6, and bringing one of our cogeneration back online. These are all focused and significant investments that we expect will reduce our cost per pound, increase our yields, and improve the flower next we grow. I am committed to making sure that our cultivation team always has the very best tools so that we make our former selves obsolete as we are an ag tech company more than anything else.

We are always in search of ways for us to be an even lower cost grower with even better quality. That is embedded in our 10-year-old DNA. We are working with a team at UC Berkeley to evaluate possible technology additions to ensure greater automation, including AI upgrades. This thinking will be at the heart of planning the retrofits of Greenhouses 3 and 4, as well to ensure that they are state-of-the-art so that we may do more with less. As we are working to open up markets outside the state of California, we are also looking at opportunities for expansion outside of our existing farms so that we are prepared when demand far exceeds our supply. I look forward to updating everyone further on out-of-state progress whenever possible and appropriate.

With that, I'll turn the call over to Mark Vendetti, our Chief Financial Officer, to discuss our financial results for the quarter in detail.

Thank you, Kyle. Good afternoon, everyone. As Kyle mentioned, during the quarter, we completed a deconsolidation transaction whereby we spun out our retail operations. Our former retail business is now fully independent, and our remaining business is fully medically licensed under a Schedule III designation. Due to the deconsolidation, our reported financial results include retail results as discontinued operations through June 11 and as an equity method of investment beginning June 12. Second quarter revenue was $47 million, down from $47.6 million in the same period last year. Both periods exclude retail revenue. Retail revenue was $10 million through the date of deconsolidation, down from $12 million for the entire quarter last year. Within reported revenue, $41.7 million stemmed from wholesale biomass, while $5.23 million was CPG sales. This compares to $42.1 million and $5.5 million in second quarter of sales for 2025, respectively.

We produced 246,000 pounds of wholesale biomass in the second quarter, up from 152,000 in the first quarter and 231,000 pounds last year. As a reminder, we measure production weight on sellable product. As we look forward, we continue to anticipate further production growth on a sequential basis due to increases created by more sunlight and as the final new cultivation capacity from Greenhouse 2 comes online this quarter. Driven by increased scale and achieved operating efficiency, production cost per pound was $122, down from $175 in the first quarter and $129 level from the second half of 2025. Second quarter cost of production, while improved from recent periods, is above last year's $91 record low second quarter level, a number that we remain confident is achievable with improved workforce efficiency and production scale.

We sold 198,000 lbs of wholesale biomass in the quarter, up significantly from 140,000 in the first quarter, but still down from 204,000 last year. In the second quarter, selling price for biomass sold was $211 per pound versus $206 last year as California pricing improved as the quarter progressed. Compared to last year, it was up slightly during this period. Second quarter consolidated gross profit was $15.8 million, and gross margin was 34%. To clarify, the gross margin guidance previously provided with the high 40 level included retail. The underperformance was attributable to the higher proportion of trim within the production mix and higher-than-anticipated cost of production. Retail gross margin through the date of deconsolidation was approximately 50% for the quarter.

Adjusted EBITDA for the period was $5.7 million, down from $18.1 million in the second quarter last year, but up almost $10 million from the loss of $4.2 million in the first quarter of this year. Adjusted EBITDA reflects the factors that impacted gross margin performance as well as a modest increase in cash operating expenses. Second quarter operating cash flow was $139,000. We ended the quarter with $22 million in cash and restricted cash, compared to $23.4 million at year-end 2025. Inclusive in the reported cash position is approximately a $6 million reduction that moved with the company's former retail operations as part of the deconsolidation transaction, as well as $4.9 million raised during the quarter through the company's ATM facility.

Subsequent to quarter end, we raised an additional $10 million in proceeds from the accelerated call of the company's Series B and C preferred equity warrants and $1.6 million from the ATM. In June, warrant holders were given a 30-day notice of expiration on July 23rd and were provided an option to convert on either a cashless or for cash basis. In total, we issued 7.4 million shares from the redemption of the Series B, C, and D warrants. The accelerated warrant conversion followed the redemption of the company's back warrants shares in May. Through the redemption, the company terminated 30.6 million warrants in exchange for the issuance of 362,000 shares. Both the conversion and redemption highlight recent efforts to meaningfully simplify our cap table. In total, 7.8 million shares were issued for the redemption of all warrants.

As previously mentioned, we've had discussions with our tax advisors regarding the implications of rescheduling on taxes, specifically the elimination of the 280E tax burden on medical cannabis. Going forward, the company will no longer need to recognize 280E in its future tax provisions. Through June 30th, the company has included $38 million of uncertain tax provisions on its balance sheet, but has taken the position that 280E does not apply when making cash tax payments. Turning to forward-looking expectations. On account of the deconsolidation transaction and elimination of retail from financial results, the guidance we previously provided, full year revenue, gross profit, and adjusted EBITDA should no longer be relied upon. At this time, we are not updating guidance as we await greater clarity on the timing of potential sales outside the state of California and further our hemp strategy as well as expansion initiatives at the farm.

We continue to plan to produce approximately one million pounds of biomass this year. We expect to exit the year with a cost of production below $100 per pound, while noting the company's long-term $95 cost of production target remains intact. With that, I turn the call back to Kyle for his closing remarks before opening up this call to questions and answers. Kyle?

Thank you, Mark. Again, thank you for joining us today and to all of our investors for their continued support. I am encouraged by medical rescheduling and what I am hearing about adult use. I believe ongoing reforms represent a true breakthrough for the industry and may well prove to be just the beginning of a change and long-anticipated normalization for this industry. I am genuinely optimistic for the months and years ahead. I am hopeful that we will also see social reform and appeal upon the President to pardon the many people that remain incarcerated in federal prison for non-violent cannabis offenses.

Just as he did with his current pardons, Alice Marie Johnson and my friend and advisor, Weldon Angelos, among many others, President Trump can correct a wrong and give these people their lives back, many of whom are staring bleakly at a nightmare future of decades more behind bars. I hope the President shows compassion as the war on cannabis won't truly end until these people are brought home. People like Parker Coleman, who is serving a life sentence for non-violent cannabis sales, and Jose Valero Jr, who has served years for selling less than 8 lbs of cannabis. Jose is also a non-violent offender. One request for all cannabis investors listening. Please take a moment and call your congressperson and ask them to request that President Trump grant clemency to all non-violent federal cannabis prisoners.

These requests make a difference, as I communicate with several of these people who are living that nightmare right now. It is sincerely appreciated. Let's not leave them behind. Thank you again, and I will now ask the operator to open the line for questions.

To ask a question, simply press star 1 on your telephone keypad. Again, that is star one to ask a question. Our first question comes up the line of Kenric Tyghe with Canaccord Genuity. Please go ahead.

Thank you, and good evening. With respect to the margin performance in courses, specifically gross margins, obviously a very impressive rebound, but perhaps not as strong as you were expecting. Can you speak to and help us better handicap what the drag was in quarter from the items you called out, higher trim and the other issues that affected the performance, such that we can at least have a better indication of how to think about the evolution of gross margins here in the second half.

Kenric, hi, this is Mark Vendetti. The big drag in Q2 was basically, we just had a higher mix of trim than we typically do. And trim sells in the $25 range where flower is selling in a $500 range for flower. So a one-point shift has a fairly negative impact on margin. The other thing that happened is particularly toward the second half of the quarter, we produced more trim, and that actually ended up in inventory and has a much lower value than flower and smalls. It actually depressed what we kept on our balance sheet. Those two fundamentally drove Q2. If I think about Q3, the ability to have margins go up significantly are going to be really driven by our ability to get the mix back more toward what the historical level has been.

We haven't provided guidance for the back half of the year as we work through some of the, I'm going to call it things we mentioned earlier in the call relative to improving the current mix. Longer term, there's nothing in what's happening right now that causes us to feel we won't get back to where we were. And the $95 long-term target remains intact. The simplest way, again, to think about this is if we can—and this is just the state of California. If we can do $200 average selling price, you're going to have a gross margin that's north of 50%. And that's just.

Hey, Kenric.

If we get higher pricing outside the state, gross margin is going to go up significantly.

Kenric, this is Graham, and thanks for the question. Let me jump in there since this is primarily a cultivation operations question. I think two things to stress. One is that this is a transient issue as we ramp back up. I think a couple reminders. One is that a year ago, the greenhouses were mostly empty. So in the last year, the cultivation team has replanted about 3.5 million square feet of cultivation footprint, which includes adding almost 1 million square feet of additional footprint to our largest historical format. So they have done an incredible job relaunching and rescaling the operation. The first step is to get open. The next step is to get operation. The final step is to get optimizing.

If you look at what we're doing and with the ASPs, you can see that for the flower we're growing, pricing and demand is still strong. There was no shortage of demand, and pricing was actually up slightly versus our forecast on our flower component. You can also see it reinforced by the 17 gold medals that the team won at the California State Fair. So this isn't a flower quality issue. What it is an issue of getting everybody consistently doing the same operation. An easy way to think of it is when you're harvesting the plants, the team goes through and removes some of the leaves, the leaves that end up as trim. If you don't have an experienced team doing that, they don't do as consistent and even a job as that in that, so that it ends up in the final product.

We grade it out, but it does shift down the ASP. If you think about what's going on here, you see that the greenhouses were replanted. You see an additional 1 million square feet added. You see a cost reduction from $175 a pound down to $122 a pound, which is a 30% reduction in the period of a quarter. We missed what we were aiming at by about $2, but the 30% reduction, I think, paints a clear picture of the team rebooting, resetting, and getting back to the work that we've done. As a reminder, historically, best ever was $91 a pound. There is nothing in here that prevents us from getting back to where we were. It is just a process of getting it open, getting the scale up, getting people efficient, and now getting them consistent so we get back to what we've done historically.

Nothing here that I don't see passing by and improving with time as we now have scaled up and now can fully focus on optimizing the consistency and efficiency of the team that we have.

That's some great insight. Appreciate it, Graham. Just a quick second question there. With respect to your bringing Greenhouse 2 online, is it fair to assume there, or reasonable to assume that the spend required to bring it online obviously would have led revenues, and that we'll see some sort of normalization there on the SG&A line as you start to see more benefit from Greenhouse 2 being online? Is that a fair characterization?

Yeah. I'll defer the specific SG&A questions to Mark our CFO. But from an operational point of view, Greenhouse 2 is now fully planted. We actually just started, for the first time, harvesting some of the additional square feet. One of the ways that I think of it is there's a lot of investment that goes in before you get any return out of it, right? First, you got to set up the greenhouse. You actually start back in the nursery, right? You're building the mom plants, the clones. You're spending labor hours or dollars investing in creating those plants. Then you got to turn them into teams. Then you got to plant them in the greenhouse. You got to maintain them. You got to harvest them. You got to dry them. You got to trim them.

You got to sell them before you see a dollar back on that revenue. That pipeline is fully filled, and the additional production from that is just about to start coming out. If you think about the way that we do COGS, it's the dollars you spend divided by the pounds you produce. There's a decent amount of dollars that go into the system before any pounds start coming out. That is about to start happening from the additional 600,000 square feet that we brought on during the quarter. Great.

Kenric, just on the SG&A front, the wholesale and cultivation business is very efficient for SG&A. The place where there might be growth related to the expansion in the second half is just that the fact as revenue ramps up in wholesale, we end up having to pay a 4% cannabis tax to the county of Ventura. As sales grow, that grows, but the underlying costs from the sales and just management doesn't grow. Any of the headcount is actually flowing through gross margin from a cost perspective.

That's great. Thanks very much. I'll get back in queue.

Your next question comes from the line of Frederico Gomes with ATB Capital Markets. Please go ahead.

Thank you. Good evening. Thanks for taking my questions. First question on hemp. If the intoxicating hemp ban gets delayed federally, let's say for a year, until the end of next year, how beneficial could that be for you? I guess how willing are you to really scale up that hemp production and take advantage of that? Thank you.

That is a great question, Frederico. I would tell you that what we would really like to do is keep our optionality open. It is the same plant, and so we are always just looking at what is best for the company. Do we want to go bigger? Do we not? Remember, we have not spent on a million square foot greenhouse, even $1 million on CapEx. So we have saved a ton there just to learn, and we are watching closely. As I mentioned, we cheer on the one plant solution. Hemp, cannabis, just bring it all together. Then that is exciting because it might open up our ability just to turn off a license here and upgrade there. So I guess what I am saying is right now, nothing really to report. Graham, you want to add in?

Yeah. Just as a reminder, Frederico, thank you for the question, is that what we were working on was CBD flowers. So there is absolutely nothing we are doing on the intoxicating hemp space that is at risk. Everything that we are working on and experimenting with and learning and doing our R&D on was fully federally compliant, less than 0.3% total THC, meaning it is compliant with the existing Farm Bill. It is also compliant if the Farm Bill additional restrictions and the hemp ban, quote unquote, goes into effect. It is also compliant with what many countries in Europe are doing. So we face no additional contraction or risk or negative impact if the ban does go into effect. That said, as Kyle mentioned, we do believe in a one plant, one set of rules.

We think people deserve access to legal licensed, tested, and age-gated cannabinoids of all natural types. So I think we are generally advocates of a rational public policy that does not treat the same plant under two different regulatory frameworks. But we have no risk or downside if it does go into effect. If they do delay it, then that only presents the potential for additional opportunities.

Thank you. Appreciate that. Second question on interstate commerce. I think you would be a supplier, right, for operators in other markets, given your cost of cultivation and the quality there. Have you had any discussions with other operators? How far along are you in those discussions? What can you share? How do you think the U.S. market could look like once interstate commerce is allowed?

Another very good question. One thing and a way I would point this out is some people come to me and say, "Nothing's going to happen without legislation." I am quick to point out that all the way back to early days of Trump one, we've been talking about safe banking legislation. To date, including today, we have no safe banking legislation, yet we've been legally banked by a very large publicly traded bank for a long time. We see this in much the same dynamic whereby we're speaking with the regulator. In this case, the regulator of the Schedule III drug here is the DEA, and we've already applied for our 225 license. We're confident that the construct is here, speaking with the regulators.

To your question, absolutely, we are talking to companies in other states and companies internationally, and there is a lot of interest in getting this across the table. Nothing to announce as far as a formalized supply agreement at the moment, but I would just tell you, without a doubt, people would love to be able to import our cannabis from California to everywhere.

Yeah. I think it's worth noting, too, on there that I think there's sometimes a perception that no states want imported cannabis. I would say that's very much not true, and it's supported by the conversations we've had. You can look to states like Vermont who have put in potential import regulations into their cannabis ordinances. You could look to the New Jersey Senate President, who has introduced multiple times the idea of importing cannabis. You can look to new markets that don't have existing infrastructure and have not built cultivation supply chains and think about who would want to underwrite the construction of a new facility in a new market where you're looking towards a year of permitting, a year of construction, and a year of operation before you get a first harvest out of it? Then you can expect to see higher pricing, indoor growing.

You're, by definition right now, building for a medical market. There's markets like Georgia, where it's $6,500 a pound. It's $6,500 a pound for what is medicine and what is available in California for as good or higher quality for a tenth the price. If you are operating for patients, you are going to be looking for the place that you can get the highest quality for the lowest cost, and that currently exists. Building new supply in places that are not long-term viable does not make a lot of sense. We do not build glass ponds in Texas to grow lobsters when lobsters can be imported from Maine, and that's the equivalent of what growing a new cultivation facility is in a market that's not going to be long-term viable is doing.

Let me just throw one more point. It is crystal clear right now that the American public is screaming about affordability. Screaming. They are so frustrated, and that is across the country, north, south, east, west. One of those big things is cost of energy, because they are feeling it in inflation. We are all feeling it inflation. One of the biggest drags right now, as you can see in the stock market, is the urge and determination to build energy-sucking data centers. That said, pitchforks are out. I think this feels like an easy way to just not go down something that is going to cost the consumer a lot more money, as Graham said.

For basically a fraction of the price, you can import from the West Coast of the U.S., the same state, incidentally, where wine grapes grow very well, Washington, Oregon, and of course, California. This makes no sense, and the consumer will ultimately win, and hopefully our legislators are listening carefully to the consumer and the voter as opposed to just a few large special interests.

Thank you. Appreciate that.

Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets. Please go ahead.

Hey, guys. Thanks for taking my questions. First one for me, just wondering if you can talk about what you are seeing so far in Q3 in terms of cost of production, if you are slowly trending towards that $95.

You are welcome, Ryan. I can take that. Thanks for your question. Good to have a new voice on here. I think I would start by saying that our long-term goal of $95 a pound remains intact, remains the target, remains something that we are firmly focused on and believe is attainable. I think I would point towards the work that we did from Q1 to Q2. We went from $175 a pound down to $122 a pound. I think that is the direction that we continue to expect to move. The challenge with what we went through was that everything is new. The good news about what we have gone through is that each day, there is a lot of parallel processes that are gaining steam and improving their experience, their consistency, and their efficiency.

I would expect to see that we continue to significantly reduce COGS, and there is no reason that any of the transient stuff that we are going through here prevents us from getting to the long-term goal that we have been aimed at, frankly, from the beginning.

Got it. Great to hear. Looking at ASPs, it was above, obviously, the original target. Can you just sort of walk us through what you guys are seeing specifically in California and maybe how sustainable that number potentially can be?

Yeah. Go ahead.

No, go ahead.

I was going to say, forecasting prices is one of the tougher things in the market. There's a few places where you can look to tangible items. One of those is the number of licenses. If you go back a few years, you would've seen about 8,000 cultivation licenses in the state. If you look now, the number's around 4,000, so almost half of the cultivators have exited the market. Now we see slight attrition on an ongoing basis, but it generally feels like we're kind of into a somewhat stable seasonality. I think I would look towards the pricing we saw and the fact that it was above forecast as a vote around the quality of the flower that we're growing. That is separate from mix. Mix means that we had less flower relatively to the amount of smalls and trim.

Of the flower we were growing, that flower was fetching a better-than-expected pricing. As I mentioned, also backed up by 17 awards and a whole bunch of gold medals from the state of California. I think the team continues to grow good quality, and we have seen the California market start to stabilize in terms of pricing, would still expect to see it have seasonal fluctuations. Historically, it goes down in the second half of the year as you have full sun and outdoor supply hit the market and then tightens back up. One of the benefits that we should have coming is with the addition of Greenhouse 2, which is our first greenhouse with supplemental lights.

It allows us to avoid some of the seasonal dip because we have a greenhouse now that is able to grow in those extra two hours when the sun doesn't come up and is able to supplement the wintertime intensity of the sun to higher levels. We should see yields on it seasonally. So front half of the year in 2027, we should see stronger production than we have historically, thanks to the supplemental lights made with our own power here on site from our cogens that we haven't had any time before. That should make for a nice front half of 2027.

Got it. Thanks for taking my questions.

Your next question comes from the line of Marc Cohodes with Alder Lane. Please go ahead.

I might as well go all of them. Are you guys going to have a supply or plural supply agreements between now and the end of the year? That's question one.

I'll take that one. Marc, I would tell you, I believe we will absolutely have more than one supply agreement before the end of the year.

Okay. That's excellent. The probability of shipping to one or more states or one or more countries by the end of the year.

I would tell you, we get up every day and are pushing against that wall, and from everything that I'm seeing, if I had to, and this is a guesstimation, I think we have a better chance of international coming first of those two.

Okay. The third question is, given the price that Curaleaf wants to pay for Aurora for only 170,000 lbs a year, does that surprise you? Does that surprise you where this bottleneck is? Because it doesn't even solve their problem.

It broke up a little bit there. I don't know if Kyle got the question, but.

Oh, I'm sorry.

I think you're asking about the price. Yeah.

I get it, Marc.

Okay. Here is where I am trying to go. If you use what Aurora is selling its cannabis, its product for, and the volume, given what Curaleaf pays, I do back of the envelope math, you get to about $30 a share in Glass House stock. Given Boris has said that he throws 70% of his product away to get to Europe, it appears Boris is at least recognizing the supply bottleneck of the product you grow. What I am trying to say is if Boris sees this supply bottleneck, when does the entire world begin to see this?

We see this as a very bullish sign for us. We cheer on all of our fellow cannabis companies, and see Boris is out there. To me, this is quite bullish because we can grow better quality at a far lower price than Aurora. It is basically showing how desperate he is for supply, and I do not blame him. He also, I think, is very bullish on the growth of England and the continued growth in Germany. We took this as a very, very positive sign for Glass House. In this case, Aurora does not appear to want to go on board, and so we just got our popcorn out and we are just sort of watching to see how this plays out. For us, this makes us happy.

Yeah. I think Marc, I might say if that supply is worth what they are offering for it is not hard math to look at how many pounds they are producing versus how many pounds we are producing and get to a valuation that would make a lot of people excited. If that is representative of demand out there and the price people are willing to pay to fill it, as Kyle said, very bullish for the strategy and what we are building.

By the way, if you even further look at the assets of Aurora, you almost think he is only paying for the grow. That only makes us even more bullish about us.

The final question, given Dr. Oz and President Trump's desire for this product to become a component in the country's health and wellness platform, what are you guys doing to get more into the consumer health and wellness, balm, tincture, ointments, things like that?

Yeah. Well, I think you're asking a very astute question. One of the things that we're watching, and part of the reason we're taking the stamp, and doing some of the R&D work and keeping the optionality open at the same time with hemp, is because it does look like the administration, from various different angles, is interested in cannabinoids as part of healthcare. As some people may know, we have a health and wellness balm prototype that we have been working on, that has worked very well for a number of people and think that it could be a fantastic candidate for the Medicare CMS CBD pilot.

It is contingent, and I think part of the reason you're seeing the vocalness from the administration, it is contingent on the current Mitch language not going into effect because that would restrict us to 0.4 mg of THC per container, which would effectively nullify that Medicare program. I do think that there's pressure to make changes there so that that lane stays open and do think that we have a number of strains with our partners at University of California, Berkeley within our own library and even with products that we have brought to market and are starting to hit the shelves in California dispensaries now, that could bring a lot of relief for a lot of people, without any of the addictive risks of pharmaceuticals and for a far better price.

We anticipate that to be a lane that we might not even have seen when we started the company, but could potentially be a very large opportunity for us going forward.

Okay. Thanks much, guys.

Thank you.

With no further questions in queue, I will now hand the call back over to Kyle Kazan for closing remarks.

Thank you, operator, and thank you to everybody, all of our investors, everybody who took the time to listen to this call. We look forward to speaking with you in a few more months. Have a great day.

Thank you once again for joining us today. This does conclude today's conference call. You may now disconnect.

Good afternoon, ladies and gentlemen. Welcome to Glass House Brands First Quarter 2026 Earnings Call. Matters discussed today during today's conference call may constitute forward-looking statements that are subject to the risks and uncertainties relating to Glass House Brands future financial or business performance. Actual results could differ materially from those anticipated in those forward-looking statements. The risk factors that may affect the results are detailed in Glass House Brands periodic filings and registration statement. These documents may be accessed via the SEDAR or SEDAR+ database. I'd also like to remind everyone that this call is being recorded today, Wednesday, May 13th, 2026.

On today's call, we have Kyle Kazan, Co-founder and Chairman and Chief Executive Officer of Glass House Brands, and Chief Financial Officer, Mark Vendetti. Following prepared remarks, management will open up the call to the analyst questions. Also joining for the questions is Graham Farrar, Co-founder and President. With that, I'll turn the call over to Kyle Kazan.

Good afternoon. Thank you, operator, and to all of you for joining today's call. For greater detail and results, please refer to our first quarter 2026 earnings press release and financial filings. Before I get into our first quarter results, I want to acknowledge the landmark event within our industry, the rescheduling of medical cannabis to Schedule III. This represents the most important drug reform in my lifetime and is an important step in normalizing the industry. I applaud President Trump and his administration for progressing with this change, one that reflects genuine common sense, acknowledging the beneficial medicinal and therapeutic properties of the cannabis plant and granting people greater access to find relief in healthy and natural ways.

We are pleased with the update and anticipate further legislative progress to come in connection with the Administrative Law Judge or ALJ hearings scheduled for June 29th, during which we anticipate a similar rescheduling of recreational cannabis. At that time, I'm hopeful that we will also see social reform, and I appeal upon the President to pardon the many people that remain incarcerated in federal prison for non-violent cannabis offenses. Just as he did with his current pardon czar, Alice Marie Johnson, and my friend and advisor, Weldon Angelos, among many others. President Trump can correct a wrong and give these people their lives back. Many of whom are staring bleakly at a nightmare of decades behind bars. I hope the President shows compassion as the war on cannabis won't truly end until these people are brought home.

From a business perspective, interpreting the outcomes of the medicinal rescheduling is complicated, and the opportunities presented for us and other cannabis businesses are still being defined in scope and timing. We are working diligently to ensure that initial legal interpretation become reality as we are excited for what the near-term future can hold. We are confident that medical cannabis rescheduling is sufficient to support interstate commerce between companies with the appropriately registered DEA licenses and export. This permits our team to ship low-cost, sought-after California cannabis to compliant medical markets outside the state and country. The opening of either interstate commerce or export off to Europe, a multi-billion-dollar importer of Canadian cannabis today and growing, would meaningfully increase our addressable market size and unlock profit and cash generation growth on account of more favorable pricing dynamics that are magnitudes higher than those of California today.

We have been training at altitude in the California market, which is the most difficult on the planet and any beneficial change to pricing dynamics will flow right through to profits. In addition, we believe through rescheduling that we can supply research institutions with cannabis and assist in their efforts to further unlock the therapeutic power of the plant. At the outset, we will look to deepen our relationship with partners at UC Berkeley, who we have been working with on novel medicinal development with hemp for more than a year, ideally deepening our learning on topics such as post-harvest curing, chemical makeup, and terpene expression that we can leverage in producing higher quality and more valuable products.

Our entire business is medically licensed and operational, and since the announcement, we have registered our retail stores, cultivation, and processing licenses with the DEA, permitting us to immediately operate medical operations under a Schedule III designation and have converted each of our cultivation and processing licenses to medical. We have completed an export application and are navigating that permit process. Mark will expand upon this topic further in his section of this call, but we are also working with advisors related to the tax ramifications of medical cannabis becoming Schedule III. Meanwhile, we are in discussion with California regulators to develop a system for tracking cannabis sales and tax collection for out-of-state sales. Given the state's accommodating expedition of license changes in recent weeks, we are confident that a solution can be found in short order that is beneficial for both cannabis companies and the state's tax coffers.

Interstate commerce and export offer a huge opportunity to California's agriculture industry and gives cannabis growers pressured by compressed pricing and powerful illicit competition a valuable lifeline. California growers can and should win nationally. The export to other states and countries at more reasonable pricing presents a real opportunity for job creation, tax generation, and would give a genuine incentive for those in the illicit market to become legal. Not to mention, this is what consumers globally really desire. Beyond the activity of recent weeks, preparing for a Schedule III outcome was a top priority for the first half of this year and we made significant progress in the first quarter. We accelerated and are completing the build-out of the final two-thirds of Greenhouse II. Greenhouse II is our fifth operational greenhouse, and in total can produce more than 300,000 pounds of biomass per year.

Plants from the final two-thirds will contribute to sales in the second half of this year. Our new production expansion committee within our board of directors continues to discuss future operational partnerships with companies in more traditional industries, including tobacco, alcohol, and cosmetics. We are pleased with initial conversations and expect further rescheduling progress to enhance interest. We believe widespread adoption of cannabinoid products within the traditional consumer product industries is coming and anticipate that further rescheduling progress will hasten adoption. We continue to progress toward a Good Agricultural and Collection Practices, or GACP, compliance audit, a prerequisite for European medical cannabis market supply, and we have been connecting with potential distribution partners in anticipation of establishing future supply agreements. Graham and I recently spent a week in Europe, including attending the ICBC conference in Berlin and Spannabis in Spain, meeting with companies and potential future partners.

I can confirm that the rest of the world wants California cannabis, and we look forward to giving it to them. I will be providing further updates as they arise. We recently announced preliminary first quarter 2026 results. Results were mixed, with revenue $41 million, period ending cash $28 million, average selling price $171 per pound, and biomass production 152,000, each matching or exceeding guidance. Cost of production $175 a pound, Adjusted EBITDA a loss of $4.2 million, and gross margin 25% were below our expectations. We also reduced our full year 2026 guidance for gross profit, Adjusted EBITDA, and period ending cash as our first quarter results and those anticipating the second and third quarters will reflect a higher cost of production than we had previously expected.

The reason is that we continue to operate with a less experienced workforce of third-party labor contractors. While the staff gains valuable experience every day, the first quarter was their first at pre-rate scale for harvest and production, and there remains a learning curve with operations. This has hindered our productivity. Meanwhile, we are compounding stresses for our legacy staff by accelerating expansion projects in the form of construction and planting new plants through the build-out of Greenhouse 2 and Greenhouse 4 for hemp. The reasons for our shortfall are explainable. It is a massive challenge to put the pedal down on expansion while still training people new to agriculture, and at the very same time of turning on a new greenhouse, rescaling back up to pre-rate full production. We hold ourselves accountable and are taking action to ensure that our expectation of our team's growth are realistic and reasonable.

We have a history of under promising and overperforming, and we regret the restatement. Importantly, despite the near-term shortfall, we remain confident that our long-term cost reduction target is achievable. We forecast the quarterly cost of production to decline as the remainder of the year progresses and continue to believe our $95 annualized target cost reduction is realistic on a quarterly basis within the second half of the year. Longer term, we will never have to pay the high and growing energy bills of indoor peers nor do we rely on third-party water supply. It is these benefits that have sustained us despite challenging California cannabis market conditions and will further separate the company as we enter new markets as indoor cultivators face increased pressure on rising energy costs.

We reiterated guidance to produce 1 million pounds of cannabis biomass this year, a record number for the company, and we continue to anticipate strong revenue growth in 2026 with progressive revenue growth throughout the year as scale comes online. I remind that revenue growth and guidance overall come before factoring in any potential benefit of sales outside of California for our cannabis plants or contributions from hemp sales. As previously discussed, we have hemp plants growing in Greenhouse 4 today and have completed an initial harvest and anticipate sales this summer. With initial product, we plan to supply international hemp and smokable CBD markets and are in active discussions with customers. This is a historic step for the company as it represents the first planned sale of any product outside of California and provides an R&D test for future near-term medical cannabis sales in new markets.

With the current build-out, Greenhouse 4 is capable of producing roughly 100,000 pounds of hemp biomass annually. That can eventually be enhanced to approximately 300,000 pounds through a full retrofit of the greenhouse. While we are not ready to provide explicit guidance on hemp contributions in the second half, we are confident that products will be sold at favorable prices relative to those currently achievable with California cannabis. Any contributions to results will be incremental to our current guidance. Long term, we believe Greenhouse 4 production could be an eventual supplier to President Trump's proposed reimbursable CBD market for Medicare patients. We also maintain optionality to supply U.S. hemp market should the looming hemp ban be eliminated or pushed out, as many predict it will be.

Finally, before I turn the call to Mark to discuss financial results in greater depth, I would like to provide some initial color on the recently announced California retail joint venture with Vireo Growth, which is one of the fastest-growing multi-state operators in cannabis. Together with Vireo, we plan to form a joint venture with the aim of building one of California's largest and best strategically positioned cannabis retailers. This will be a game-changing transaction for the Golden State, and I am excited to be working with the Vireo team, a group that I have come to know well and respect over the last few months. The two companies will each contribute its California dispensary operations in exchange for a 50% ownership interest in the new entity. Operations and future expansion will be jointly managed by Vireo CEO John Mazarakis and myself.

I am pleased to announce that Vireo's President of California, Cory Azzalino, someone I have known and worked with for many years, has been appointed CEO of the joint venture. Our contribution will be our 10 retail stores and our ongoing leafed MSA. For Vireo, the contribution is its Eaze dispensaries and home delivery business. As part of the agreement, we will support the needs of the combined retail network through a supply agreement. By operating retail as a larger consolidated base and in connection with the underlying supply agreement for Glass House, we believe we can improve upon the distressed pricing conditions in California and enhance the profitability of both our retail and wholesale businesses. Through the Eaze delivery business, we can also meaningfully expand our distribution reach, including for the first time within cannabis desert areas of California without dispensaries with our low-cost product lines.

In addition, after a five-year operating period, the JV provides an off-ramp that allows us to sell our ownership in the joint venture to Vireo. I look forward to providing further updates on the transaction and the JV's operations as they come available. With that, I'll turn the call over to Mark Vendetti, our Chief Financial Officer, to discuss our financial results for the quarter in detail.

Thank you, Kyle. Good afternoon, everyone. As represented with preliminary results released in April, first quarter revenue was $40.5 million, down from $44.8 million in the same period last year, ahead of prior guidance of $39 million. The decline year-over-year can be attributed primarily to lower wholesale prices compared to the same period last year. The first quarter of 2026 was the final quarter with reduced capacity of product available for sale for the wholesale channel following the step back in production in the second half of last year. As been previously discussed, we ended the fourth quarter of last year with the most acreage planted in Glass House history, the product was not available for sale on January first on account of typical growing, harvesting, and processing times.

Increased scale only began flowing completely through the business in the second half of the quarter and will be available on a full quarterly basis in Q2 for the first one-third of Greenhouse 2. Within first quarter revenue, $28.6 million stemmed from combined wholesale bulk and CPG sales, down from $33 million for the same period last year. Revenue in our wholesale segment was $24 million, down 15% from last year due to lower wholesale pricing, while our CPG segment had revenue of $4.6 million, down 2% from last year. Retail sales in the first quarter were $11.9 million, up from $11.8 million last year as the retail stores continue to grow on a same-store sales basis, outperforming the broader California market, which for the same period declined 8.5% according to Headset data.

In early 2024, we implemented a strategic pricing model with our retail stores, and since that time, our own dispensaries have consistently outperformed state retail sales, confirming that above all, consumers demand high-quality, low-cost cannabis. No one anywhere matches Glass House flower quality at low-cost pricing. We produced 152,000 pounds of wholesale biomass in the first quarter, ahead of our 138,000 pound guidance but down from 153,000 pounds in the prior year period. Production cost per pound was $175 in the first quarter, above guidance of $161 per pound and $108 per pound for the first quarter of last year. As Kyle discussed, we are experiencing short-term inefficiencies with labor that is resulting in higher cost of production.

We have and will continue to take steps to accelerate efficiency and lower cost. We sold 140,000 pounds of wholesale biomass in the quarter, down from 147,000 in the same period last year. The average first quarter selling price for biomass sold was $171 per pound versus $167 for guidance and $193 last year. Year-over-year price decline of 11% reflects continued California pricing challenges, with flower pricing down in line with the total pricing decline. As a reminder, last year we began selling higher levels of trim on account of improved cultivation practices, which allow us to harvest and sell trim material that would have been previously disposed of.

This has the effect of lowering our ASP as the additional material is predominantly trim, which garners lower average selling prices. As we move forward and bring on more product from Greenhouse 2, we expect our flower percentages of sales to increase back up to new normal levels in the mid 30% range. First quarter consolidated gross profit was $10 million, and gross margin was 25%. The gross margin compared to 29% guidance and 45% in the first quarter of 2025. The decline stemmed from higher production costs in the wholesale business. First quarter Adjusted EBITDA was $-4.2 million, down from a +$4.4 million in the first quarter last year. Adjusted EBITDA reflects the factors that impacted our gross margin performance as well as a modest increase in cash operating expenses of 3%.

First quarter operating cash flow was $-11.8 million. Turning to the balance sheet, we ended the quarter with $27.9 million in cash and restricted cash, compared to $23.4 million at year-end 2025. Inclusive in cash spending was roughly $3.5 million in CapEx. The final cash number includes approximately $22 million raised for the use of our now closed $25 million ATM. The shares were primarily issued to existing long-term investors, with proceeds from the raise primarily going to fund the build-out of the remaining two-thirds of Greenhouse 2 and our Greenhouse 4 expansion. We paid roughly $2.9 million in dividends. As disclosed within our earnings release, we have entered into a new $50 million ATM agreement with ATB Cormark as a matter of good business practice should beneficial opportunities arise.

Currently, we have no plans to use the ATM. As Kyle mentioned, we've had discussions with our tax advisors regarding the implications of rescheduling on taxes. We are working through to define if and how much of our uncertain tax liability can be eliminated. This will depend on how retroactive the rescheduling makes 280E. For perspective, our 2025 uncertain tax position increased almost $10 million, and our Q1 2026 tax provision of $3 million was comprised almost entirely of 280E tax impact. At the end of Q1 2026, the uncertain tax provision was almost $35 million. We expect further changes to come if recreational scheduling occurs as expected this summer. Turning to guidance. As Kyle discussed, we recently updated our full year 2026 guidance.

The company anticipates net revenues to be between $235 million and $245 million, in line with prior guidance. We plan to produce approximately 1 million pounds of biomass this year and anticipate an average selling price for wholesale product to be in the mid-$180 per pound range. We estimate cost of production to be approximately $111 per pound compared to prior guidance of approximately $100, while noting that the company's long-term $95 cost of production target remains intact, with expectations to still achieve this level on a quarterly basis within the second half of the year.

With the updated cost of production, we now expect gross profit margin to be in the mid-40% range, down from prior guidance of approximately 48% and Adjusted EBITDA to be in the high $30 million range. This compares to prior guidance of an anticipated high $40 million level. 2026 ending cash is expected to be in the low $40 million range, down from prior guidance of approximately $50 million. As a reminder, full year guidance did not include contributions from any sales outside of California or any changes to the financial model related to a closing of the announced joint venture with Vireo. Additionally, anticipated sales from our hemp business are incremental to guidance, and we anticipate initial hemp sales to come later this summer.

We anticipate that no matter the end market, pricing dynamics for hemp will be favorable to cannabis prices achieved in California. For the second quarter, we anticipate revenue to be in the range of $55 million-$60 million as we produce approximately 240,000 pounds of biomass up from 231,000 pounds in the same period last year. Second quarter average selling price for wholesale biomass is assumed to be approximately $185 to $190 per pound, down from $206 last year, while cost of production will be approximately $120 per pound versus $91 last year. As a result of the higher cost of production and lower sales price, we anticipate second quarter gross margin to be in the high 40% range, which compares to 53% last year.

On April 28, we delivered a redemption notice related to those warrants whereby all warrants as of May 28, 2026 will be redeemed on a cashless basis at a redemption price of 0.011826 shares per warrant. In the interim, warrant holders may convert any outstanding warrants at a conversion price of $11.50 per share and exercisable for one equity share of Glass House stock until the business day immediately preceding the May 28th redemption date. There are currently 30.6645 million warrants outstanding. With that, I turn the call back to Kyle for his closing remarks before opening up the call to Q&A.

Thank you, Mark. Again, thank you for all who have joined us today and for all of our investors for their continued support. I am encouraged by the recent rescheduling news and believe it presents a true breakthrough for the industry and may well prove to be just the beginning of change and long-anticipated normalization for this industry. I am genuinely hopeful for the months and years ahead. I'd also like to thank the entire Glass House team. We have put the staff, both employees and third-party workers, through the wringer over the past year, and at every path, they have stepped up and demonstrated true grit and spirit to face the challenges presented. Thank you. Finally, we once again plan to host our annual investor event, Investor Sesh V, at the Camarillo Farm.

As always, the event will include our annual shareholders meeting, a question and answer period with all members of the senior team, and tours of our facility and operations. It's a can't-miss event for all Glass House shareholders. Given all the excitement in the industry and the expansion at Glass House, I am confident this will be our best Investor Sesh yet. This year, we have the event scheduled for Thursday, June 18th, and I genuinely hope to meet you there. One request for all cannabis investors listening. Please call your congressperson and ask them to request that President Trump grant clemency to all non-violent federal cannabis prisoners.

These requests make a difference, as I communicate with several of these people who are living a nightmare. It is sincerely appreciated. Let's not leave them behind. Thank you again, and I will now ask the operator to open the line for questions.

We are now opening the question and answer session. If you'd like to ask a question, please press star followed by one on your telephone keypad. If you'd like to withdraw your question, please press star one again. Thank you. Your first question comes from the line of Frederico Gomes from ATB. Your line is now open.

Hi, good afternoon. Thanks for the questions here. First question on international exports. It seems like it's a very meaningful potential opportunity here. Can you just help us understand, you know, what is certain from a legal standpoint and what still needs to be clarified by the DEA or the DOJ and as well as the State of California in terms of the actual path for international exports, and when do you think that could happen? Thank you.

Frederico, always nice to hear from you. Thank you for your call. This is up top of mind. I would tell you that Graham and I are spending a decent amount of our bandwidth in conversations with legislators and lawyers. Let me ask Graham to go ahead and field that one, if you don't mind. You want it, Graham?

Sure. Hey, Frederico Gomes. Thanks a lot for the question. Appreciate it. I would put there's really two lanes here. What's certain from an export point of view right now is CBD flower that's below 0.3% total THC. That's compliant with the current Farm Bill. It's compliant with the State of California. It's even compliant with the Farm Bill post-November, assuming that nothing changes in the more restrictive McConnell language that's currently coming for that, unless there's either a delay or a change there. It's also compliant with most of the countries over in Europe, where they have limits from 0.2%-1% total THC. That's what we're harvesting, or actually have harvested out of Greenhouse 4 now, and we'll continue to harvest going forward. That's a new market that we're exploring.

It's not a place that we've been before. Part of the reason that we don't see it in the guidance yet is because we recognize that we're doing market discovery and R&D over there. The product looks good. Our trip that we went over to Europe, Kyle and I had a lot of interest from various participants over there. We've gotten follow-ups, and we'll be sending them trade samples shortly for them to look at the results of our first harvest. The second piece, which is I think probably more where you are going, was on the cannabis side of things with the DEA. What we have done so far is we have converted all of our cultivation licenses that weren't already to medicinal.

We have registered with the DEA on what's called a Form 225, which is a bulk drug manufacturer form. They recently updated that as part of the final order from the Blanche side sign. It was exciting actually to be filling out a DEA application where we were able to say that we were doing Schedule III medical cannabis. Those applications have been submitted. Per the final order, once the application is submitted, you're able to act in compliant with your state law. Those things are all certain, and the boxes are checked. The steps that still need to go are twofold.

One is the state needs to give us guidance on how they want us to have cannabis leave the state, and the DEA needs to finish processing our Form 225 application. For international export, there's what's called a Form 161 Export Permit, which we don't anticipate them approving until the Form 225 application has been reviewed and approved. Right now within the United States, we are Schedule III for our cultivation, and we are in discussions and have upcoming meetings with the state of California on how we move forward from their point of view. We'll be waiting and watching the DEA on how they process our application. The final order did mandate a maximum of six months processing time, so we're hoping that they will meet or beat that timeline for us.

In that timeframe, we'll be working with California to figure out what they'd like to see for us so that we can check all those boxes and be supplying medical markets overseas.

Federico, please know we're speaking to people at every level of government. Including, and especially California. We are all over this. As you can imagine, after our trip to Europe, which I mentioned, there's plenty of demand for our flower.

Perfect. Thank you. Appreciate that call. I guess second question on the retail JV. When is that gonna be set in place? I guess is the expectation that the JV is gonna be, you know, opening new doors in California? What sort of capital contributions, you know, would that require, I guess, from Glass House?

Good question. We're still working through the final parts of the definitive agreement but everything's going fine. As part of it, we are looking to close it in conjunction with an acquisition, which we believe will be all stock from both Vireo and from Glass House. It will be, you know, likely a longer period. It won't be just a flood of stock. It will be a kind of a two or three-year process. We're in a lot of conversations. There is a lot of interest out there, given that Vireo and Glass House are working together here. I would tell you that I believe it will all be done in calendar year 2026, and I think the capital contributions will be minimal.

Great. Thank you. Appreciate that.

Your next question comes from the line of Kenric Tyghe from Canaccord Genuity. Your line is now open.

Thank you. Good evening. If I just follow up on one of Fred's comments. While I understand the reiteration of 2026 guidance. It certainly sounds there's very material optionality, and I think we can all appreciate why given your positioning as a, you know, low-cost leader, a quality product, and all those related attributes we've already discussed. Is your hesitation in terms of a reset of that guidance related just more to a timing effect? We've all been around long enough to know that there really is little way of handicapping whether this falls into a late 2026 or an early 2027 scenario. Perhaps could you just walk us through sort of what appears to be a very, very high degree of conservatism in your guidance being, you know, for all intents and purposes, reiterated?

One, Kenric, nice to hear from you. Let me turn that one over to Mark when it comes to guidance.

Kenric, I think, you know, we will, I guess, either reset our guidance when we have better visibility into the path outside of California and what that might do for us financially. The guidance today, again, is driven entirely off of, you know, the businesses in California. We're gonna stay with that until there's a reason. I'll say it differently. We're gonna stay with that until we have better visibility in how we should change the guidance rather than put something out that isn't, I'm gonna say, reasonably baked or fully, you know, fully thought through from where we think the numbers are gonna be. At some point, that might actually result in a short term just pulling back for guidance while we work that through.

Right. That makes a good, a good deal of sense. Then just a follow-up with respect to that international opportunity. I mean, you know, certainly your cost of production is one that gets a lot of attention. If you look at sort of the selling prices in relative selling prices in Europe, I think you were probably being, again, cautious in your commentary with respect to the fact that average selling prices there are multiples of what we see in the U.S. Certainly, my read would be is that the margin opportunity here, let's take it outside of the 2026 discussion but looking to 2027, I mean, it really quite literally, pardon the pun, will be a wholesale reset of margins if you were selling into Europe.

Kenric, that is 100% correct. We are running some different scenarios right now. Our Investor Sesh is June 18th, and at the Investor Sesh, I think we will be able to shed a little bit more light into that. Yes, we're playing with the models now given our recent trip and given our different communication. What you just said is exactly right.

Yeah. I appreciate it.

One other note. One other note on that. One of the things I think coming back from the Kyle and I's trip to Europe that I liked the most was we've always believed that there was a preference and a premium that would be applied to cannabis from California, and we heard that echoed back to us from everybody we spoke with. Nobody over there did not care about the California appellation. No one over there didn't know the reputation for quality that we had. It felt good and validating while we stay conservative and we try and pay attention to what's in our control versus what's not. You know, the message we got back was that people want what Glass House grows better than everybody else, and that's quality California cannabis for the best possible value.

That felt really good to hear. You also don't have to go all the way to Europe to find multiples. I just saw a recent chart. The average cost of an eighth of cannabis in New Jersey is at $35, and we're happily selling our oils well here in California for $7.50. Everywhere you move east looks pretty appealing to us coming from California.

It's a little easier to drive across country than ship it across the Atlantic. I hear you on that one if the opportunity presents. Just a quick follow-up for me.

Yeah.

With respect to the people piece of this and your labor sort of reset, could you just walk us through how much of the drag that you're seeing is just that, call it the training effect? How much of it is the availability in terms of fully documented contract laborers? How do you see that sort of evolving through this, the remainder of the short way of answering it is how close to there do you think you are in terms of filling what is and remains a bit of a talent gap today or a training gap perhaps, or some combination of the above?

Yeah. I can take that one.

Let me give that to Graham in a second. Let me say, because I've been getting a lot of calls over the last couple weeks asking me about my confidence level, and I've said, "You know, it's really nice. I don't know any other company out there that has a Chief Cannabis Officer nor someone who can grow like Graham Farrar." When someone says to me, am I confident? If Graham says he will get it across the line at 95 the end of the year, I will put all my money on Graham Farrar. Yes, I am confident. With that said, Mr. Graham Farrar, or should I say Sir Graham Farrar?

Yeah. Yeah. I'll take that one. It definitely lives on my shoulder. There's a few factors here, right? I think if you It's helpful to think of it in terms of a timeline. We all know that we got to use an analogy, our legs ran over in July of last year, through the end of the year, we got ourselves back up and walking and came into the year going again with the goal of winning, you know, running a sub two-hour marathon. Throughout that process, getting back up to speed and refilled was step one, getting the output coming out was step two. That's, you know, the walking phase.

We're starting to run again, and we're trying to optimize for the pace. You have a couple of things going on. One is we had a labor force where in some cases you were replacing people that might have been here with five years with someone who today has been here five months. The question is not can you get them up to speed, the long-term destination and where we're going and where we'll end up, I have zero doubt about no change. What we did at $91 a pound, I think it was in Q2 last year, there is nothing structurally that takes that away from us. There's no reason we will not be able to do that again. The question is only how fast can we get back to that two-hour marathon sub four-minute mile pace.

What we're working on right now is getting those people. The people are back, and now we're working on getting them efficient. I think there's a number of places where we're actually more efficient than we used to be from a process and automation point of view, but none of that benefit's gonna shine through until we can get the people close enough to where they were, right? If you made a process 5% more efficient, but the people are still 20% away from being trained, you're gonna see a negative 15%. You're not gonna see that 5% benefit until you get them over that three-quarters line, where you start to then see how your processes are improved, how automation's helping out. We're getting those people back up to speed, but also at the same time we're expanding.

Long term, that's great and fantastic and what was always done, but near term it's a drag because that means you're adding more people, and those people on average are gonna be less efficient than the people you just spent your time training. What we're doing right now, we're actually will be planting in about two weeks, is Greenhouse 2 is gonna be another 300,000 sq ft and another 300,000 sq ft on top of that. That'll bring some more people in. That'll plateau us a little bit as we have to hire and train people up. Once we stabilize on that, then we'll be able to again push the accelerator pedal on getting the overall average efficiency up because we'll have people now who have been here twice as long.

It's interesting to remember that as we sit here, we're only five months past getting back just to capacity, right? We've been training these people. We're expanding. We're gonna train those people. Coming out of the end of this year, I think you'll see us the biggest we've ever been and should be the most efficient we have ever been as well. That's great. Thanks so much. I'll get back to you.

Your next question comes from the line of Marc Cohodes from Alder Lane. Your line is now open. Wait one second.

You guys are really sandbagging on hemp because I was just in Greenhouse 4 about a month ago. It looks like you can probably do between 50 and 150,000 pounds, and that's probably at $500 a pound. Just sort of rolling out of bed, that's somewhere between an incremental $30 million and $50 million, $60 million, you know, that you can do. That's just sort of my math. I'm curious your thoughts on that.

Thank you. Thank you, Marc. I would say you're right. You did see that. This one I would err on the side of underpromising with the hope of seriously overperforming. Graham, you wanna field the numbers on that one, the $500 a pound kind of thing?

Yeah, sure. Hey, Marc. Thanks for the question. Obviously hemp is something we're interested in. We believe there's opportunity in or we wouldn't be doing it. That said, it is a very different market than California cannabis, we're just wanting to be conservative, both as we do something new and operationally as well as we explore new markets out there. There's a wide range of what people are doing with CBD flower.

I'm hopeful that we can compete at the high end of that, which would, you know, put us in a very good position. Also recognize that when you're doing something new, you don't always step up and hit a home run on your first at bat. I wanna give us some room.

You do.

To learn.

You do. I don't.

Appreciate that. Also as a reminder, we

The other thing is, when I saw you last, you're good and pissed off, which is exactly how I want you.

Yeah, we are fired up. The other thing too, as a reminder, is with Greenhouse 4, we did take the approach of rather than doing our full retrofit, we wanted to be quicker to market and with less exposure as we figure out what the world is looking for from us. We do have a greenhouse that's a little bit more on average there, which I think, you know, we'll figure out what we're doing. We'll get the right genetics in. We'll see how the market develops, both Farm Bill, CBD flower, as well as now Schedule III, and then we'll continue to be smart capital allocators and go where the margins are the best.

100,000 pounds at $500 a pound is not out of the question, correct?

Those math numbers work. The question is, how does the market demand, what's the pricing, and what's the yield? Those are the pieces that we're working on diligently, fleshing and nailing down, and then we'll be able to give better numbers, and we'll add that right in.

Okay. You guys mentioned export quite a bit. As I scour east of the Mississippi, no one, and I mean no one, can grow or produce under $900 a pound. Either you can sell to Europe in excess of $900 a pound or the East Coast in excess of $900 a pound, which is where the other MSOs live. At $900 to $1,000 a pound, either export or to the East Coast, is that a number you guys are comfortable with in terms of your other MSO peers producing at? Because you should theoretically be able to sell higher than that because of the California brand. To the Canaccord guy's point, it's one thing to be conservative, but these numbers go completely off the charts at $900 to $1,000 a pound.

Can you just sort of elaborate on that? May I suggest a chart in Investor Sesh breaking down as you migrate out of California where those numbers lay out.

With no disrespect to our peers in this industry, we've heard those numbers too. We don't verify them. I would tell you know, with what's going on with energy in this world right now, the happy thing is we're not seeing the sun charge us more. We don't care about the Strait of Hormuz when it comes to the sun. To the extent that those numbers are accurate, yeah, we are tantalized by that. At Investor Sesh, we will be talking much more about modeling of what we believe we will be able to do outside. The numbers you're talking about are certainly within the realm of what we've been thinking.

Yeah.

Yeah, I'll just put one note on that. It's good. To remind people, that operationally, you know, as Kyle mentioned, we love the one lighter in the sky. There is no inflation on the sun. There's also no environmental impact from the sun. The power that we use on site here is largely produced by our three cogeneration plants on site, which are natural gas-powered, tremendously efficient, partially because we're able to generate electricity currently around $0.09 a kilowatt. In addition to that, we also get free heat and free CO2, both of which are valuable commodities on a farm. Natural gas pricing has actually been fantastically low lately. I don't know if that's related to not being able to export or the other disruptions, but it is a resource that we have in fairly good supply here domestically.

Our ability to use the sun to full degree, as well as produce power at a much lower cost and independent from the cost of data centers and AI and things like that as part of the Glass House advantage. We've always said we can grow the most, best cannabis for the least amount of money. Stand by that. Stand by the fact that there's a preference for the appellation to California across the globe, and look forward to being able to compete on a national and international market.

Final question. I think you mentioned in the press release something about $95 a pound. I think you were, what, $170 in Q1, you're gonna be $120 in Q2. Does that stairstep go down in Q3 and Q4, where you hit $95 in Q4, or do you hit $95 in Q3?

I'm passing you the ball, Michael Jordan.

I'm looking at my CFO and my attorney on what we've said publicly there.

Forget the CFO. He's on the bench, right? He's in the box for what went down with the reduced guidance. Leave him out of it.

Yeah. No, I gotta.

Tell the attorney to go get a cup of coffee.

I gotta take that one for my man.

Tell the attorney to go get a cup of coffee.

He booked me for the cost.

Are we?

Yeah

$95 in Q3 or $95 in Q4?

First of all, I will take that from Red and Mr. Mark Vendetti, the CFO. His changes in numbers is because of my change in numbers, not the other way around. We have two focuses at the farm, getting the pounds with the quality at the right cost. That's what we're grinding on every day. We're expanding, we're training, we're trying to improve across the board on that. I have zero doubt that we can do it, and the reason I say that is because we have done it before. This team is as great as they come. They're as experienced as they've ever been, they're just climbing back to the top of the mountain that they already know what the view looks like from.

We will get there as quick as we possibly can. Every day, there's an amazing team of people who are passionate and hard-working, waking up here at the farm to help make that happen as soon as possible.

I take it $120 in Q3 and $95 in Q4? Is that the?

We want to do it as fast as we can, yeah. Yeah. You know, just keep in mind, training and also expanding. With expansion comes, you know, the road gets a little bit steeper, so you gotta pedal harder just to keep up. That is the way it works. To get good, you gotta get going. We will be another 300,000 sq ft bigger in terms of operations in the next couple weeks here, and then a few weeks after that, we're gonna do that again. 1 million pounds is the target for this year. I think that's probably about 40% higher than the best ever record from the best ever greenhouse grower. It's a tall order, and we'll do it as efficiently and with the best quality that we can.

Marc, real quick, if you remember the movie Crimson Tide.

Yeah

Where They had a fire. I called a missile drill on top of it. This one is on me. I put so much pressure on that farm team and on Michael Jordan. I've gotten over 10 years of working with him and his team. I knew they could. I believe that we will get through this in a wonderful way by the end of the year.

Okay, here's the bonus question from all three of you. By Q4 at the end of the year, December 31st, what percentage of your business will be California? What percentage of your business will be outside of California? All three of you.

Let me start by saying I'm open as much as possible, but that's us talking to California and the DEA. If they let us do it, we will be converting.

Okay. Still, what's best guess, California, outside of California? Guess. I mean, your numbers are so beyond conservative, it's laughable. I'm just curious where you see the mix come December 31st.

I'm gonna go on a limb and before I hand it over to Graham and say 100% of our hemp will be out of state.

Well, Okay.

It's tough because it's almost a binary question, right? What we're gonna do is we're gonna go wherever the margin is best. I think we all collectively know where that is, and it doesn't start with a C. I think the DEA is already there on interstate commerce because that's how Schedule III works. Assuming that they continue to move forward as they have been, once they've processed our Schedule III licenses, I don't know why they would deny a export permit. That's untested waters. It really comes down to the state of California forging a path, which we're pushing and believe they are aligned on wanting to do for cannabis to exit the state. Other countries internationally, we know the answer too. They have medical markets where they'd be happy to import California cannabis.

They import it from Canada, and I'm sure they would prefer ours. Other states within the U.S. to allow Schedule III cannabis into their borders. The state of California and the other states are unknowns. If the answer from them is yes, then I think you see it almost exclusively. If the answer from them is no, then we'll keep doing what we do and still have the best year that Glass House has ever had.

Well, I thought the call was outstanding. Appreciate the candid answers, and I look forward to the chart on Investor Sesh on where these numbers lay out. Thanks for taking my call and putting up with me.

Thank you, Marc.

Always. Perfect. Thank you. Thanks for good questions.

Yeah.

That concludes our question and answer session. I will now be passing the call over to Kyle Kazan for closing remarks. Please go ahead.

Thank you, operator, and thank you everybody for listening in, and we hope to see you on June 18th in Camarillo at the Investor Sesh at our farm.

Thank you everyone for attending this call. You may now disconnect. Goodbye.