Glass House: Glass Problems
- Glass House has collapsed following the close of a SPAC transaction with Mercer Park Acquisition.
- The company plans to cultivate up to 6.0 million sq. ft of greenhouse space in the highly competitive California market.
- The stock has a limited market cap now, but the company has an unappealing business model focused on large scale cannabis cultivation.
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Glass House Brands (OTC:GLASF) has fallen victim to a couple of negative trends: SPACs and cannabis in general. While these trends are hurting the stock, the biggest problem is a focus on consolidating the highly competitive California cannabis market. My investment thesis is Neutral on the stock due to this focus of repeating the issues of the Canadian cannabis market.
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Update - Nov. 18
Some very negative comments on California overproduction from the WM Tech. (MAPS) Q3'21 earnings call continue to confirm that Glass House bought into the California cultivation market at exactly the wrong time. Investors must avoid this cannabis stock for now.
-While licenses continue to be issued across our end markets, licensed density is not where it needs to be in the pace of license issuance remained sluggish, which is contributing to a thriving illicit market. And further, there has been a lot written in the press about how producers are dealing with the current supply glut, by in some cases diverting products to unlicensed market channels at significant price discounts, which is only further fueling the consumer demand shift.
-California, which is our largest market at just over 60% of revenue have lower end market retail sales in Q3 versus Q2 of this year. We believe that deceleration was a result of consumer demand shifting from licensed to non-licensed channels as producers, offloaded excess inventory to deal with the supply glut, resulting in significant price differentials between licensed versus non-licensed channels.