Good afternoon. Thank you for standing by. Welcome to the Glass House Brands Third Quarter 2021 Investors Call. I would now like to handle the conference call over to Mr. John Brebeck, Glass House Brands Vice President of Investor Relations. Please go ahead.
Thank you. I'd like to welcome everyone to Glass House Brands Q3 2021 Conference Call for the three-month period ending September 30th, 2021. Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could 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 these 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'd like to remind everyone that this call is being recorded today, Thursday, November 11th, 2021. I would now like to introduce Mr. Kyle Kazan, Chairman and Chief Executive Officer of Glass House Brands. Kyle, please go ahead.
Good afternoon, everyone, and thank you for joining us for today's call. Today, I would like to take a few minutes to review our strategic priorities and provide an overview of our business, positioning, and we'll give an update on our facilities. Mark Vendetti, our Chief Financial Officer, will then discuss our financial results for the quarter in detail. Following which, Graham Farrar, our President, and I will take your questions. First, I'd like to address the California market. As we are an SSO, a super state operator, which only operates in the Golden State, it is important to understand that the environment in every aspect of our vertically integrated company is facing challenges that we expect the markets in the rest of the country to also eventually experience. The flower market is going through the long-awaited commoditization, much like Oregon, Colorado, and Washington experienced.
It is important to note that everything we are experiencing was expected, but as with all markets, timing is the most difficult aspect to predict. We have positioned ourselves as a company accordingly, and we'll be discussing throughout how we are weathering the storm. Suffice to say, we believe, like other markets which mature, there will be a large shakeout that will position the strongest companies to lead the largest market in the United States and the one synonymous with premium cannabis. Our vision since inception has been to become the largest cannabis brand-building platform in California. This vision guides everything we do, and during our most recent quarter, we executed on a number of key strategic objectives, building on our solid foundation and strengthening our position as one of the leading companies in the world's largest cannabis market.
We have identified three key pillars to support our branded CPG strategy, increasing scale and cultivation capacity, expanding our own retail footprint and building a world-class leadership team. Towards that end, I'm pleased to announce that our brands have continued to grow in both units and dollars through this quarter, and that our Glass House Farms flower brand was the number one brand in California in the third quarter of 2021, the country's largest market, according to BDSA data. It reminds us that producing best-in-class flower at industry-leading costs is always a winning strategy.
In regards to our first pillar, increasing scale and cultivation capacity, I'm thrilled to share that since our last call, we closed on our 5.5 million sq ft SoCal cultivation facility, which provides us with the size and scale necessary to grow the highest quality craft cannabis with the lowest cost production, and to do so in a sustainable, environmentally friendly manner. We were also able to reduce the cash purchase price to $93 million, keeping an additional $25 million of cash on our balance sheet. Currently, we operate one of the strongest wholesale networks in the state, with best-in-class cultivation processes and highly efficient cost structures, employing an operational canopy of over 300,000 sq ft on our current 500,000 sq ft greenhouse footprint.
We expect to produce and sell over 90,000 pounds of dry equivalent biomass this year at a very competitive cost reduction this quarter of $179 a pound. Prior to bringing on our new SoCal facility, which we anticipate will eventually allow us to bring our cost reduction down to $100 per pound. Phase I expansion of the SoCal facility is expected to increase our greenhouse footprint by approximately 1.6 million sq ft by the end of 2022, with a targeted long-term footprint of 6 million sq ft. With this expanded capacity, we will operate the largest and most efficient cultivation facility in California by far, and we'll be well-positioned to supply across the country once that opportunity arises. The second pillar of our strategy is the expansion of our own retail footprint.
Regarding our partnership with Element 7, we announced last week that our subsidiary, GH Group Inc., has filed suit in Superior Court for the County of Los Angeles Central District against Element 7 and its principals and owners for claims arising from Element 7's conduct incident to the merger and exchange agreement entered into between GH Group Inc. and Element 7 in February of this year. Additionally, in conjunction with this announcement, we informed the market we are terminating the license development consulting agreement between the two parties for cause. The purpose of the suit is to enforce transfer of the 17 contractually committed licenses, of which three have been transferred to date. We are very confident that our suit will prevail and enforce the transfer of the remaining 14 retail licenses. Unfortunately, we are unable to comment further at this time due to legal considerations.
For further information, please see the press release on our website. Our goal is unchanged. We intend to operate the largest retail footprint in the state to create exceptional retail experiences for our customers. We currently operate four dispensaries and are well-positioned to continue investing in and expanding our retail presence. We will continue developing the facilities for five new licenses, our two new Santa Barbara licenses, and the three licenses in Dunsmuir, Hesperia, and Eureka that were acquired from Element 7. This will get us to a total of nine retail facilities. We continue to work tirelessly to scale our retail network via acquisitions, new license wins, or partnerships with the expectation of having good news to share soon. The synergy between retail and our brands is clear.
We have historically sold almost 15x more volume of our Glass House Brands in stores we operate versus non-Glass House Brands-operated stores. We currently plan to brand all five of our new properties as Farmacy locations. We expect to have them open before the end of the second quarter of 2022. Our two new Santa Barbara dispensaries will be in prime locations, where they are the sole dispensary in a limited license area and are being designed to provide a fabulous customer experience, an experience that has allowed us to garner multiple awards at our existing stores. We can't wait to roll them out, and I warmly invite all of our shareholders to visit them to get a feel for what we mean by the Farmacy brand and experience.
We're also excited about the Eureka location, which extends our retail reach into the heart of the Emerald Triangle, and the Dunsmuir location, which is located on Main Street in a beautiful old bank building in a town that views our dispensary as an attractive addition to a downtown area in the midst of revival. The third pillar of our growth strategy is establishing a world-class management team. During the quarter, we were excited to welcome Erik W. Thoresen as our new Chief Business Development Officer. Erik, who is a CFA charterholder, is spearheading our M&A activity and comes to us with previous cannabis experience from Harvest. He's playing a critical role as we continue to roll out and scale our business. We were also thrilled to recently announce Mark Vendetti as our new Chief Financial Officer.
Mark brings a wealth of experience as a CFO in the public markets, and a work history across several different sectors, including retail, manufacturing, consumer goods, e-commerce, and the cannabis industry to boot. His vast knowledge and deep industry experience has already made Mark a strong addition to our team. Finally, I'm pleased to welcome John Brebeck to the team, who everyone here should get to know as our Vice President of Investor Relations. We recognize that this was a need for us as a newly listed company. Having spent his entire career in the public markets, most recently in capital market advisory for public companies, John Brebeck brings a vast breadth of knowledge of the institutional investment community to the Glass House team. Working closely with our CFO, Mark Vendetti, he has provided a huge boost to our investor outreach program.
We have taken important steps towards providing additional transparency to investors about our operating metrics this quarter. For the first time, we have included a detailed sales breakdown of our retail, wholesale CPG, and wholesale biomass sales in our earnings release. We have also included operational canopy, equivalent dry pound production, and cost per equivalent dry pound production. This will make tracking our progress easier for all. Our CPG business continues to perform extremely well, especially in the flower category. Flower is the largest segment in the California market and accounted for approximately 37% of sales in the state in the third quarter of 2021. At the end of the quarter, we had approximately 471 retail doors in our CPG distribution network.
Our position in the market was developed very quickly in less than 24 months, and we see it as a testament to a formula we intend to continue to expand, the highest quality at the lowest cost. We also recently launched a line of live resin and diamond-infused pre-rolls, which are 100% internally sourced to reach consumers looking for potent, fast onset highs. Looking briefly at the third quarter before Mark provides a more in-depth review during his remarks, we generated net sales of $17.2 million. I'd like to provide some context on this number and the market challenges we faced, which caused a sequential decrease in revenue despite strong growth in the volume of our sales.
Revenue during the quarter was largely impacted by a 48% year-over-year and 33% quarter-over-quarter drop in wholesale flower prices as a result of overproduction in the market. While we expect the weakness in pricing to persist in the near-term, we are confident in the strength of our efficient operating model and the ability of our team to navigate a rapidly changing industry. In this growing and crowded market, we believe that the best-in-class operators will be those that are able to produce the high quality and scale with the lowest cost of production. We announced in September that we have completed the acquisition of our state-of-the-art SoCal greenhouse facility. Located in Camarillo, it was operating as a tomato farm and consists of six high-tech, environmentally controlled greenhouses totaling 5.5 million sq ft on a 160-acre property in Ventura County, California.
It is equipped with approximately 125 acres of ultra high-tech and efficient KUBO greenhouses, an on-site well, and water treatment facilities, automated roof washing systems, supplemental lights, advanced climate control systems, plus solar and natural gas cogeneration facilities producing over 14 MW of power, heat, and CO2. The farm was designed and built to operate in a very low-margin vegetable production environment. We intend to bring that same operational approach to cannabis. Construction of the new facility began within days of closing on the property in September.
Phase one of the construction includes an approximately 500,000-sq ft nursery and propagation facility with ebb and flow systems to allow for efficient automated plant handling and an approximately 900,000-sq ft KUBO Ultra-Clima high-efficiency greenhouse, which will add approximately 600,000 sq ft of new flower canopy to the company's existing operational footprint. In addition, we are constructing a processing center and a new distribution center to support phase one of the SoCal facility and the future retrofit of the remaining four greenhouses. The company is also rapidly moving ahead with the required licensing of the SoCal facility. We have already received cannabis zoning clearance from the local municipality and have completed and submitted all California state license applications needed for phase one operations.
We expect cultivation activities to commence by the second quarter of 2022, and the first harvest and sale of cannabis from the facility to occur in the second half of 2022. Once this initial phase is completed, we expect to produce an additional 180,000 dry pounds of sellable cannabis, representing approximately a 200% increase from our current capacity. On a very positive note, in looking at our existing facilities, we saw an increase of 22% in dry weight production sequentially, with productivity significantly improved. Our cultivation team, led by Graham Farrar, solved many of the production issues which we shared in our second quarter earnings call. We attribute the productivity gains to the new roofs installed at Padaro and the expansion of post-harvest processing capacity.
Despite market pricing conditions, demand has remained strong, with more dry weight sold than ever before in Glass House history. Between our current facilities and our newest SoCal facility preparing to come online in 2022, we believe we are ideally positioned to lead the California cannabis market with the lowest costs. One of the things that we have been reminded of in the current market is how much quality matters. Because even in this very challenging market, we have maintained the pricing of our CPG products and continue to sell record volumes of our biomass to the wholesale market. We are very excited to be positioned to produce some of the highest quality craft cannabis to meet customer demands and support the expansion of our business.
I want to share that as one of the largest investors in Glass House Brands and a longtime value investor, I am excited to have entered this phase of the market. It will bring many compelling opportunities on the M&A front, which will be perfectly suited to our large and growing footprint in California. With that, I will turn the call over to Mark for a review of our financials for the quarter. Mark?
Thanks, Kyle, and good afternoon, and nice to meet everyone. As a reminder, the results I will be sharing today can be found in our financial statements and MD&A, which are reported in U.S. dollars and prepared in U.S. GAAP. Total revenue for the third quarter of 2021 was $17.2 million, an increase of 29% year over year.
The wholesale CPG business was the key engine of revenue growth, increasing 103%. It was driven primarily by the Glass House Farms brands, which almost tripled in revenue compared to the prior year period. Successful marketing and distribution of the products, as well as the large increase in canopy under operation, mainly from our Padaro facility, supported the growth. Sequentially, CPG grew 14%, which came in the face of a high single-digit decline in the California retail market based on BDSA data. Wholesale biomass revenue fell 18% despite a more than doubling of unit volume sales as flower wholesale prices fell by 48%, negatively impacting revenue by $4.1 million. Sequentially, biomass revenue decreased 19% from $6.2 million in Q2 to $5 million in Q3.
Wholesale flower prices fell 33% sequentially, affecting biomass revenues by $1.6 million. Retail is our B2C business, selling packaged goods products to end consumers through the retail stores we control and retail venues. Retail revenues increased by $1.4 million, or 37% versus a year ago, with the addition of our Berkeley store, which opened in Q1 2020. Revenue declined 18% sequentially. I'd like to remind our listeners that our Q2 retail revenue results contain modifications to our rewards and loyalty program that resulted in a one-time favorable adjustment to revenue that advantaged Q2 revenues by $1 million versus Q3.
Without this effect, the sequential decline in Q3 retail revenues would have been 4%, which outperformed the overall market. Our Los Angeles-based dispensary, The Pottery, is reported as an equity method investment given its current ownership structure and therefore is not consolidated within our retail revenue. Gross profit for the quarter was $2.4 million or 14% gross margin, compared with a gross profit of $5 million or 37% gross margin in Q3 2020. The decrease in gross margin was driven by the fall in wholesale cannabis prices as well as inventory valuation adjustments. In Q3 2021, total operating expenses increased $5.8 million year-over-year to $11.9 million, compared to total operating expenses of $6.1 million in Q3 2020.
General and administrative expenses increased $3.8 million year-over-year to $8.5 million. The increase was largely a result of stock-based compensation increasing $2.5 million, increased insurance costs and costs to support operational expansion, as well as professional service fees related to the SoCal expansion and our large retail footprint, which increased $1.3 million year-over-year. Sales and marketing expenses increased $600,000 year-over-year to $900,000, with additional investment in digital media, consumer and retail education, brand events, and activation. This is an area we intend to continue to focus on as we build our brand and product portfolio. We define adjusted EBITDA as earnings before interest, taxes, depreciation, and amortization, adjusted for transaction costs, restructuring costs, share-based compensation, and other non-cash operating costs.
Adjusted EBITDA for the quarter was a loss of $5.4 million compared to $0.2 million in Q3 2020. The decrease in adjusted EBITDA was primarily due to lower gross profit and higher operating expenses. Year-to-date Q3 2020 adjusted EBITDA was a $2.6 million loss versus a loss of $1.4 million in Q3 2020. We ended the quarter with $28.9 million in cash and a solid balance sheet, which has us well-positioned to continue to execute on our growth strategy. Additionally, we are actively evaluating additional sources of capital to help fuel our future growth opportunities in planned CapEx investments. I'd like to provide further color into the purchase costs for the SoCal property.
In addition to the $93 million of cash, as additional consideration, the company issued 6.5 million shares valued at $29 million at the time, and an additional $35 million in earn-outs to be paid if certain milestones are met, bringing the total purchase price to $157 million. Looking ahead, we would like to provide guidance for investors. We no longer expect to achieve the 2021 and 2022 projections provided in the outlook section of our de-SPAC listing prospectus. Factors include the dramatic drop in cannabis pricing that has occurred in recent months, the delay in closing the purchase of the SoCal facility versus our original expectations, and the developments noted in our November four press release regarding Element 7. The company anticipates Q4 2021 revenues to be flat to down slightly compared to Q3 2021 revenues of $17.2 million.
This outlook assumes the current difficult operating conditions in California will remain unchanged at least through the end of the calendar year, with no improvement in cannabis wholesale prices, as well as the continuation of the sequential trend from Q3 of flat to declining California retail sales. Regarding the operating outlook for 2022, we plan to provide some basic guidance during our Q4 2020 results call. Excuse me, Q4 2021 results call, at which time our budgeting process for 2022 will be complete and Q1 2022 operating conditions in the California cannabis market will be known. I would now like to turn it back over to Kyle for some special announcements.
Thanks, Mark. I would like to draw your attention to the third quarter 2021 operational highlights section of our press release.
It includes a link to a video that shows the impressive scale and ultra-high-tech greenhouses at our SoCal facility. We are working on more content to share the progress that our renovation team has already made in the less than one month since we began our phase one retrofit and look forward to posting it on our website very soon. We are excited to announce that our annual shareholders meeting will be held this summer at our SoCal facility, directly followed by our first annual Glass House Fest to celebrate the cannabis culture that was born in California so many years ago. I'd like to invite and encourage all shareholders to participate in both events, where you'll be able to enjoy our products and meet the members of our executive team. Graham Farrar, President and Chief Cannabis Officer, will guide a can't-miss tour of the SoCal facility.
We'll have samples and products on-hand. Stay tuned for more detail on this event, which will feature fun, food, music, cannabis, of course, special merchandise, and much, much more. With that, I will turn the call over, back to John Brebeck.
Thank you, Kyle. I look forward to joining our shareholders, friends, and family at this event. At this point, I'd like to turn the call over to the operator to begin the question-and-answer portion of the call. Operator, turning it over to you.
Thank you. Ladies and gentlemen, we'll now begin the question and answer session. Just as a reminder, if you could please stick to three questions, that would be great. Should you have a question, please press star followed by the one on your touch-tone phone. You will then hear a three-tone prompt acknowledging your request, and your questions will be queued in the order that they are received. Should you wish to decline from the polling process, please press star followed by the two. If you are using a speakerphone, please lift the handset before pressing any keys. One moment please for your first question. Your first question comes from Eric Des Lauriers from Craig-Hallum Capital Group. Please go ahead.
All right, great. Thanks for taking my questions, guys. A bit of question on sort of near and long-term strategy here. California, of course, known for leading cannabis brands, including from the legacy market. One of the issues is finding trusted licensed partners to outsource production without risking product quality. You know, from my standpoint, that sounds like, you know, that would kind of fit your guys' operations here. I understood you have your own brands, but as we start to think about your strategy for California and eventual interstate commerce, how do you think about contract growing?
Is that something you would entertain either in the near term or, you know, maybe after this, you know, after you bring the new facility in-house, and how would you kind of describe your relationships with other brands here in that opportunity? Just trying to get a sense of the overall strategy here. Thanks.
Yeah. This is Kyle. I would tell you that we're already having those conversations. We see that as a value add that we can add to, especially the larger brands, because you're absolutely right. Sourcing consistent product is difficult. If you're a brand, the worst thing that can happen is you're on a store shelf today, and then you're not on tomorrow, and the retailer basically shuts you out because of it. It's a problem that we recognize since we're vertically integrated, and it's a solve that we bring. We anticipate that we will be announcing some deals in the not too distant future.
Eric, I maybe could add quickly to that too. This is Graham. It's worth remembering that our background is actually in being a wholesale supplier to brands in the market. We started Glass House Farms about seven years ago, and when we first started, it was exclusively wholesale. We've carried a lot of those relationships forward, and as we've built our brand in parallel with that, we continue to be that, you know, that kind of trusted provider for a lot of those brands. Many of the brands you know actually have flower from us inside them. Our philosophy is quality, consistency, and cost. That quality, of course, you gotta do that. You gotta do it right, and then you gotta do it right every time. That's really what makes a brand.
As Kyle mentioned, we've got a number of exciting conversations going on now that we're able to expand our supply on the horizon. If we can't be the trusted supplier to help enable brand heavy asset light brands, then we're doing something wrong, and that's not our intention. We got a lot of exciting stuff in the works on that.
All right. No, that's great to hear. Just another kind of high level strategy question here. You know, I understand you guys are in a really strong position, you know, both from cost and quality in California, obviously the largest market here. You know, obviously some stuff in the works to increase your retail reach here. Should we think of this as really, you know, California only until interstate commerce? Or, you know, given some of the pricing pressures, would you guys ever look beyond California, you know, maybe either from a retail or
I mean, I would doubt production, but can you just kinda help us understand, you know, your thinking of anything beyond California or if that's just, you know, a post interstate commerce opportunity for you guys? Thanks.
Yeah. This is Kyle again. You know, we've got a really talented, kind of the talented cultivator in the world in Graham Farrar. We've had opportunities at different points to assist in cultivation other places, and we've declined. We've also had opportunities in some of the neighboring states to participate, and we've decided that keeping a singular focus in on the largest market in the world, California, makes sense. Partly because, you know, every state right now during prohibition doesn't allow interstate commerce. As much as, you know, we know that interstate commerce will happen at some point, the when is debatable.
Our focus right now is purely California, with the exception that at some point in the near future, we may be licensing some of our brands to other states because we see that as an opportunity as people really like that California reputation.
Makes sense to me. All right. Thanks, guys, and good luck.
Hey, thank you for your, thanks for listening in today and asking the questions.
Thank you. Your next question comes from Loren DeFalco from CB1 Capital. Please go ahead.
Hey, guys. Thanks for taking my call. You know, we've seen price compression on flower in Washington and Oregon, and I'm just curious, where do you guys think California is in that cycle? How bad is it gonna get before it starts to improve as we saw in the other states?
Thanks for the question, Loren. This is Kyle again. I'll answer one part, then I'll ask Graham to kind of share his opinion because this is one of those ones where it's not surely. It's more kind of a perspective. I would tell you from being a long-term investor, you know, I think it's great to take a look and see what's happened in those other states because it did create a big washout, and now you see those states on good footing. I don't know how the pricing here goes. You know, does it continue to decline for a while? I would suspect it does. I think the best thing we do is we hope for the best, but we prepare for the worst.
I can't tell you how excited I am that so far, you know, Graham and his licensing team up in Camarillo and Ventura, it's gone smoother than we'd hoped. You know, I'm knocking on wood right now that that continues because the sooner we can bring that on, you know, you heard where our COGS are now, and you've heard where we're hoping to take them. After walking the farms with Graham for now a couple of years, cannot wait to get that rolling, as it will dramatically lower our costs. As far as when, I would say better to plan on it being longer than it probably actually will be. Graham, do you wanna weigh in?
Yeah. You know, I think there's a couple points to that. One is, I would say that we're getting fairly close to the bottom here. We're now into Croptober, where we have outdoor plants coming down. One of the other metrics I see is that we've got basically price parity right now between California, Oregon, and Washington, and I don't really see a good justification for California prices dropping below those markets. We're seeing it in real-time. We are currently picking up equipment at 50 cents on the dollar from farms who are stopping production, who have product that it's not worth them harvesting right now. I think, you know, if we were in a demand destruction environment, I would be concerned.
I think we were in an overproduction environment, partially spurred by the COVID bump of last year, which had folks continuing to operate who, you know, frankly shouldn't be from an efficiency and scale perspective. I think markets are pretty good at correcting for overproduction, right? Our whole strategy is the ideal climate and the best facility with the best team to be able to survive and thrive regardless of what the market has, is. We know we can't control the market, but we can control what we grow, how well we grow it, and how efficiently we grow it, and that's our entire strategy is investing to be able to do that better than everybody, anybody else.
I think our strategy, if anything, is proven by what's happening in the market, that you need scale, you need efficiency, you need a team, you need a facility, you need to be in the right climate regions to be successful in this long term. I think that this is long-term beneficial for us. This is going to drive consolidation, which is what we've been betting on and building for since the beginning.
One last point to make. You know, real quick. When you have these down markets and this kind of pain, it creates an amazing opportunity for, as Graham said, consolidation or M&A. We are a fix for a number of different companies out there, and they would add value to us. We plan to use this painful time to our advantage and also to the advantage of some of the folks we're talking to. We're super excited that we're going through this period, and we knew it was coming, just now it's here.
Thanks. You might have answered part of what I'm about to ask, and it's, you know, just in light of the price compression in California, you know, the delay, the licenses at retail having issues and so on and so forth. Can you just speak more to that value proposition for Glass House going forward?
Yeah. You know, I would say that when you talk to the other folks in Canada, some of the MSOs, they're quick to acknowledge California is the most difficult market. You know, licensing issues are never easy here. You know, everything is a little bit more difficult. We have friends at other companies and, you know, they sort of laugh at some of how, you know, how they're able to work in their markets compared to us. But that's all we know is what we have. I would tell you that we're getting better and better in working in those markets. We're also seeing that, you know, Colorado and Washington started in January of 2014. We started in the rec market a little later than that.
We're seeing some pressures ease. Like for instance, our two Santa Barbara dispensaries, those licenses are gonna come online on the shorter end of what we thought because you know, some of what might have happened earlier hasn't happened, and it's just, I wouldn't call it breezing along, but I'd call it going on the fast end of the scale. Excited there. Graham, you wanna chime in too, please?
Yeah. I mean, I think you nailed it. I mean, this environment creates opportunities to do what we intend to do. I mean, our goal is to build a platform that we can build on, and I think we're gonna see a lot of brands and products and operations that need that platform. I mean, it's when things are fat, it's easy for everybody to play. You can be a hobbyist that got good. You can be, you know, subscale, 22,000 half-acre sq ft farm. When things get tough is when you sort out who has the scale, the operational efficiency, the facilities to really kind of make it in the long term. I think, you know, while it's painful in the quarter-by-quarter basis.
I think over the year-over-year basis, the environment here is gonna create some real opportunities for us to take advantage of.
Great. Thanks for that, guys. I'll hop back into queue.
Ladies and gentlemen, as a reminder, should you have a question, please press star one. Your next question does come from Alan Winston from Elliott Investment Management. Please go ahead.
Operator, we can't hear anything. It looks like we lost the mic.
Yeah. Unfortunately, we did lose him. Your next question will come from Scott Fortune from Roth Capital Partners. Please go ahead.
Good afternoon, and thanks for taking the questions. Can you expand a little bit? We've talked about the cultivation prices, but expand on the retail side, the footprint. Obviously you have some stores that are under a little litigation right now, but kind of how are you looking at acquiring or organic wins, kind of accelerating the retail side and then also accelerating your expansion? I think you said you're in 475 doors. How do you view that as we look forward going into 2022, expanding your retail opportunity from that standpoint?
Well, Scott, thank you for the question. I appreciate that. You know, what I would tell you is we've watched the data from BDSA and Headset. We also have a lot of friends in the market, friendly competitors, I would say. We were a little bit surprised to see that year-over-year, there's been a decline in the market. We can only guesstimate what that is. I'm sure you have some thoughts as well. But I think it's maybe post-COVID, the world sort of opening back up. In regards to increasing our retail footprint, it is something we're gonna do. We...
The reason we brought our business development person in, Eric, at the C-suite level is that's how serious we take it, and we decided to really pay up for that kind of talent and that kind of experience. If you're not vertically integrated, if you are just on the retail, or you're just in the manufacturing, or you're just, you know, in one area, it's particularly hard not to have the vertical integration in the state. Retail, remember, you also have to battle the 280E IRS code. We're finding there are some very interesting retail targets. We are in conversations with a number. Nothing to announce at this point, but we see them as a value add to us, and they're seeing us as a value add to them.
It's one of those things where it's not a hard conversation to have. Obviously, there's negotiations about certain things. At the end of the day, I think you're gonna see more consolidation. The benefit to some of the folks we're talking to is that they already have open stores. While we're building out, that takes some time. You know, typically, my rule of thumb is you don't really hit your full stride until the sixth quarter. There is an advantage if you can actually bring in some already operating stores.
Oh, and by the way, when our brands are on our store shelves, I mentioned earlier, we sell almost 15 times as many of our products on our shelves than we do on the outer shelves, the shelves of, say, neighboring stores. That's a huge. As a brand builder, that's a massive, that's fantastic for us.
Yeah. I think Scott mentioned.
I appreciate the guidance. Maybe expand upon that, Graham, on you know, your stores and the store metrics, four-wall metrics that you're seeing in your stores. Obviously, COVID put a little challenge in that, but kind of the expectation there and the opportunity of, you know, improving your store yields from that standpoint.
Yeah. I was just gonna say, I think, you know, one of the things that's important to remember as we look at, you know, what we call, you know, flat to declining is if that was on top of a regular year, it would be concerning. It was not on top of a regular year, right? It was on top of a COVID year where we saw 54% and 46% and 35% growth on a year-over-year basis. We took a huge jump up now. You know, it's almost like we're just in the market, right? You get a big run up, and you kind of take a little breather.
You know, I think we're seeing a back off of that trend, and I would call it, you know, return to normal or reversion to the mean, right? As people spend a lot of time sitting on their couch watching Netflix, smoking joints, and now they're back to travel and restaurants and things like that. We're still seeing year-over-year, it's still growth, right? It's just 2% growth instead of 30% growth, right? I think overall, we're gonna catch back up and kinda continue the trend that we were on. It's important to remember it's flat to declining in the market. Our stores beat that trend, right? If you normalized out the market, you would see our stores still growing relative to the background, you know, the market background trend.
You know, overall, I think making good progress on retail against the slight downdraft in the broader market, and again, continuing to see acceleration of our brands on our shelves, right? We're currently tracking somewhere around 24% or 25% of the revenue coming out of our stores is our products, and we're still not even in all the categories, right? It's something that we certainly intend to do. If that's 25% for flower only, when we add edibles, we expect that to grow, right? When we add, you know, other infused, you know, pre-rolls, which we just launched and are just starting to take hold and growing rapidly. We've got smalls that are out now. We've got a number of brands in development. We've got a number of exciting M&A conversations going on.
We really, really continue to believe and be confident in that synergy that we're building between large scale, high quality, low cost cultivation turned into products and then sold on our retail shelves, and think that that formula is a really durable competitive advantage that we're building that will last far into the future for us.
I was gonna say durable-
No, I think.
Competitive advantage. You cut to the chase.
Well, thanks. Thanks for the color and yeah, continue to move forward, obviously.
Thanks, Scott.
Your last? No?
Yeah, thanks.
Your last question comes from Alan Winston from Elliott Investment. Please go ahead.
Gentlemen, can you hear me now?
We can hear you, Alan.
Hello.
We got you.
Oh, okay, good. Sorry about that technical problem before. I have a quick two-part question, one looking back and one looking forward. When you guys decided to become a public company and de-SPAC, I'm sure you probably had many opportunities with MSOs who are interested in getting a footprint in California. Can you talk a little bit about your decision to stay independent as an SSO? And then part two of the question is, when you think about the long-term vision for Glass House Brands and the company, can you talk about how you see monetizing all the value you've built in the company and ultimately it paying off for long-term shareholders like us?
Alan, I'll take one shot and then I'll ask my co-founder, Graham, to take a shot. I too am a long-term shareholder. I think I was the largest investor coming into the de-SPAC transaction. You know, look, there is no perfect situation to invest in prohibition cannabis. The advantage to being a super state operator in the largest market in the world, California, is that someday when the walls come down, and I would imagine as part two of your question, let's say companies from outside of cannabis, very large alcohol, tobacco, pharmaceutical CPG, decide to make acquisitions or make offers. When you look at MSO and let's say you're vertically integrated in 25 states, there's no other industry that has 25-state vertical integration.
There's gonna be a cleanup that every one of those MSOs are going to have to do to drive efficiency or else they are gonna have some real problems. I would expect that there's gonna be some write-downs and there's gonna be just cleanups. Us being in California, we don't have that. Right now, our focus is just building a very, very large platform in the state that we think has that appellation, much like Tequila, Mexico has tequila, Champagne, France has champagne. We see California having a very special appellation. I won't answer part two just yet. I'm just gonna say that, yes, we talked to a lot of people. Yes, we considered some very interesting options.
We felt that the SPAC opportunity with Mercer Park was the best opportunity for us and to help accomplish what, you know, what Graham and I as visionaries of this company had envisioned. But it came with a lot of contemplation. Graham?
Yeah. You know, so I think there's a couple things that makes me think. One is, I've got a favorite Warren Buffett quote right now, which is, "You don't buy a farm because you think it's gonna rain next year. You buy a farm because you think it's a good value for the next 10 years." I think that very much encapsulates how we're thinking of things here, right? I liken, you know, think back to the early days of Amazon, where for a long time they ran very low margins and very, you know, low EBITDA because they were building and investing and really trying to create something of long-term value. I think there's parallels to that in what we're doing here.
You know, at this price range, purchasing a share of Glass House Brands stock is not too far away from the real estate value. You know, don't quote me on the exact numbers.
No, I totally agree.
I think it's a directional act.
I totally agree.
Yeah. Right? You're almost at real estate value on a company that's playing for the long ball. In the ballpark, you know, like relative to, like, Curaleaf, I think what we're building right now is 2.5x-3x the size of Curaleaf's total combined cultivation footprint. You can buy us at 3% of their market cap, right? We're thinking of where this is gonna go? At some level, we believe in interstate commerce. Won't try and play the timing. Luckily, we're in California, fifth largest market in the fifth largest economy in the world. Like, 25% of the U.S.' total market, right? L.A. has more people in it than Colorado and Oregon combined, yet today has the same number of dispensaries, right?
There's this amazing upside within California, and then the walls are gonna come down, and we think that the appellation of California from a brand building platform point of view, it's like a Cuban cigar. You can get cigars anywhere. People, given the choice, they pick a Cuban cigar. California has the advantage of it's a better place to grow. Like, there's a reason that 50% of the agriculture in the U.S. comes from California. It's not 'cause the land's cheap or labor's easy. It's because the other factors are so overwhelmingly good for cultivation and growing products that it overcomes those things, right? Now you have this beautiful place to grow and a place that consumers across the country and around the world pay a premium for. At some point, someone's gonna have to grow the cannabis for the country and eventually the world.
We think we've got the building blocks and a unicorn asset that happens to be the hardest market today, but long-term is the best place to grow and distribute and create cannabis brands from. The competition in California today is a challenge, but it also breeds excellence, right? Like iron sharpens iron. This is not a place where being number one means you're better than four or five other people. This is a place where being number one means you're better than 1,600 other brands nipping at your heels and struggling for dominance, and you're still winning, right? I think that's the long-term formula. The way it may make a hard quarter, it makes a really exciting 10 years.
And, and Alan-
Thank you, Graham. Good luck. Yes, I'm sorry. I'm with you.
In regards to your second question, when you said a long-term investor, you know, I've been called a vulture investor by Bloomberg Magazine. I've been called a value investor. Typically, I look for the value up front. It's here. When it comes to the market, I've bought busted condo deals. I bought all kinds of things that need to reposition. Whether it was from the RTC in the 1990s or whether it was during the financial crisis, the timing is always hard to see. When are we gonna see that value? When are we gonna see the upswing? Here, a lot of this is gonna be timed with what happens through the federal government.
The sooner that happens, I think you're gonna see the 99% plus of people that are not able or not willing to invest in cannabis to come on in. What I would expect is for the companies that are run right, that have good assets and a solid company, I think you're going to see a very good demand for those companies when capital comes, and I would call this the biggest capital dislocation I have ever seen, and I've thrived under much smaller capital dislocated markets.
Well, I've been in the financial markets for about 40 years myself, and I wouldn't disagree with anything you said. The only thing I would add is I hope you don't use your current stock price to make acquisitions because the current valuation, as your CFO said, is below replacement value.
I hear you, Alan.
Right.
We're doing what we can on that, but we also have to continue growing the business too. That said, I hear you loud and clear.
Okay.
As an investor myself, a very large equity holder, I know exactly what you're thinking, and as I would just say, I hear you loud and clear.
All right. Well, thank you for taking my questions and good luck. I'm with you all the way. Good luck, guys. Thank you.
Thank you, Alan. Appreciate you.
Thank you.
There are no further questions at this time. You may please proceed.
Oh, yeah. Let me finish up here. Sorry. Oh, here it is. Thank you for joining us today. I would like to take this opportunity to thank our team, who has worked diligently to move forward with expanding our cultivation and distribution footprint, improve supply chain and production efficiency, and enhance our consumer brand profile. We look forward to speaking to you next year when we announce our fourth quarter results. Have a great day. Before I say anything, before I end the call, I really wanna make sure those two words are echoed from our board to every single person in the team, and that is thank you. You guys have done a heck of a job in a challenging environment. Thank you. Have a great day.
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.