Business

Glass House CEO Kyle Kazan bets big on scale

By Alex Halperin
Mar 14, 2022
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Glass House Brands CEO Kyle Kazan (Courtesy: Glass House)

In an alternate version of the cannabis industry, Glass House Brands couldn’t yet exist. 

As passed by California voters, Proposition 64, which legalized REC, wouldn’t have allowed farms larger than one acre for the market’s first five years. The idea was that limiting farm size would enable the state’s legacy market to transition to the legal market without competition from huge industrial grows. 

  • It didn’t work out that way. In late 2017, weeks before the REC market opened, the state Department of Food and Agriculture created a loophole that allowed large farms to open immediately.

One key beneficiary of the new policy has been Glass House Brands, a vertically integrated player based in Santa Barbara. According to data from BDSA, Glass House Farms is the top flower brand in the state with $3.34M in January sales. (Cannabiotix came in second at $2.06M.)

  • According to its investor presentation, GHB climbed from 63rd in March 2020 to first in September 2021, about 3% share in the ultra-competitive California market.
  • The scale and mixed-use lighting will enable it to produce “indoor quality at close to outdoor prices,” the company crows.
  • A major white-label supplier, GHB has also picked up an array of brands like wellness-oriented Mama Sue, Bella Thorne’s Forbidden Flowers and PLUS Products, which it picked up for $25.6M after the popular gummies brand filed for creditor protection in September.  

Glass House is best known for the 5.5M square-foot (~126 acre) mixed-lighting greenhouse it expects to open soon in Ventura County, north of LA.

  • CEO Kyle Kazan, a former cop in Torrance, Calif. who later had a career in real estate, has said it will be the biggest grow ever. 
  • Video of “Greenhouse 6” posted by GHB president Graham Farrar, presents compelling evidence. 

Glass House’s scale hasn’t endeared it to everyone in the California cannabiz. The glutted market has crashed prices.

  • It’s one of several reasons why California has proven extraordinarily challenging for smaller businesses, including equity and legacy players.

Glass House CEO Kyle Kazan spoke to WeedWeek about the company’s strategy, interstate trade and what equity means to him. (A video of the full conversation follows.)

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Unlike many of the other Glass House has decided to focus solely on California. While Kazan, like most others in the industry, expects interstate trade to happen eventually, it’s not the company’s primary focus. 

  • Once it arrives, he expects the company to benefit from the combination of the being California-grown (“like tequila from Mexico”) and his far lower cost of production than indoor grows in colder states.
  • He believes the California brand could eventually also benefit the state’s struggling legacy growers, since their product and terroir can carry a premium.    

Will the smaller growers make it? “God I hope so,” he said. Glass House, which reports Q4 earnings on Thursday, has plenty of work ahead of it as well. 

  • For the quarter ending in September it saw a loss of $7.7M on $17.2M in revenue.  
  • By comparison, major eastern MSO’s are generating ten times as much in sales, with some at or near profitability. 

Kazan says he’s surprised California prices held up as long as they did. He doesn’t expect them to climb back.

  • This “crushing” is how capitalism works, he said. “It’s very Darwinian.”
  • “Do I think every big group will survive? No? Do I think every legacy grower will survive? No.”
  • Through its scale, Glass House aims to be price-competitive with the illegal market. 

All industries are under pressure to boost their ESG (Environmental, Social and Governance) bonafides.

  • By growing in greenhouses, Glass House says it produces 95% less carbon than indoor grows per unit of flower, and can produce 10x as much flower than indoor grows with the same amount of energy.
  • The company is auditing its water use and didn’t have data to share, except that it gets water from wells. 
  • Glass House says it pays a minimum wage of $16/hour. 

As a cop, Kazan participated in the war on drugs. Now that he sells cannabis, he says he’s committed to be an “agent for change.”

  • He’s on the board of non-profit The Weldon Project, and has been a vocal advocate for Parker Coleman who’s serving a 60-year federal sentence for trafficking weed.
  • Glass House, Kazan said, would be open to partnerships with social equity companies, but in LA, at least, he’s not sure these businesses are positioned to succeed.

“You want to do good things,” he said. “But you have to be able to make money first”