Glass House CEO Kyle Kazan - Conscious Cannabis

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Summary

  • Glass House CEO Kyle Kazan on bucking the trend of multi-state cannabis operators (MSOs) and focusing solely on California.
  • Industry risks from direct farm sales; direct to consumer e-commerce.
  • Learning from MedMen; Canopy Growth and Aurora's overproduction mistakes.
  • Building the largest indoor cannabis cultivation facility in the world.
  • Unjust cannabis laws; selective enforcement.

  • 1:35 - Why Glass House (OTC:GLASF) chose to forgo being a MSO and focus solely on growing in California
  • 5:36 - Cannabis’ continued legalization in the US and how it will affect Glass House’s business model and the cannabis industry in general
  • 7:26 - Why California is the epicenter of the cannabis industry
  • 12:23 - Business model, including planned retail footprint
  • 17:29 - California’s cannabis tax laws
  • 32:56 - Glass House’s largest growing facility in the world; potential concerns
  • 42:41: Mergers and acquisitions
  • 45:28: SPAC and de-SPAC journey
  • 52:31: Glass House’s current stock price

TRANSCRIPT

Please note that transcription may not be perfect. We encourage you to listen to the video, embedded above, if you need any clarification.

Josh Kincaid: Welcome back to Seeking Alpha. I'm Josh Kincaid, Capital Markets analyst and today interviewing CEOs. My guest today, Kyle Kazan, is a co-founder, CEO and chairman of Glass House Brands (OTC:GLASF). Thanks for being with us on CEO interviews.

Kyle Kazan: Thank you, Josh. Thanks for having me on your show.

Josh Kincaid: Appreciate it. So let's jump right into Glass House being one of the faster growing, vertically integrated cannabis and hemp companies in the US. You guys have a focus on California specifically building that leading lasting brand to kind of serve customers across all segments down there and from your glasshouse, cultivation operations, your manufacturing and branding, and then retailing hence the vertical integration.

So all of those efforts are being kind of rooted with the respect for people, environment and community. But Kyle, what made you kind of buck that trend of every other MSO, the multistate operators and just focus solely on California?

Kyle Kazan: So at first, it was a little accidental, because in 2014, so remember, in 2013, Colorado and your state, Washington went full legal starting in 2014. And so I'd been part of the legalization movement. We missed our opportunity in 2011 here in California to do that.

So I was in Colorado looking for a way to just kind of look at the industry the way it was unfolding, knowing, I believe, full well as an investor that it was going to go fully legal around the country at some point.

And so we made some moves in Colorado, but unfortunately, there was no way for us as out-of-state non Colorado Colorado ins to actually invest. So we decided instead of making the investment, which would have put us in Colorado, we decided not to get too gray in a very new industry where we didn't know what the said, how they were going to totally react. And so I'm a lifelong Californian. My team that was going with me to Denver, we just decided, let's go back to California and do what we know. We're very well. We're very politically active, so we're well connected here in the state and some of the businesses that have done very well here. So we just felt let's look to California. And as we continue to focus as we, you know, we start with some private equity funds that we created, we just decided, let's just stick with California and do we look into that and we look in Arizona?

Have we been approached about doing some stuff in Florida? Absolutely. But the more we thought about it, we just said, we're in this massive, massive market. In fact, right now, it's the world's largest cannabis market, and we just felt until we really conquered here.

Let's not let's not worry about other states. And lastly, what I would tell you is with all due respect and I follow all the MSOs and I know many the folks around the country. I think when full legalization comes.

Having full vertical integration in 25 states is going to it's going to necessitate cleanup and lots of renegotiations and changing the whole business model to fit then that new era. And so we're building towards that era and being strictly in California makes it a lot easier for us.

Josh Kincaid: So I hear you and I agree with you, but I also see crazy valuations, and so I'm wondering if it's not a great opportunity for other investors who don't know that. And to just build this and not to see that that's their intent.

Of course, I'm not saying that. But isn't there an opportunity to create these brands like the AOL and Time Warners of the world that the MySpace and sell it for hundreds of millions? And then eventually it's just gone?

Kyle Kazan: So what I would tell you, there is certainly a first mover advantage and being in all those states with retail brands, things like that without even naming themselves because I don't want to upset somebody that I didn't mention.

But there's plenty of big players that I think are going to be big winners. I just look at it as to touch to touch the box. Do you have to be in Arizona? Have to be in New Mexico?

You do have to be in California. And so to me, it's it's like being in tequila Mexico. It's like being in champagne France. People equate good cannabis with California because we have a rich and long history. You know, a generations long of growing cannabis here.

And it's just, you know, as someone who grew up here, it was part of the culture just growing up in high school. We all smoked at least a little bit, you know, no matter who you were in the Breakfast Club, you were smoking some cannabis.

Josh Kincaid: When legalization does happen and a lot of these duplicates and redundancies are consolidated, capitulated, cleaned up. Does that present this opportunity then to kind of look at existing markets and distressed assets? And rather than spending $25 million on one license in Arizona, for example, you're spending money on your own development, R&D, product development, SKUs and whatever. Where's the advantage?

Kyle Kazan: So Josh, what I would tell you if you said to me, Kyle, what do you think is going to be the highest? Is it going to be cultivation and retail? I think is going be brands.

If you have winning brands and I'll use the one that everybody knows cookies, you know, cookies has got to be 1,000,000,000 dollar company today. If they stay and they become supreme, then they will continue to grow if they become Ed Hardy.

And we'll see. I mean, that's the challenge for Burger and his team is to make sure their quality. And, you know, when someone says cookies, they're willing to pay for it, that they're going to get what they get.

So for us, the way we look at it is and we don't spend a lot of time thinking about the walls coming down where we can actually ship our flour from here or to to other states. We just tell our investors that's a free call option that went, you know, we know it will happen.

We just don't know when, as an investor, the wind is always the hardest. But today I would tell you we would be happy. And we're, you know, we're always talking to our different friends around the country about bringing some of our California brands that do very well here to other parts of the country because we think that in itself is is really our is one of our big strengths is having some good performing brands here, which is part of the reason we did the plus deal.

Josh Kincaid: Why is it do you think that California always kind of leads that pack? It seems like whether it's kind of automotive regulations or cannabis cultivars and favorite strains. It hits Colorado one to two quarters after it becomes, you know, viral down in California.

I mean, popular. And then it hits the northwest about, you know, three or four quarters after that. Why? What is it about the California culture and genetics and cultivars that sort of are the epicenter of, you know, popularity and preference?

Kyle Kazan: You know, I think one of it is whether that we we can grow very good cannabis. The weather throughout much of the state really lends itself to high quality cannabis. Even if you don't have all the bells and whistles as a grower just in your backyard, you can do quite well.

Colorado. Probably not as easy to get good, solid cannabis if you think of the 50 states. There aren't that many. You know, if you go to Hawaii, can you get some very good Maui Wowie? Absolutely. Again, there's there's good weather.

But California also has drawn let's remember the Sixties, the summer of love in 60 1967 hippies dropping out. What were they doing besides acid? They were doing a lot of cannabis, and so that was being grown up in the Mendocino, the Emerald Triangle area, which is probably not the best growing area as some as someone who has a huge cultivation footprint. I would tell it's a great area to grow and hide. That said, I've also been up there and the host growers that are, you know, there are 30, there are 30 harvest ins. They've been doing it for years and years and years.

Man, they've dialed in some genetics that really fit that kind of cooler, cooler climate. And there's a gentleman named John and I was up at his place with Graham and my team, and he had this purple, these Christmas trees, and I was like.

I tell me how you got that tree growing like this with his buddies. Like, look, it took years and years and years. And so if you think about just that story, how many other states have that? And also, when you think of the Summer of Love 1967 in San Francisco and Los Angeles, you picture people smoking marijuana and again, do they smoke marijuana in New York? Sure, they smoke marijuana, you know, other cosmopolitan cities that we have in this country? Absolutely. But a lot of times there are smoke in California. And to the point that I always find interesting is when I'm in New York, which, you know, there is someone who has to raise money and be a voice for the company. I do go into the bodegas and I talk to people and I see what's being sold and even if it's fake. The fake California sells for a higher price, so the illicit market values California as as higher and so.

But I will also tell you from smoking cannabis in other states. Yeah, if you grow it indoor in Massachusetts with the right bars to be good. But if you talk about Florida and I'm excited about the Florida market, there are companies doing some, some great things down there, but their best cannabis probably would not do well in any of our stores because people here know really good cannabis and they are finicky, picky. You know, we watch that, you know, Glasshouse Farms brand last year was sort of bounced between number one and number three all year in our state.

And as you can imagine, we are very territorial about making sure that our reputation precedes us there and maintains. And so Graham and I both will, you know, if we hear of a complaint, somebody hits me on Twitter, I'll immediately take it offline and communicate with that person to find out what's going on and make and make

something right. And if they think something's off with a strain or some which has not happened, we've had a jar or two that maybe come in a little underweight because of settling. We immediately fix that. We're like, you know, we'll get them a new jar and their money back.

So we just we really care about what we're doing here. And we're lucky to be in California.

Josh Kincaid: Yeah, I've said that I don't think Florida is going to be able to produce much cannabis that people are going to want to buy, it's indoors and it's expensive. And when there's federal legalization, all of those people who put all of that money in there are going to have to have the pivot to stay relevant because it's hopefully their MSOs. And they're not just in Florida, because if you if you are probably don't know a lot about agriculture. Question mark. Let's move on to your business model. Talk about Glass House positioning itself as the world's leading cannabis market through your extensive planned retail footprint.

You're using a portfolio of brands, including Glass House Farms and Forbidden Flowers, Mama Sue Wellness. But is your business model at risk from the direct farm sales or direct to consumer e-commerce?

Kyle Kazan: That is, Joshua. It's a great question. And you know, every business you know, California right now is under a lot of stress. And part of that, you know, we look at if you have a limited license state and you have to be vertical and you put all these guardrails around businesses, you're going to guarantee some amount of success. California guarantees zero. It is just a free for all out here. And we kind of think in a capitalistic society, it's sort of where things are heading. So if you can win here with all the challenges and headwinds we have, we should be in very good shape.

And the reason we're vertical part of it was as we were looking for investments, we found some interesting investments. So a lot of a lot of the times it was, Hey, we're growing up in Santa Barbara, we're growing gate, great cannabis.

Why not, why not apply for a license just down the street in Santa Barbara, and I bought one earlier, the first one we bought was in Santa Ana, so it's the only city in Orange County. And so that gives us a lot of data so we can try new things in our own store or our own stores and we have one in Berkeley. I mean, think of the locations of the state of California. So Berkeley's Northern California East Bay. Los Angeles, where we're in the city of Los Angeles, we're in Orange County, and I'll tell you, there's a completely different vibe between those two cities or two counties.

And then there Santa Barbara, which has an even different vibe. So we've got four different petri dishes where and we have extensive customer data because we take their driver's license when they come on in.

So we know age, gender, you know, everything about so we can measure so many things and we can reach out to people as well. So having our own grow put it in our own brands and seeing and by the way, we carry in our stores, our retail stores need to make money as retail stores independently. Yes, we use them for our petri dishes, but we sell everybody's brands.

We think will sell. We want the consumer to come to our store because they have a plethora of choices. So it's absolutely. It wasn't critical that we were fully vertically integrated, but I'll tell you, it has been amazingly beneficial.

So much so that, you know, we have more stores that we've already announced that are going to be opening licenses we hold and and we'll go that route more in point to your question. I think most retailers are not going to try and build become brand builders.

I think that's a very it's difficult because you're out there just sourcing products. Being vertical is a lot easier to do that at least owning your own grow because then you own your own kitchen. But what I do think you're going to find and that we're seeing are retailers definitely want to have their own Kirkland brand and they want to drive margin that way. And the hard part for a retailer is may they they know, they may know quality cannabis. Typically, they do. But sourcing it consistently is not so simple. And so where we are, we've been positioned or we position ourselves so that we can do both.

We can help white label and people can come out to our farms and we can we can strike deals that way. And then in trade for some shelf space for our brands, too. So, you know, we want to help.

We want to help retailers succeed at what they're looking to do. We have the tools to do it and we want to make sure that we're we're also on more store shelves.

Josh Kincaid: Yeah, that Kirkland brand idea of white labeling, getting massive amounts and then Costco and everything is a great idea in Canada. Tried it and they failed miserably. And we saw that with the Tilray (TLRY) merger and them losing about half of their their people because a brand wasn't there and soccer moms end up finding alternative products right away and it does come down to consistency and preference. If you don't have, like you mentioned with cookies in this billion dollar brand, that's all over the world now. They like the consistent genetics they want to go back over and over again.

And I doubt it's going to be like a von Dutch or Ed Hardy that just becomes popular and fades because people aren't going after the coolness factor. I think they're going after the consistent reliability in the genetics. Like no one knew Burner as a rapper.

They're going after the genetics, and that's all they care about. Whereas with Snoop Dogg, he could be that fad that comes and goes with Snoop Leaf because nobody cares about these celebrities in cannabis. Unlike traditional advertising, a traditional business and with coupled with all the other issues we're seeing from out of state investors, like you mentioned, Washington state only last 10%. So, you know, that's going to impact other states. Developments in California is a wreck right now. You guys typically have tax free. Is that right?

Kyle Kazan: That'd be news to me, Josh.

Josh Kincaid: I thought California was given the ability to not have taxes right now to help due to illicit market and all the issues going on was that was that.

Kyle Kazan: Yeah, there was a letter from Michael at Flow Kana. You know, a lot of us, I was on the calls with Michael and how they drafted the letter. It's a request that they do that some cities like San Francisco have suspended their their tax.

The state has not. We I would anticipate that the state. So as you can imagine, being only California and being big here in California, I'm dialed in, there's negotiations ongoing, but I don't think I would say that there's little to no chance that a tax suspension will happen, even though it was requested in.

And that letter got a lot of traction in the media. I'm just from the sources that I'm. But I talked to that are right in the middle of those discussions. I think you'll see some movement on taxes, but not on the local level.

You might see cities like San Francisco and in other cities go ahead and suspend some taxes.

God, I wish you were right on that man. That would be so awesome.

Josh Kincaid: I would. But you just need to move to San Francisco. I guess you could do that.

About your pre-rolls. You guys announced a launch first ever live resin diamond infused pre-rolls to reach consumers looking for that potent fast onset infused pre-rolls. Really fast growing live resin up in Canada in 2019 was a 400% increase.

People want that perception of solvent, free and healthy and than live resin is is kind of that diamonds being just 100% concentrate and they look cool. But you guys have that with companies. House cannabis brand number one, as you mentioned by sales in California in the third quarter 2021 number two brand through Q3, according to BDS Analytics.

Tell me a little bit about what people were buying, you know during the pandemic. Why did pre-rolls increase 50%? What was it about pre-rolls and infused pre-rolls that are having an increase in sales so fast?

Kyle Kazan: You know, another good question the pandemic. I'm still sort of analyzing data from the pandemic, and I always go into the stores myself just to kind of watch the way consumers were approaching the counter and the considerations, the questions they were asking.

I like being a fly on the wall, kind of that Sam Walton, get out to the store and listen to the people that matter the most. Not just my team and family, you know, in the stores, but also those consumers that keep us in business.

And you know, the way I looked at it, I my flower intake. Increased vis a vis edibles, things like that, and I think I think the reason it hit me when I was when the Hollywood Bowl opened up again and I when I saw people may think I'm young because I've got this fancy light on me, but I'm not that young. So I've seen Hall & Oates. And so, Josh, I'm looking at you. Maybe would've had a good time. The Hall & Oates concert. I'm telling you it was fantastic and you can't really smoke there or else you're going to have an usher.

Come on over and we were in, you know, in a nice box. And so we drank some, some drinks and had a couple of edibles. And but during the pandemic, four people were locked down. I think that was the opportunity.

And for me as well, you know, I was, you know, I smoke a lot of flower because we grow flower and that's our brand. I always want to taste virus, but I found myself since I was not going out during the lockdowns, nearly as much to the Hollywood Bowl and things like that, that it was just the smell didn't matter. And all things equal, I probably smoke a joint or, you know, or a bowl. That'd be my favorite way to take it to ingest. But but I think that's the answer is just as things opened up about, again, that made edibles and vapes much more attractive.

And also, we now gotten past vape gate. So I think people felt good about that again.

Josh Kincaid: California's interesting you guys are kind of an unlimited license state, I mean, there's probably some municipalities that have closed it down, whatever little local jurisdictions, but it allows for a level of competition that's not really exist in a lot of other states where licenses are limited.

We mentioned Arizona being one of those. So you've got just a handful of companies that if you saw, as you mentioned, you're the only one in Orange County, which has got to be an amazing opportunity.

Kyle Kazan: When you were in the only city that city has like 25 licenses.

Josh Kincaid: Oh, OK. OK. Yeah, thanks for clarifying.

Building a retail brand is the states. Isn't the his biggest concern. So you guys have quality that you have to keep track of cultivation all those issues. What is what would you say is your strategic advantage, though, because everyone says that they have fire or that their cannabis is the best whatever.

But what is your differentiator among the competition?

Kyle Kazan: That's a great question. I would tell you, you know, grab for one of my co-founders really heads up our cultivation. And this is this is the guy who's amazing at tech. He was one of the one of the founders of Sonos, which, you know, a lot of people have that on their phones for music and things like that. But on his private life, what he used to do is he basically owns some houses in around Santa Barbara where he was growing. And actually some of his growers became our growers when we partnered up back in 2015.

And so we didn't rush the brand out. We we made the Glasshouse Farms brand. We had it in our stores and we took our time with it. Some of the other early California companies like MedMen, they were in a rush.

Like, it didn't matter how much your listeners didn't matter about this, and it was just first mover, first mover, first mover, like a tech company. And we just didn't see it that way, and we wanted to improve our or our quality, but also grand being a tech guy.

We put barcodes on people so in their work and we could find more efficient ways thinking colleagues are going to be critical. And our thought was if we could get a very good quality product at a very reasonable price, that that's a winning formula in any CPG industry.

We weren't trying to be the Rolex. We were trying to be using tequila kind of the Casamigos of of cannabis. And so when we turned on last year, we're actually 2020. We decided, OK, we got all the deals with jars and we were methodical.

We turned it on to go. We said once we get to that top five, we never want to leave it. Because when you see us and you see the chart on BDS or ask trees or head any one of them, it's amazing how you see people come and go.

And we just were. We said, once we have a store shelf, we want to leave it. And so what we've been able to do, we we we are priced very. Nicely meaning. I think we get it, even though we're a good value, we're high priced for greenhouse.

But for the quality of what we grow, I think it's it's right in that sweet spot. And so we've been we watched the data like you wouldn't believe from my private equity days, which is how I came into this.

I'm a dork. So we're we're watching things very closely and we're also asking the people at our stores what, you know, what is the perception? How are people feeling? What are the other brands doing? And so we've been sticking with that.

I want to touch base, touch, touch back. New cannabis strains are going to be critical because what what cookies, what made them special was they were the first to market with gelato and Bruno was absolutely brilliant and put it on social media, and he selected and talked about it and got people really fired up.

And then they dropped. You know, Gelato still sells. But there's going to be a new hit record coming, there's going to be many new hit records coming and there's some some cultivars here in the state of California that are constantly playing with things.

And the whole reason you do a wine tasting is you want to try the different wines and you want to, even though it may be cabernet, you want to try this year, cabernet and maybe this year a 91 with Robert Parker and this one's a 96 and this one's an 85.

So it's going to be critical that at least here, the way I see the market is the winners are going to be constantly putting out new hits, new hit records and they're going to be speaking to the audience in the audience.

There's going to be that buyer. That's how you become supreme versus an ed hardy. And so that's one of the things that we're focused in on. And I'll also tell you, and you're probably asking me about in the commoditization of the pricing that, you know, there was a crushing this year.

And I would tell you, if you have the right strains, you held pretty decently. So I wouldn't say you were immune from the front from it because you weren't. But there was still the market was there for special strains and good quality.

Josh Kincaid: I do want to dove into to that aspect, but I want to touch on failures because practice doesn't make perfect. Failure does and we can learn a lot from Mad Men. So I was down in California, and I think 2018 that I mentioned was went to one love in Newport, which is now a MedMen (OTCQB:MMNFF).

And so they went out and they gobbled up all of these. These like dispensaries that you mentioned didn't care about the price. It's other people's money right there. They don't care about the investment they're out buying, like $26 million mansions as these entrepreneurs and I mean, none of it made sense when you were watching all of that go down.

What was that learning experience for you kind of being in the same seat and watching it going? Did you have FOMO? Would you say, what am I doing wrong or did you kind of know that it was a house of cards? What was your take on all of that?

Kyle Kazan: So I used to get calls from investors saying, Why aren't we more like MedMen, look at what MedMen is doing? Mm hmm. And I, you know, and I never talked smack about my competition or I really think it's not a zero sum game.

You know, there's a lot of winners here, but since this wasn't my first rodeo, I mean, I've I've ran a business partner and I formed a private equity real estate company in 1996, and we've never lost money in any of our investments.

And then at the same time, in 1999, when I left the police car, I started a property management firm with 250 units under management. So one is an investment side where you make money from people by investing smartly through good timing, good pricing and good execution.

The other one is a business that is low margin and is a straight operating business, so I was able to wear two different hats. The second one today, that company that started 250 units in a tiny room at one of our apartment complexes and will meet up that I just turned into a studio and put some desks in that that company today manages somewhere between four and a half $5 billion. A real estate L.A. and Orange County managed about 10,500 units plus. Still, the majority owner and I'm the chairman, I work on the business, but not in the business, but that gave me.

That's all fundamentals that's treating people right, treating my team right and and executing continually, that's been a profitable business, not huge, but a profitable business the entire time. And on the investment side, there's times where people are saying, why are we investing?

People are making a fortune in apartments, and I said, I like to invest when there's a capital dislocation in the market, meaning capital is hard to come by. And by the way, the best times to buy are the ones where it's hard to get people to reach into their wallets and write your check.

And then the time where it's easiest is a time that you shouldn't be buying. And I'm sure you would agree with Uncle Warren, who says be fearful and others are greedy and be greedy when others are fearful. And so when I was watching people ask me about MedMen, my investors, I said, Look, I've gone to Abbot Kinney [their store in Venice, CA], to West Hollywood. I, you know, and I was able to kind of find out, glean what the lease rates are. And I said, they're going to win massive. They'll be billionaires if they are never tasked with making a profit because.

I didn't know how they would. And eventually they reached out to us to see if there was something to do. So we're able to really see the. And there wasn't and I told the team, I said, I don't think amendment disappears.

But I said some people are going to go clean that up and it's going to be Ming the merciless going in there with with machetes. And I mean, just, you know, you'd have to go in there and negotiate every single lease and you'd have to just go through.

And now that you have Michael Serruya as a CEO who knows retailing backwards and forwards, it's now happening and we'll see how they extrapolate value. But there were a lot of lessons that I thought were important, and one of those was also the John Wooden axiom.

Be quick, but don't hurry. And so I basically just said, you know, I. I came in again with lots and lots of experience and lessons that I learned, and basically I could drive around L.A. and spent two days with you, just drive around and I could about that, I could about that, I could about that and I should have. I can't take you to any building that I ever bought that I shouldn't have. So I'm much more willing to pass on good deals, rather pass on ten good deals and one bad deal because those become very painful.

And so that's just been our our model here. And basically, that's just based on on my experience as an operator and as an investor.

Josh Kincaid: Yeah, I wouldn't want to dig anybody out of a hole. I've I know some consultants and individuals that stay out of Oklahoma with 7000 licenses for the same reason they don't want to be digging out of of a hole.

They're up to see how that plays out. If it's anything like Oregon with the 3000 licenses and the amount of overproduction they've had might be kind of crazy.

Kyle Kazan: Just tell me what state eventually won't won't get to a point. Where they're in full on competition. I mean, I just you look at 7-Eleven nationwide. You know, they're full on retail competition. Eventually, Amazon gets in there. So know if you're an investor and you look and you say, Hey, you know, this guy is just this guy's

got one of however, many licenses in Maryland, Virginia. It's like, look, you'll make money for sure on those and the price of cannabis, maybe $6,000 a pound. But I would look at it as. What's my most conservative estimation of how quickly that dissipates and how much money will I make in that time?

I've just been a value investor, and so where I look at things, I would rather be in a position of where we're where the ball is going as to where it is right now. And so but don't I get investors paying me all the time saying, how come I'm not applying in Massachusetts or Maine or wherever else And I just said, you know, if everything's a priority, nothing's a priority. And I believe, like I did, when you know, in regards to the medmen question about growing, I think if we just keep our eye on the ball, we stay focused and we think about where we think the industry is going that that will best suit us. And you know, the strategy is not without risk, but I feel I feel most comfortable with it.

Josh Kincaid: Let's look at another risk and learning opportunity presented by Canopy (CGC) and Aurora (ACB) with Glass House, you guys announced the completion of a company's five and a half million square foot greenhouse acquisition in Southern California. That's your so cal and your positioning the company with the largest canopy grower in the world once that facility is up and running.

But what about the overproduction, canopy and aurora over producing and essentially having to liquidate all of the billions of dollars in write offs? They've had 1 billion for Aurora, 3 billion and write offs for Canopy for malinvestment and overproduction. Are you concerned at all about having the largest facility in the world?

Kyle Kazan: Am I concerned at all? Yes. Hey, you know, I would be lying if I didn't say that I didn't have things that that wake me up at night, that said. I don't know, I still don't personally in, you know, through funds, lots of apartment buildings here in Southern California and also a place around the world.

And you could say, Kyle, what about this company that was a developer and they went bust and this one went bust and this went bust. Are you worried about going bust? I would say, just like I said, Yeah, I'm always worried about the black swan.

And what could what could hit us? But I also am a. As you know, I was a history mate. I got my bachelor's degree in history, so I'm always looking at that history and what assumptions do they likely make?

Where could things have gone differently and. Why did it go the way at which you know what? Why did the Weimar Republic go off the rails and why does us being $30 trillion in the hole and counting? Why will that be different?

Hmm. So am I as a student history? I look at that. So back to this, I would say. The insurance company. Said a replacement cost for the facility that we are by and that we bought. Was over 250 million us without the land because they don't insure the land.

So and we bought it in cash for 93 and then there was stock consideration for the option with the person who developed the facility. So we got it under under replacement cost number one. Which made me feel good because that's in my apartments I don't usually get I don't develop apartment complexes.

I buy them and I fix them up strategically to raise rents and provide a better experience to the new residents and the residents are living in the building. And so that has been what I've done consistently, consistently, especially when I look to Canada.

And it's worth pointing out and Josh already know this. The Canadian market in an in and of itself, the entire Canadian market is smaller than California, so you just named companies that went big, big, big in Canada and also in the future.

Do you really think people are going to be pining for Canadian syrup or cannabis or both? And I'll just leave that out there. Then you look and you say, OK, what's the scale currently and right now in California, it's either 25 or 30 million square feet of canopy license for greenhouse.

I think all in with our 6 million total square feet, we're somewhere in the forest in Canopy. So just even today, is there room for 4 million square feet in California of the highest quality at the lowest cost, 100%? And so and we're starting with 1,000,007 square feet.

This is now an academy square feet of the 5.5, and we're in no rush or there's no gun to our head to continue building up because the auction holder is growing tomatoes on 3 million square feet and is paying the triple net.

So I'm not under pressure to expand until it makes good sense so I can scale in again. I don't like to be pushed to do something that gets me over my skis. And so and when we walk this charge, we walk this facility in October of 2018.

That's when we first saw it. There was no doubt in my mind, and there's no doubt in my mind now that that is a winning facility. It will do great and we had no chance of actually buying it.

Because he wanted to earn 50 million cash, which we thought was, I thought, now your replacement costs. I don't like that. And when the opportunity came back around and it was, you know, 118, which we then negotiated, but. It was a golden opportunity, and that's the reason we did this back transaction was that was the only way we're going to raise that amount of money. So we feel there's I want to say it's the second largest greenhouse facility in America.

And Josh, next time I know you're a two hour plane ride north of us, it's worth coming out and visiting and showing you the bells and whistles of how we're going to be able to save money vis-a-vis anybody who is smaller than us. And I'm not saying that Chris craft candidates won't win because they will. There will be some big time brands that use great things, including my friend John up in the Emerald Triangle.

But when it comes down to, you know, putting my my ag hat on this location is a few miles from the ocean. And the mountains are four miles back, so we are Santa Barbara, we get fog, it sort of sits there because you get the you get the ocean, which is like the ocean because it keeps the temperature relatively constant, but you don't want the fog. And so this is a and we grow rate cannabis at Santa Barbara. But it's going to be better here, they grow condition is unbelievable, so we are super excited and the guy who had the option, the option holder is the one who built this facility and has done it six grown successfully with any vegetables being tomatoes and cucumbers. So. If you say to me, am I worried, I think I'd be foolish as the CEO of the company not to try and get ahead of any worries. But I'm confident that we've got the right business plan.

I'm confident that we put things in place to allow us some fudge factor and not to be pressured to do something we shouldn't be doing.

Josh Kincaid: What about your mergers and acquisitions, I'm assuming you're not pressured to make those decisions either, but you guys have been involved in a number of acquisitions and you guys announced that you acquired Plus, the popular California cannabis edibles company for $25.6 million through a combination of unsecured convertible debt and equity, plus additional performance based consideration.

What do you look for when making those M&A decisions?

Kyle Kazan: So great. Great question, Josh, and I'm sure you ask this of some of the other CEOs. So and I know, in fact, I know you have. So let me just give you my take one. The deal hasn't closed yet.

We announced that we're we're going through. It has to go through the courts and has to be approved by the debt holders so that we're in the process, that we've selected each other and we negotiated a price and things like that.

No one. I like Plus' number one consumer. Part of the reason I invest in different equities is that I believe in them as a consumer. I think they're doing something right and I and that in no way do I mean to be disrespectful to one or two Camino or some of the other good gummies out there.

But my favorite art class, I like that they're also California based. They're a legacy brand here in California, which which fits us and the team. Whereas we got to know Josh and his team, we realized that quality for the consumers.

It was a very big deal to them. And so we liked that a lot. And then it came down to, you know, and I'm sure some of the viewers out here are going to say, Well, why didn't you guys just just build your own guy?

And I said, Well, there are top four gummy. I think they're number four in California last year. That's going to take years. A lot of capital, you know, here, we think it just needs to be fixed a little bit.

And they're a public company. We're a public company. So some of those costs go away as well because it's not cheap to be a public company, as you know. But you know, I thought the price for the value and the only other comp that people could point to me was Canopy buying the option to buy one at

300 or so million dollars. And I thought, you know, look, if you compare that one, I feel really comfortable that we're getting a great deal. But more importantly, we just looked at it is this is this a brand that we'd be proud to have built ourselves?

And the answer is whole heartedly? Yes. Is this a brand that we're we're proud that we are already proud to carry out our stores and are our bartenders. They all say the same thing. So those intangibles were there and we were able to negotiate.

I think a good deal for both sides. And I think it's going to be a win. And I feel good about it.

Josh Kincaid: Yeah, I have asked some other CEOs about, are you worried that, you know, X, Y and Z is going to come into the game? And their answer is always like, no, their way too bloated, way too big. There's no way they can develop and build it.

So acquiring is seems to be the the most popular answer. So I'm curious about what other kind of strategic partnerships you might have in place. You had forbidden flowers and Bella Bella, Thorne's cannabis lifestyle brand, including a line of softly curated cannabis products.

In collaboration with Glasshouse Group, you signed an exclusive distribution partner with Herbal. So you guys are claiming to create the largest cannabis brand building platform in California. What other strategic partnerships do you have in place? How do you formulate those?

Kyle Kazan: So we take mergers and acquisitions very seriously, which is why when we hired Eric Thorson, his the chief of business development, we put him in the C-suite and he reports directly to me. And we spent. I mean, he lives in Colorado, so he's out real time to stay two nights this week at my house.

So we're talking about it all the time. And I will tell you from. You know, purchasing assets and then bringing them in that in itself is not, I think that's underestimated as far as a challenge by most people.

Again, I came into this with a big business background of doing things like that. There's a culture fit here that we felt really good about. So that's that's one of the things we do. We are careful in how we do this right now because our stock, you know, all cannabis stocks are trading below where everybody thinks they should be, or at least those companies do. We certainly feel that the value of our stock is is untethered to. Performance, at least that's my my opinion, so be careful. That's my opinion. By the way, I would say that about 95% of the stocks, just just to be fair.

And when people ask me, I said I would invest in this industry right now all day long, I think. I think that with safe banking comes, we'll will have hit bottom somewhere around that time. So but in regards to that, I have to be careful about using stock at this, at this value because of the dilution that will take. Also, a lot of private companies don't feel that even though the market is speaking very loudly that there's a valuation difference or there's a valuation decline that a lot of private companies don't feel like they should price themselves vis-a-vis kind of war pricing ourselves.

And so if there's not a meeting of the minds here, then there's no real point. But I will say this, Josh. If you think about when you want to actually make mergers and acquisitions, it's during a stressful time in the market like we talked about earlier.

I like capital dislocations now and in California, we certainly have that right now. So this is a great time to be looking around. If there's a reason why we haven't done more. It's because of my pickiness and going into the SPAC.

I was the largest single investor in cash. My business partner, my longtime partner, number two. We've taken zero money off the table, absolutely zero. So I believe in what we're doing. But what got us to this point without blowing up or having all kinds of problems is that we've been just focused in on on making decisions that are right for us and not worrying too much about what the market thinks about it. I think if we do the right things and we continue to execute, the market will take care of itself.

Josh Kincaid: Talk to me about the SPAC process and getting the cash and capital to make that that very strategic and important acquisition. You guys completed a SPAC earlier this year that took the company public officially changing the name to Glass House Brands and significantly enhancing your balance sheet.

So setting the stage for a vertically integrated company for exponential expansion into cultivation and retail in that 120 acre, five and a half million square foot greenhouse and now, in insight, able to buy that finally, but being a publicly traded company.

How else is that? How, how and how else is that going to accelerate your growth in other, in other words, are you going to be able to advance the position within the California market beyond just that greenhouse?

Kyle Kazan: Yes, so, so great, great question. I will say this, the timing of the SPAC was not ideal. But it could have been worse. And if you dispatched closer to when Georgia flipped Democrat and it gave the Democrats the entire federal government or control the federal government, that's when Subversive, The Parent Company (OTCQX:GRAMF) went through and they they did a brilliant job. Michael Auerbach and his team did a great job of raising money through that. Some of that was timing, but also wanted a tip of the cap to Michael when we went through. The stocks were starting to implode.

Every time I turned on, you know, I when I work out early in the morning, I'm watching Fox Business for CNBC and Cramer's going specs suck. I'm like, Oh no. You know, so it's like, Shut up, Jim. So and then you see a, you know, there's like 50 new SPACs coming on and Bill Ackman is doing a SPAC and I'm like. And those calls I would do, I would be on here all day talking with different investors. And I just was like, Well, we didn't. We didn't raise the amount of cash we'd all hopes.

And by the way, the SPAC promoter John Sandelman, amazingly sharp individual. You guys probably know him from AYR (OTCQX:AYRWF), you know, very, very smart. And Jamie Mendiola is their business development guy here in California, where he lives. He sits on our board. We had a lot of respect for those guys.

So my feeling was, we got as good of an outcome as we possibly could have given the time and had we gone through two or three more months later with the made. So now all of that said, we are public, we have a public currency, which I do like someday.

When we do go, we'll say safe banking passes that might open up Nasdaq. We're already there. We don't have to go through a whole lot. We we do our accounting. Know in a way that's ready to go, so it's not just die out for us, so we we I like we're where we are there.

I love that part of being public. I don't love like you can't see it, but my scoreboard that sits up there. You know, we're up 1.43%. And some days were down. Why did we go today, why we go down yesterday, I don't have a clue.

But it's just a scoreboard I don't love seeing. And I swore to myself, Josh, I would have said, I'm not going to look at it and it's right down there. The other the other sad thing is many of our investors and investment for years and years, they call me and I can't speak openly because we're a public company and I can't say to one man, I'm not saying to all. And that's the new thing because I love talking to my investors. Many of them are very close friends and family. So, you know, we just had Christmas and Thanksgiving.

And I mean, I'm like, Guys, I can't. I can't. I would love to tell you, I can't. I can talk about plus gummies I can give you plus gummies. And in fact, if you guys don't shut up, I'm going to put it in your food.

So so that you guys relax. So that's the worst of times. And I know it's not just me, it's Graham, and it's rest of the team that you know, you can't you can't just speak as openly about some of the some of the things that we're really excited about until we announce them to the public.

But the main point that you asked me about, I would say without that transaction, we would not have purchased that farm that we think is the game changer. And I would love if you ever wanted to reboot with me when it's an appropriate time.

Josh Kincaid: You guys you mentioned early on about, you know, glasshouse brands falling victim to a couple of negative trends like SPACs and cannabis in general cannabis. You were alluding to the fact that it's a momentum or momo stocks pushed by regulation and the election.

You mentioned Georgia specifically. It's also based on technicals and not really fundamentals, which you were kind of alluding to as well. And so with all of that, are you concerned at all with your stock price that recent decline in wholesale prices, coupled with consumer purchasing trending downward since at least September?

Kyle Kazan: Sure. Sure, sure. Look, it's tell me a business or tell me an industry, and there is a great book that I read last year called American a 400 years of American capitalism, and it just goes industry by industry, by industry, all the way up to the internet, Netscape and all that.

There's always a shakeup because, you know, here we got record prices in 2020. Record prices, none of us thought we'd be hitting those numbers. And what happens when you get record prices, people plow more money in what happens when they discover gold at Sutter's Mill?

Everybody goes to Sutter's Mill. It's just it's this is what happens in our fantastic society. I love it. But if you're not prepared for the onslaught of everybody coming in and you don't have any kind of a moat or advantage, you know, you're probably you may not make it.

And so we've been setting up our moat from day one for our brand. We've been and we've been really focused in on, you know, we're taking six years of experience and growing here in California and lowering cogs every which way we can.

And the only way that we thought we could, we could be the differentiator. Get to that bottom 5% of COGS was to buy this particular facility and build it out in a certain way. And so we're we're we're doing that right now.

But. You know, if I'm an investor and I look at California, I'd probably tell you. That's the I think, hands down, but I can't think of a market that's that's going through more turmoil than this one that said.

There is an end to that. And so when I'm an investor, you know, if I buy it a good value, I don't really worry about catching a falling knife. That's never been my that's not been my investment here.Is there a good value given what's going on and what's the likely pick up to get out of this? So but I still don't think our stocks. I mean, that doesn't explain why the whole industry is red every single day.

And then there's rumors that Perlmutter is going to go ahead and put safe banking when we all go green and shoot up. And if you look and see our, you know, six month trend, you're going to see it go up, stay and then go back down.

And that was all during the Perlmutter time. So that had nothing to do with what we're doing. It just had know outside outside forces that we that none of us can control. So, um, but but yeah, I mean, I know that if I'm if I'm an investor, I'd look at California.

Me, with my investment style, I'd be looking very deeply at California right now just because I think that's the best. That's the one that's going through the washing machine, knowing that the others will get there eventually.

Josh Kincaid: Well, what's your crystal ball prediction for 2022 and beyond? Where do you think the cannabis industry is going to go and what are a couple of goals you have in order to get there?

Yeah. one, I would tell you that I believe that President Biden will live up to candidate Biden's commitment, that he will use his pen and walk nonviolent cannabis prisoners out of prison. I believe that happens this year. I would have told you at the beginning of last year that that it would have happened, but I think there's immense pressure on him. I joined the board of Mission Green because I sit here and I and I put a face to the name and I've met the family and I communicate with them.

Parker Coleman is 36 years old. He was convicted of a nonviolent cannabis crime. He spent ten years in prison already. Yes, 50 50 to go. Now he violated the same schedule one law federally that I'm violating, and it hasn't changed a bit. And let me tell you what Parker has not done.

He does not own the largest cultivation platform by square footage in the history of the world. That's me as the chairman, CEO of this company. And so if you're not going to lock me up for the same thing that you locked him up and let him out, and I think then my prediction is sure that'll happen.

I'm optimistic that pricing here will start settling in a bit and we'll start getting out kind of like Oregon and Washington and Colorado did when they went through theirs. And I think we're going to see more retail expansion in these sites, say 65% of cities and counties in California, which don't allow retail to that.

So I think we're going to put a little dent in that. So overall, I would say. It's pretty rosy. But, you know, if you talked to Graham, he wears more rose colored glasses. You know, he I think he's always thinking about the best outcome, and I'm always thinking about how to prepare so that we don't get hit by the worst outcome, which is why we're pretty good yin and yang. So but but I'm optimistic that 2022 is going to be a good year and a lot of ways. And by the way, I would also put safe banking.

I think that passes this year, too. And I think that will take some of the pressure off the industry stocks. It would certainly be a lot better for everybody if we were trading up a decent percentage higher than we all are now, because then you could actually feel good about using your stock as a currency.

So, so overall, I feel good about that. The most important one is I have difficulty looking in the mirror if I don't say the word Parker Coleman to people at least once a day and make the argument that this is insane.

And if you follow me on Twitter, I'm pretty merciless about at protest at Chuck Schumer and Kevin McCarthy, Nancy Pelosi and Mitch McConnell. Shame on them. Shame on them and pardoning turkeys. When this is, this is going on.

It's just insane. So if I sorry, if I get a little emotional about it, but it just really upsets me that this kind of injustice goes on. When I hear everyone talk about social justice, social equity, all that's like, OK, talking is great, but that's not helping Parker and the thousands of others.

It's absolute nonsense, and most of us people are black and brown. So until people want to start actually walking their talk, as Coach Raveling said to me when I was a basketball player, don't tell me what you can do, do it.

Josh Kincaid: No, no, I enjoy your your enthusiasm because the political posturing is really frustrating, so I'm glad I'm not the only one I wanted to ask you about. You know, the more act being the Marijuana Opportunity Reinvestment and Expunge Act passing before the Safe Banking Act.

But I think we're out of time. So I would enjoy the next interview being in a sea of greens if we're down in California.

Editor's Note: This article covers one or more microcap stocks. Please be aware of the risks associated with these stocks.

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