Editors Note: This is a transcript from a recently conducted phone interview.

Green Market Report Editor-in-Chief Debra Borchardt:

Tell us about Glass House Group and what’s in your portfolio.

Glass House Group President Graham Farrar:

Sure. So Glass House Group is one of the largest vertically integrated cannabis companies in the state of California, which is the fifth-largest economy, so it’s more like being one of the largest vertically integrated cannabis companies in the country. California is a lot more like a country than it is like a state. We have half a million square feet of licensed, operational and producing greenhouse cultivation. We’ve got four open and operational licensed adult-use, 21 plus dispensaries, one in Santa Ana, one in Los Angeles, the first adult-use dispensary ever in the city of Santa Barbara, and most recently the pharmacy, which is the pharmacy Santa Barbara, and then most recently the pharmacy Berkeley up in the Bay Area.

Farrar:

We’ve also got a 22,000 square foot manufacturing lab, which does both solvent and solventless extraction, as well as it has a commercial kitchen, which is just about to open up in the city of Lompoc, which is an exciting place to be because it has a 0% tax rate. We’ve got a number of brands. Most well known is Glass House Farms, which is flower, Field Extracts, which is a high-end connoisseur, Extract Company, as well as solventless extracts, really high end, high-quality connoisseur level products, and then Forbidden Flowers which is an exciting brand that we developed with the actress Bella Thorne and is now being launched him in dispensaries all over California.

Green Market Report:

And I also saw that you had a deal with Cadiz. Is that also part of Glass House Group?

Farrar:

Glass House Group has a joint venture with Cadiz. Cadiz is a NASDAQ listed (CDZI), publicly-traded company. We have a 10,000-acre project site for hemp cultivation down in San Bernardino County. We’re about one month away from doing our first commercial planting of 250 acres of hemp across a number of different varieties. And once we do that and then harvest and successfully prove that model, we are going to expand to the additional 10,000 acres down there, which would make us one of the largest hemp cultivators in the country, or in the world.

Green Market Report:

What’s your company’s ethos or philosophy?

Farrar:

I think we view the world through a cannabinoid lens. We believe that the cannabis plant is amazingly powerful and that we can make society better with it. We think it’s great, from a health and wellness point of view, we think it’s a lot of fun. We think it’s a whole lot better to be a regulated product than a prohibition product, and so we’re really excited about what’s going on with the passage of prop 64 and some of the research that’s being done. Our goal is really the good of cannabis for the good of people and to make society better with cannabinoids. And the reason I say cannabinoids is because if you think about it through that lens, THC is obviously the most well known of the cannabinoids. CBD is more and more well known, but there are actually a hundred other cannabinoids out there, many of which can be produced in hemp as well as in marijuana. And we are a product company that owns its supply chain, so our approach is basically, how can we make the world a better place through plants?

Green Market Report:

Tell me a little bit about the recent expansion?

Farrar:

One big exciting piece of our supply chain, our infrastructure, is that we recently had full licensing on, and now we’re operational on, an additional 355,000 square feet of greenhouse in Santa Barbara. It’s a really high end, high tech greenhouse. It’s built with a lot of learning from our first 150,000 square foot facility and we’ve been operating for over five years now. It’s an amazingly efficient high-quality spot, and so after almost three years of long and hard work to get it licensed and permitted in Santa Barbara, it is done, and as of Thanksgiving of last year is now planted and we’ve had five harvests so far this year. So it is now producing a really high end, high-quality flower and we’re really excited to have it as part of our supply chain.

Green Market Report:

You’re in California and that obviously has its challenges. How do you think that you are able to grow when others are not in the same position?

Farrar:

I think we took a pretty fundamentally different approach to California. I think a lot of people came into the market with what I would call a brand heavy, asset-light structure or philosophy. I think there’s a lot of people that made the assumption that California as an unlimited license state was going to have a glut of flower and supply and then it was going to be a commodity and a race to the bottom. The reality is 68% of municipalities in California don’t allow cannabis businesses, so far from being an oversupply, we are in an undersupplied market, and we really approached it as how do you run a business? And so we invested in infrastructure, we own all of our facilities, we own our farms, we own the land, we don’t have any debt, we don’t have landlords, we don’t have mortgages.

Farrar:

We really just set out to run a business that is profitable and makes good business sense. I mean, businesses produce money, they don’t consume it. And so we went for a supply chain perspective. And that’s turned out to be a really smart bet, because that brand heavy, asset-light model only works when you have a mature supply chain and cannabis today is essentially the definition of an immature supply chain. So now we’re in a really strong position where we can profitably grow brands while everybody else is in a mode of having to consume and burn capital to grow the brand. And as we make that transition from this unbranded wholesale medical market of the past to a brand based market of the future, we can do that in a really strong and profitable way.

Green Market Report:

Let’s fast forward to some lessons that you’ve learned in the last year and about companies that went public in Canada?

Farrar:

I think there are two questions in there, right? Which is, what is Canada? And I think Canada, it’s a federally legal country, but it’s still a country with only 38 million or so people in it. And so the supply chain capacity that they built for that is way overbuilt much more than is needed. And I think a lot of people were making a lot of bets that didn’t make a lot of sense because there was nowhere for that product to go, which is a slightly separate question than going public on the Canadian Stock Exchange, something that many American companies have done. And I think the challenge is no matter how you slice it, you need to run a business that is good business. If you’re in the model where you earn $3 in overhead for every in revenue you have, going public doesn’t save you or at least it doesn’t save you for long.

Because if you raise $80 million and you spend $80 million, then you need another $80 million and you have to tell everybody about that. That’s not a good position to be in. We kind of took the opposite approach and feel pretty happy about it now, which is we didn’t go public before we were ready. We haven’t taken in any institutional investors. We did it in a very conservative way. We bought the assets, we haven’t sold them or other things where you kind of reverse mortgage your future and then lease them back at crazy cap rates. Instead, we own what we have, we operate it in a profitable way with good margins and we use that to continue to expand.

Green Market Report:

How will the expansion change how you do business on a daily basis?

Graham Farrar:

I think the exciting thing about the expansion is that it significantly increases our scale. We’re now, from a supply chain point of view, about four times as big as we were before. It’s also really exciting because it allowed us to integrate a lot of the lessons that we learned over our first five years of operation in terms of efficiency and quality and speed into the new facility. It’s designed in a way that’s a lot easier to operate and a lot more efficient per square foot for what comes out of it. I think that in combination with our recent acquisition of field extracts and the expansion of the Glass House Farms brand and the expansion of the Bella Thorne Forbidden Flowers brand, we have more demand than the supply. So we’re in a supply-constrained environment and this is really perfect timing. There’s additional capacity to come online because it’s really going to allow us to aggressively take over the California market with our brands.

Green Market Report:

You guys are doubling down on California?

Farrar:

California is the cannabis capital of the world, no doubt, right? I mean it represents about 27% of the U.S. Market. Los Angeles alone probably represents 10% of the national market. And so not only is California a cultural capital for a lot of things, but it’s really the cultural capital for cannabis. There’s a reason the saying is, So goes California, so goes the nation. Our belief is that if we can dominate and succeed in California a few years out when the walls come down, we’ll be able to dominate and succeed across the country and across the globe.

Green Market Report:

Got it. What do you think the year ahead brings? Any predictions?

Farrar:

I’m really excited about 2020. I think it’s going to be a year where the regulated legal market really gels together. I mean, the reality is things are better. The California cannabis market is better now than it ever has been, right? I mean, it could be better and it will be better. The end of 2020 will have more retail stores than it does today, but right now, there are more people that consider themselves cannabis consumers than ever in history. So I think we are poised for a really exciting 2020. I’m excited about the opportunity that we have.

Farrar:

I’m excited about the pieces that we’ve been putting together over the last five years, clicking in and the ignition keys being turned like we had with our new farm, to go from 150,000 square feet to half a million square feet is a huge step forward. The extraction lab to go along with it, the expanded retail stores to support the products and be a touchpoint in the connection with the consumer. I mean, everything is up and to the right as far as we’re looking at. So really excited to be in California and be in the position that we’re in California.

I mean, I think it’s important for people to understand that the cannabis industry and cannabis investing are two different things, right? So the cannabis industry is phenomenal. It is the best it’s ever been. More people are coming into the market as consumers. It’s worth remembering that we know that people want cannabis. Consumers have been buying cannabis since the price was going to jail, and now that’s not the price anymore, so from that point of view, it is hands down the best it’s ever been.

Now that’s separate from what may be happening in the stock market. Take the stock market and all the investing away, the cannabis consumer will build the cannabis industry. All that equity and investing does is help us build it quicker. And so when we come back and realize that the fundamentals of this industry are strong and only improving and the best they’ve ever been, that’s what makes me really excited about what we’re doing. And that’s where you need to keep your eye when you’re thinking about equity, investing, and the industry and where it’s going.