I’ve been playing around with these financial statements for awhile now. Despite the complexity of Glasshouse’ ($GLAS.A.U) initiation, the underlying financial statements are largely straightforward…..and relatively ‘clean’. We’ll get to them shortly.

You’ll recall Mercer Park’s ($BRND.A.u) move on them last December – a part of their own SPAC process – to merge Glasshouse with GH Group.

$GLAS.A.U/$BRND.A.u recently acknowledged the business combination, and subsequent issue of the ‘largest brand building platform in California’ (which de-SPAC-ed $GLAS.A.U) You might recall the transaction was expected to leave Glassshouse with some $266MM in cash. That didn’t work out: redemptions hit ~=$200MM as interest in the cannabis sector (and SPACs specifically) began to cool off. Those folks who redeemed will continue to hold warrants on the entity.

There was a transaction made subsequent to these financials (June 29th) with Preferred Shares and warrants going out, which triggered conversion of $35MM in Promissory Notes. Prior to this, $GLAS.A.U would have been expected to be holding about $120MM once the dust settles:

The cash balance is important for more than just $GLAS.A.U, as $BRND.A.u needs to be packing as well, since the deal with $GLAS was done for paper, which, got smaller vis a vis those redemptions:

If this appears esoteric: it’s because it is. There’s optionality littered throughout the capital structure(s) and underlying asset transactions…and there’s contingencies nested not only upon operations, but on equity price as well.

A brief move by The Parent Company ($GRAM.U) to inject $50MM into Glasshouse lasted a whole 6 weeks before it was kiboshed unceremoniously in early July, with no reason provided. Perhaps $GRAM.U saw the money evaporating, and didn’t want theirs evaporating too. All supposition here, but I suspect $TPCO has their hands full building a business as it is.

Let’s have a look at $GLAS.A.U’s financials. Their second quarter is due in 2 weeks, and the buzz around this company – and wider SPAC world – is high right now. All dollars in USD unless otherwise noted.

To the financials!

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• $11MM in cash on their books. That’ll change. Inventory a modest $9MM, 50% of that in raw materials.
• Relatively thin revenue base, with 30% of total sales coming from 2 customers. Speaking of revenue base….
• $15MM in sales for the quarter, a composite of wholesale and their own vertical revenues from their 4 dispensaries. They claim to have distribution but I can’t find a list of stores where its’ carried. They do delivery as well.
• Quick complaint: the MD&A and its’ narrative is awful.
• They claim retail sales are up $1.6MM YoY. Taking this apart – current revenue is up $8.8MM YoY, meaning wholesale picked up $7.2MM of the total. If we apply the same sales ratio – that implies their 4 dispensaries are running at ~=$227k/mo/store, and that’s with delivery.
• Sounds like California alright.
• Where this strikes me is in the reported overall gross margin of 35%. It was 23% a year prior, the improvement attributed to enhancement in processes and cultivation.
• Yet with an implies sales blend of 20%/80% retail/wholesale, if one assumes a 50% margin at retail, that implies wholesale is running ~=31% margin. It’s hard to pull much out of these financials without assumptions.
• G&A a steep $5.8MM, while Sales and Marketing is a modest $400k. Looks like they don’t push terribly hard outside of their digital presence, but that G&A is unkind. Salary cost increased 14% for every new dollar of revenue YoY, which is a dial to watch.
• Given their footprint, PP&E at $35MM isn’t much. But they claim to have had 390k ft² in production at the end of 2020 (beginning the prior year with 130k ft²). If so, I’d expect a significant harvest coming online during the next financials. Another dial to look for.
• Professional fees are steep at $1.1MM/mo, expected with all of the engagement with Mercer Park.
• They disposed of something called the Field Group, which $GLAS.A.U bought for an undisclosed amount in August 2019. They report getting nothing for it, and taking a $6MM loss. Interestingly, it looks like Serruya Private Equity helped put $6MM into Field a year earlier via private placement.
• Looks like one of the executive owns a dispensary (or perhaps a cultivation site), and is leasing it to $GLAS. The storefronts are cheap ($100k/mo), which also implies they’ve got some hard leak in that gross margin somewhere.
• At a guess, it points to pricy cultivation on a per gram basis. Very little disclosure present.
• 63MM stock options at $0.24 expiring in 2029, 2030, and 2031. Yep. You read that right.
• 2MM warrants at $0.16 expiring in 2023.
• ‘Magu Capital’ is a related party, which there are several live deals with. Looks like several of Glasshouse’ principals are involved. I’ll look at it next time, those stock options have just given me a headache.

Ok. I’m going to stop there.

The last dispensary they picked up cost some $5.8MM, which was $200k higher than $GLAS.A.U attributed to Goodwill and Intangibles. Across many companies in-sector, these properties have demonstrated the same time and time again. The intangibles are all about the licence; the goodwill being what it costs to make someone part with it.

Notable, only because they claim they’ll have another 23 storefronts in production by the start of 2022. An aggressive estimate for build.

There’s enough around this thing to be digesting for a week. Operationally, it looks like a genuine ‘whoopee shit’ at this point, and I don’t know how much value I can genuinely bring without a couple more data points.

Until Q2.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. The author holds no position in any of the companies mentioned.