Unpaid Bills Still Systemic Problem in California, Glass House CEO Says

Kazan: '2023 is going to be a shakeout year here in California.'

Difficult market conditions in California are driving more cannabis operators leave many vendors unpaid, said Glass House Brands (OTC:GLASF) CEO Kyle Kazan during the company’s earnings call on Monday.

“Many dispensaries are not paying their bills on time and all branded players are facing a daily decision of whether or not to sell to dispensaries that have a compromised ability to pay,” Kazan said. “Furthermore, the worst is likely yet to come.”

Kazan shared that one distributor told him that about 35% of the retailers the distributor ships products for “are currently on some degree of credit hold,” and that “at times this year, the number was up to 85% of retail accounts, which were on hold. Yes, 85%.”

Not only that, but a change in state law that will give retailers access to more immediate cash – in the form of excise taxes they’re now required to collect and remit to the state – will lead to a “reckoning” when tax bills come due, Kazan said.

Instead of setting that money aside for tax collectors, some retailers are using that money to finance operations. As of December, the industry as a whole owed the state more than $250 million.

“2023 is going to be a shakeout year here in California,” Kazan predicted.

The situation points toward one thing: more contraction, distressed assets, and companies exiting, Kazan said, which already is happening in the cultivation sector.

“At some point, the merry-go-round will have to stop, and some players will be forced to exit the market as has been happening on the cultivation side,” Kazan said. “Since the beginning of July 2022, through the end of February, the number of cultivation licenses in the state of California has dropped by over 1,200.”

Later in the earnings call, CFO Mark Vendetti disclosed that the company just paid off $3.9 million in back taxes to the state and federal governments in Q4 last year, and remarked, “We are among a handful of cannabis companies that have been consistently paying their tax liabilities.”

Vendetti also noted that because Glass House is expecting a “difficult retail landscape” in the coming year, the company reduced its CPG revenue projections to $25 million, down from $35 million, and retail guidance down to $50 million from $65 million.

“There’s 1,000 places that you can buy a joint, right? And of those, 400 or so are actually paying (their bills) on time,” Vendetti said.

Ironically, the exit of so many licensed cultivators has resulted in a major uptick of demand for Glass House by brands and manufacturers that want raw cannabis for their edibles, pre-rolls, and other products.

“There is a massive supply-demand component that has now flipped where there’s just massive demand and not nearly enough supply,” Kazan said. “I probably had six calls last week that were just out of the blue coming to me, and that doesn’t usually happen. … The demand is just incredible right now.”

John Schroyer

John Schroyer has been a reporter since 2006, initially with a focus on politics, and covered the 2012 Colorado campaign to legalize marijuana. He has written about the cannabis industry specifically since 2014, after being on hand for the first-ever legal cannabis sales on New Year’s Day that year in Denver. John has covered subsequent marijuana market launches in California and Illinois, has written about every aspect of the marijuana trade, and was part of the team that built the cannabis industry’s first-ever trade show, MJBizCon. He joined Green Market Report in 2022.


One comment

  • Michael

    March 31, 2023 at 9:40 am

    Yes sir, 2023 is going to be a shake out the cannabis businesses everywhere. The taxing and regulating authorities are not going to lower fees and curtail regulations hence no help there. Supply and demand works every time and what I see is supply on a rocket ship to the stars with no increase in demand. When the price of pot falls, say 30%, then what? Can we all inhale and say death spiral.

    Reply

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