Nov 11, 2021
Operator
Good afternoon. Thank you for standing by.
Welcome to the Glass House Brands Third Quarter 2021 Investors Call. I would now like to hand the call -- handle the conference call over to Mr.
John Brebeck, Glass House Brands, Vice President of Investor Relations. Please, go ahead.
John Brebeck
Thank you. I'd like to welcome everyone to Glass House Brands third quarter 2021 conference call for the three-month period ending September 30, 2021.
Listeners are reminded that certain matters discussed in today's conference call or answers that may be given to questions asked could constitute forward-looking statements that are subject to the risks and uncertainties relating to Glass House Brands’ future, financial or business performance. Actual results could differ materially from those anticipated in these forward-looking statements.
The risk factors that may affect results are detailed in Glass House Brands periodic filings and registration statements. These documents may be accessed via the SEDAR database.
I’d like to remind everyone that this call is being recorded today, Thursday, November 11, 2021. And I would now like to introduce Mr.
Kyle Kazan, Chairman and Chief Executive Officer of Glass House Brands. Kyle, please go ahead.
Kyle Kazan
Good afternoon, everyone and thank you for joining us for today's call. Today, I would like to take a few minutes to review our strategic priorities and provide an overview of our business positioning and will give an update on our facilities.
Mark Vendetti, our Chief Financial Officer, will then discuss our financial results for the quarter in details. Following which, Mark, Graham Farrar, our President and I, will take your questions.
First, I'd like to address the California market. As we are an SSO, a super state operator, which only operates in the Golden State, it is important to understand that environment in every aspect of our vertically integrated company, is facing challenges that we expect the markets and the rest of the country to also eventually experience.
The flower market is going through the long awaited commoditization, much like Oregon, Colorado and Washington experienced. It is important to note that everything we were experiencing was expected.
But as with all markets, timing is the most difficult aspect to prediction. We have positioned ourselves as a company accordingly and will be discussing throughout how we are weathering the storm.
Suffice to say, we believe, like other markets which mature, there will be a large shakeout that will position the strongest companies to lead the largest market in the United States, and the ones synonymous with premium cannabis. Our vision since inception has been to become the largest cannabis brand building platform in California.
This vision guides everything we do, and during our most recent quarter, we executed on a number of key strategic objectives, building on our solid foundation and strengthening our position as one of the leading companies in the world's largest cannabis market. We have identified three key pillars to support our branded CPG strategy; increasing scale and cultivation capacity, expanding our own retail footprint and building a world-class leadership team.
Towards that end, I'm pleased to announce that our brands have continued to grow in both units and dollars through this quarter and that our Glass House Farms flower brand is the number one brand in California in the third quarter of 2021, a country's largest market according to BDSA data. It minds us that producing best-in-class flower at industry-leading costs is always a winning strategy.
In regards to our first pillar, increasing scale and cultivation capacity, I’m thrilled to share that since our last call we closed on our 5.5 million square foot SoCal Cultivation Facility, which provides us with the size and scale necessary to grow the highest quality craft cannabis with the lowest cost production and to do so in a sustainable, environmentally friendly manner. We're also able to reduce the cash, purchase price to $93 million, keeping an additional $25 million of cash on our balance sheet.
Currently, we operate one of the strongest wholesale networks in the state with best in class cultivation processes, and highly efficient cost structures, employing an operational canopy of over 300,000 square feet on our current 500,000 square foot Greenhouse footprint. Expect to produce itself over 90,000 pounds of dry equivalent biomass this year at a very competitive cost reduction this quarter of $179 a pound, prior to bringing on a new SoCal facility, which we anticipate will eventually allow us to bring our cost reduction down to $100 per pound.
Phase 1 expansion of the SoCal facility is expected to increase our Greenhouse footprint by approximately 1.6 million square feet by the end of 2022, with a targeted long-term footprint of 6 million square feet. With this expanded capacity, we will operate the largest and most efficient cultivation facility in California by far.
And we'll be well positioned to supply across the country once that opportunity arises. The second pillar of our strategy is the expansion of our own retail footprint.
Regarding our partnership with Element 7, we announced last week that our subsidiary GH Group Incorporated this filed suit in superior court for the county of Los Angeles, Central District against Element 7 and its principles and owners for claims arising from Element 7 conduct instance the merger and exchange agreement entered into between GH Group and Element 7 in February of this year. Additionally, in conjunction with this announcement, we inform the market, we are terminating the license development consulting agreement between the two parties for cost.
The purpose of this suit is to enforce transfer of the 70 contractually committed licenses of which three have been transferred to-date. We're very confident that our suit will prevail and enforce the transfer of the remaining 14 retail licenses.
Unfortunately, we are unable to comment further at this time, due to legal considerations, for the further information, please see the press release on our website. Our goal is unchanged.
We intend to operate the largest retail footprint in the state to create exceptional retail experiences for our customers. We currently operate four dispensaries and are well positioned to continue investing in and expanding our retail presence.
We will continue developing the facilities for five new licenses, our two new Santa Barbara licenses and the three licenses in Dunsmuir, Hesperia and Eureka that were acquired from Element 7. This will get us to a total of nine retail facilities.
We continue to work tirelessly to scale our retail network via acquisitions, new licensed wins or partnerships with the expectation of having good news to share soon. The synergy between retail and our brands is clear.
We have historically sold almost 15x more volume of our Glass House brands in stores we operate versus non-Glass House operating stores. We currently plan to brand all five our new properties as pharmacy locations.
We expect to have them open before the end of the second quarter of 2022. Our two new Santa Barbara dispensaries will be in prime locations, where they are the sole dispensary and a limited license area and are being designed to provide a fabulous customer experience, an experience it has allowed us to garner multiple awards at our existing stores.
We can't wait to roll them out and I warmly invite all of our shareholders to visit them to get a feel for what we mean by the pharmacy branded experience. We are also excited about the Eureka location, which extends our retail reach into the heart of the Emerald Triangle, and the Dunsmuir location, which is located on Main Street in a beautiful old bank building in a town that views our dispensary as an attractive addition to a downtown area in the midst of a revival.
The third pillar of our growth strategy is establishing a world class manufacturing. During the quarter we were excited to welcome Erik Thoresen, as our new Chief Business Development Officer.
Erik, who is a CFO – CFA charterholder is spearheading our M&A activity and comes to us with previous cannabis experience from Harvest. He is playing a critical role, continue to roll out and scale our business.
We are also thrilled to recently announced Mark Vendetti, as our new Chief Financial Officer. Mark brings a wealth of experience as a CFO in the public markets and a work history across several different sectors including retail, manufacturing, consumer goods, e-commerce, and the cannabis industry to list.
His vast knowledge and deep industry experience has already made Mark a strong addition to our team. Finally, I'm pleased to welcome John Brebeck, to the team, who everyone here should get to know as our Vice President of Investor Relations.
Who recognize that this was a need for us as a newly listed company, having spent his entire career in the public markets, most recently in Capital Market Advisory for public companies. John brings a vast breadth of knowledge from the institutional investment community to the Glass House team.
Working closely with our CFO, Mark Vendetti, he has provided a huge boost to our investor outreach program. We have taken important steps towards providing additional transparency to investors about our operating metrics this quarter.
For the first time we have included a detailed sales breakdown of our retail, wholesale PPG and wholesale biomass sales in our earnings release. We have also included operational canopy, Equivalent Dry Pound Production and Cost Per Equivalent Dry Pound Production.
This will make tracking our progress easier for all. Our CPG business continues to perform extremely well, especially in the flower category.
Flowers are the largest segment in the California market and accounted for approximately 37% of sales in the state in the third quarter of 2021. At the end of the quarter, we had approximately 471 retail doors in our CPG distribution network.
Our position in the market was developed very quickly in less than 24 months. And we see it as a testament to a formula we intend to continue to expand, the highest quality at the lowest cost.
We also recently launched a line of live resin- and diamond-infused prerolls, which are 100% internally sourced to reach consumers looking for potent, fast-onset highs. Looking briefly at the third quarter before Mark provides a more in depth review during his remarks, we generated net sales of $17.2 million.
I'd like to provide some context on this number and the market challenges we faced, which caused a sequential decrease in revenue, despite strong growth in the volume of our sales. Revenue during the quarter was largely impacted by a 48% year-over-year and 33% quarter-over-quarter drop in wholesale flower prices, as a results of overproduction in the market.
While we expect the weakness in pricing to persist in the near-term, we are confident in the strength of our efficient operating model and the ability of our team to navigate a rapidly changing industry. In this growing and crowded market, we believe that the best-in-class operators will be those they're able to produce the high quality of scale to lowest cost of production.
We announced in September that we have completed the acquisition of our state-of-the-art SoCal Greenhouse Facility. Located in Camarillo, it was operating as a tomato farm and consists of six high-tech environmentally controlled greenhouses, totaling 5.5 million square feet on 160 acre property in Ventura County, California.
It is equipped with approximately 125 acres of ultra high-tech and efficient KUBO greenhouses and onsite well and water treatment facilities, automated roof washing systems, supplemental lights, advanced climate control systems, both solar and natural gas cogeneration facilities producing over 14 megawatts of power, heat and CO2. The farm was designed and built to operate in a very low margin vegetable production environment.
We intend to bring that same operational approach to Canada's. Construction of the new facility began within days of closing on the property in September.
Phase 1 of the construction includes an approximately 500,000 square feet nursery and propagation facility with ebb and flood systems to allow for efficient automated plant handling and approximately 900,000 square foot Kubo Ultra Clima high efficiency greenhouse, which will add approximately 600,000 square feet of new flower canopy to the Company's existing operational footprint. In addition, we are constructing a processing center and a new distribution center to support Phase 1 of the SoCal Facility and the future retrofit of the remaining four greenhouses.
Company is also rapidly moving ahead with required licensing of the SoCal Facility. We've already received Cannabis Zoning Clearance from the local municipality and having completed and submitted all California State license applications needed for Phase 1 operations.
We expect cultivation activities to commence by the second quarter of 2022 and the first harvest and sale of cannabis from the facility to occur in the second half of 2022. Once initial phase is completed, we expect to produce additional 180,000 right pounds of sellable cannabis representing approximately 200% increase from our current capacity.
On a very positive note, in looking at our existing facilities, we saw an increase of 22% in dry weight production sequentially with productivity significantly improved. Our cultivation team, led by Graham Farrar, solved many of the production issues which we shared in our second quarter earnings call.
We attribute the productivity gains to the new roofs installed the Padaro and the expansion of post harvest processing capacity. Despite market pricing condition, demand has remained strong with more dry weight sold than ever before in Glass House history.
Between our current facilities and our newest SoCal facility preparing to come online in 2022, we believe we are ideally positioned to lead the California cannabis market with the lowest costs. One of the things that we have been reminded us in the current market is how much quality matters, because even in this very challenging market, we have maintained the pricing of our CPG products and continue to sell record volumes of our biomass in the wholesale market.
We are very excited to be positioned to produce some of the highest quality craft cannabis to meet customer demands and support the expansion of our business. I want to share that as one of the largest investors in Glass House brands and a longtime value investor, I am excited to have entered this stage of the market.
It will bring many compelling opportunities on the M&A front, which will be perfectly suited to our large and growing footprint in California. With that, I will turn the call over to Mark to review of our financials predictions.
Mark?
Mark Vendetti
Thanks Kyle, and good afternoon, and nice to meet everyone. As a reminder, the result I will be sharing today can be found in our financial statements and MD&A which are reported in US dollars and prepared in US GAAP.
Total revenue for the third quarter of 2021 was $17.2 million, an increase of 29% year over year. The wholesale of CPG business was the key engine of revenue growth, increasing 103%.
It was driven primarily by the Glass House Farms brands which almost tripled in revenue compared to the prior year period. Successful marketing and distribution of the product as well as the large increase in canopy under operation, mainly from our Padaro facility supported the growth, sequentially CPG grew 14% which came in the face of a high single digit decline in the California retail market based on BDSA data.
Wholesale biomass revenue fell 18%, despite a more than doubling unit volume sales as our wholesale prices fell by 48%, negatively impacting revenue by $4.1 million. Sequentially biomass revenue increased 19% from $6.2 million in Q2 to $5 million in Q3.
Wholesale flour prices fell 33% sequentially affecting biomass revenues by $1.6 million. Retail is our B2C business selling packaged goods products to end consumers through the retail stores we control and retail revenues increased by $1.4 million or 37% versus a year ago, with the addition of our grocery store which opened in Q1, 2020, but revenue declined 18% sequentially.
I would like to remind our listeners that our Q2 retail revenue results contain modifications to our loyalty program that resulted in a onetime favorable adjustment to revenue that advances Q2 revenues by $1 million versus Q3, with all this affect the sequential decline in Q3 retail revenues would have been 4% which outperformed the overall market. Our Los Angeles based dispensary, the pottery is reported as an equity method investment given its current ownership structure and therefore is not consolidated within retail revenue.
So, profits for the quarter was $2.4 million or 40% gross margin, compared with a gross profit of $5 million or 37% gross margin in Q3, 2020. The decrease in gross margin was driven by the fall in wholesale cannabis prices as well as inventory valuation adjustments.
In Q3, 2021 total operating expenses increased by $5.8 million year over year to $11.9 million compared to total operating expenses of $6.1 billion in Q3, 2020. General and Administrative expenses increased $3.8 million year over year to $8.5 million.
The increase was largely a result of stock based compensation increasing $2.5 million, increased insurance costs and cost to support operational expansion, as well as professional service fees related to the SoCal expansion and our large retail footprint which increased $1.3 million a year over year. Sales and marketing expenses increase $600,000 year over year to $900,000 with additional investment in digital media, consumer and retail education, brand events and activation.
This is an area we intend to continue to focus on as we build our brand and product portfolio. We define adjusted EBITDA is earnings before interest taxes, depreciation and amortization, adjusted per transaction costs, restructuring costs, share based compensation and other non-cash operating costs.
Adjusted EBITDA for the quarter was a loss of $5.4 million compared $0.2 million in Q3 2020. The decrease in adjusted EBITDA was primarily due to lower gross profit and higher operating expenses.
Year-to-date Q3 2020 adjusted EBITDA was $2.6 million loss versus a loss of $1.4 million in Q3 2020. We ended the quarter with 28.9 million in quarter-end cash and a solid balance sheet, which has us welcome position to continue to execute on our growth strategy.
Additionally, we are actively evaluating additional resources of capital to help you, our future growth opportunity in plan CapEx investments. I'd like to provide further color into the purchase costs for the south SoCal property, in addition to the $93 million of cash as additional consideration, the company issued 6.5 million shares valued at $29 million at the time, and an additional $35 million in earn-outs to be paid of certain milestones are met bringing the total purchase price to $157 million.
Looking ahead, we would like to provide guidance for investors. We no longer expect to achieve the 2021 and 2022 projections, provided in the outlook section of our de-SPAC and listing perspectives.
Factors include the dramatic drop in cannabis pricing that has occurred in recent months, the delay in closing the purchase of the SoCal facility versus our original expectations, and the developments noted in its November 4th, press release regarding Element 7. The Company anticipates Q4 2021 revenues to be flat to down slightly compared to Q3 2021 revenues of $17.2 million.
This outlook assumes that the current difficult operating conditions in California will remain unchanged at least through the end of the calendar year, with no improvement in Cannabis wholesale prices, as well as a continuation of the sequential trend from Q3 of flat to declining California retail sales. Regarding the operating outlook for 2022, we plan to provide some basic guidance during our Q4 2021 results call, -- Q4 2021 results call, at which time our budgeting process for 2022 will be complete and Q1 2022 operating conditions in the California cannabis market will be known.
I would now like to turn it back over to Kyle for some special announcements.
Kyle Kazan
Thanks Mark. I would like to draw your attention to the third quarter 2021 operational highlights section for a press release.
It includes a link to a video that shows the impressive scale and ultra high tech greenhouses at our SoCal facility. We are working on more content to share the progress that a renovation team has already made in the less than one month, since we began our Phase 1 retrofit and look forward to posting it on our website very soon.
We are excited to announce that our Annual Shareholders Meeting will be held this summer at our SoCal facility, directly followed by our First Annual Glass House Fest to celebrate the cannabis culture that was born in California so many years ago. I'd like to invite and encourage all shareholders to participate in both events, where you'll be able to enjoy our products and meet the members of our executive team.
Graham Farrar, our President and Chief Cannabis Officer will guide can't miss tour of the SoCal facility. We’ll have samples and products on hand.
Stay tuned for more detail on this event which will feature fun, foods, music, cannabis, of course, special merchandise and much, much more. With that, I'll turn the call over back to John Brebeck.
John Brebeck
Thank you, Kyle. I look forward to joining our shareholders, friends and family at this event.
At this point, I'd like to turn the call over to the operator to begin the question-and-answer portion of the call. Operator, turning it over to you.
Operator
Thank you. Ladies and gentlemen, we will now begin the question-and-answer session.
[Operator Instructions] Your first question comes from Eric Des Lauriers from Craig-Hallum Capital Group. Please go ahead.
Eric Des Lauriers
All right, great. Thanks for taking my questions, guys.
So then a question on a near and long term strategy here. So California, of course known for leading cannabis brands, including from the legacy market, but one of the issues is finding trusted licensed partners to outsource production without risking product quality.
From my standpoint, that sounds like that kind of fits your guys's operations here. I understood you have your own brands, but as we start to think about your strategy for California and eventual interstate commerce, how do you think about contract growing?
Is that something you would entertain either in the near term or maybe after this -- after you bring the new facility in house, and how would you kind of describe your relationships with other brands here in that opportunity, just trying to kind of get a sense of the overall strategy here? Thanks.
Kyle Kazan
Yeah. So this is Kyle.
I would tell you that we're already having those conversations. We see that as a value add that we can add to especially the larger brands, because you're absolutely right, sourcing consistent product is difficult.
And if your brand, the worst thing that can happen is you're on a store shelf today that you're not on tomorrow and the retailer basically shuts you out because of it. So it's a problem that we recognize since we're vertically integrated.
And it's the salt that we bring it, so we anticipate that we will be announcing some deals in the not-too-distant future.
Graham Farrar
Eric, maybe I could add quickly to that too. This is Graham.
It's worth remembering that our background is actually in being a wholesale supplier to brands in the market. We started glasshouse firms about seven years ago and when we first started it was exclusively wholesale.
So we've carried a lot of those relationships forward and as we built our brand in parallel with that, we continue to be that kind of trusted provider for a lot of those brands, so many of the brands you know, actually have flour from us inside them. Our philosophy is quality, consistency and cost and that quality of course you got to do that got to do it right.
And then you got to do it right every time and that's really what makes a brand. So as Kyle mentioned, we've got a number of exciting conversations going on.
Now that we've able to expand our supply on the horizon, if we can't be the trusted supplier to help enable brand heavy asset light brands and we're doing something wrong and that's not our intention. So we got a lot of exciting stuff in the works on that.
Eric Des Lauriers
Right. That's great to hear.
And then just another kind of high level strategy question here. So, understand you guys are in a really strong position, both from cost and quality in California obviously the largest market here and obviously some stuff in the works to increase your retail reach here.
Should we think of this as really California only until interstate commerce or given some of the pricing pressures? Did you guys ever look beyond California, maybe either from a retail or, I would, doubt production, but can you just kind of help us understand your thinking of anything beyond California or if that's just post-interstate commerce opportunity for you guys?
Thanks.
Kyle Kazan
Yes. So this is Kyle again.
We've got a really talented kind of detailed cultivator of the world in [indiscernible] so we've had opportunities at different points to assist in cultivation other places and we've declined. We've also had opportunities in some of the neighboring states to participate and we decided that keep it a singular focus in on the largest market in the world.
California makes sense, partly because every state right now during prohibition doesn't allow interstate commerce. As much as we know interstate commerce will happen at some point.
The when is debatable. So our focus right now is purely California.
With the exception that at some point in the near future, we may be licensing some of our brands to other states, because we see that as an opportunity as people really like that California reputation.
Eric Des Lauriers
Makes sense to me. All right.
Thanks, guys and good luck.
Kyle Kazan
Hey, thank you for your -- thanks for listening in today and asking the questions.
Operator
Thank you. Your next question comes from Loren DeFalco from CB1 Capital.
Please go ahead.
Loren DeFalco
Hey, guys, thanks for taking my call. We've seen price compression on flower in Washington, Oregon.
And just curious, where do you guys think California is in that cycle and how bad is it going to get before it starts to improve as we saw in the other states?
Kyle Kazan
So thanks for the question, Loren. This is Kyle again.
And then I'll ask -- I'll answer one part that allows Graham to kind of share his opinion, because this is one of those ones where it's not purely -- it's not really science. It's more kind of a perspective.
I would tell you from being a long-term investor. I think it's great to take a look and see what's happened in other states, because it did create a big washout.
And now you see those states on good footing. I don't know how the pricing here goes.
Does it continue to climb for a while? I would suspect it does.
And I think the best thing we do is, we hope for the best and -- but we prepare for the worst. And I can't tell you how excited I am that so far, Graham and his licensing team up in Camarillo in Ventura, it's gone smoother than we'd hoped and so I’m knocking on my head right now that that continues because the sooner we can bring that on.
You heard where our COGS are now, you've heard we're hoping to take them and after walk in the farms with Graham for now couple years cannot wait to get that rolling, as it will dramatically lower our COGS. But as far as when, I would say, better to plan on it I think longer than it probably actually will be.
Graham, do you want to weigh in?
Graham Farrar
Yes, I think there's a couple points to that. One is I would say that we're getting fairly close to the to the bottom here.
We're now into October where we have outdoor plants coming down and one of the other metrics I see is that we've got basically price parity right now between California, Oregon, and Washington. And I don't really see a good justification for California prices dropping below those markets.
And we're seeing it in real-time. We're at currently picking up equipment at $0.50 on the dollar from farms who are stopping production, who have products that it's not worth them harvesting right now.
And I think if we were in a demand destruction environment, I would be concerned. I think we were in an overproduction environment, partially spurred by the COVID bump of last year, which had folks continuing to operate who, frankly, shouldn't be from an efficiency and scale perspective and I think markets are pretty good at correcting for overproduction, right?
And our whole strategy is ideal climate and the best facility with the best team to be able to survive and thrive regardless of what the market is. So, we know we can't control the market, but we can control what we grow, how well we grow it, and how efficiently we grow it.
And that's our entire strategy of investing to be able to do that better than everybody -- anybody else. So, I think our strategy, if anything, is proven by what's happening in the market that you need scale, you need efficiency, you need a team, you need a facility, you need to be in the right climate regions to be successful in this long-term.
And I think that this is long-term beneficial for us. This is going to drive consolidation which is what we've been betting on and building for since the beginning.
Loren DeFalco
Thank you.
Kyle Kazan
And one last point to make. Real quick when you have these down markets and this kind of pain, it creates an amazing opportunity for -- as Graham said consolidation or M&A.
And so, we are fixed for a number of different companies out there and they would be evaluated. So, we plan to use this painful time to our advantage and also to the advantage of some of the folks we're talking to.
So, we're super excited that we're going through this period. We knew what's coming, just now it's here.
Loren DeFalco
Thank you. You might answered part of what I'm about to ask and it's just in light of the price compression in California, the delay, the licenses and retail having issues and so on so forth.
Can just speak more of that value proposition for Glass House going forward?
Kyle Kazan
Yes, I would say that when you talk to the other folks in cannabis, some of the MSOs, they're quick to acknowledge California is the most difficult market. Licensing issues are never easy here.
Everything is a little bit more difficult. We have friends at other companies and they sort of laugh at some of them how they're able to work in their markets compared to us.
But that's all we know is what we have and so I would tell you that we're getting better and better in working in those markets. And we're also seeing that Colorado and Washington started in January of 2014.
We started in the rec market a little later than that. And so we're seeing some pressure ease, like for instance, our two set dispensaries, those licenses are going to come online on the shorter end of what we thought because some of -- what might have happened earlier, it hasn't happened and it's just -- it's I wouldn't call it breezing along, but I call it going on the fast end of the scale.
So, excited there. Graham, do you want to -- you want to chime in too please?
Graham Farrar
Yes, I mean, I think you nailed it. I mean, this environment creates opportunities to do what we intend to do.
I mean, our goal is to build a platform that we can build on and I think we're going to see a lot of brands and products and operations that need that platform. And then it's when things are fat, it's easy for everybody to play.
You can be a hobbyist and got good. You can be, you know, subscale 22,000 half acre square foot farm.
When things get tough is when you sort out who has the scale, the operational efficiency, the facilities to really kind of make it in the long-term. So I think, you know, what it's -- it's painful in the quarter by quarter basis.
I think over the year-over-year basis. The environment here is going to create some real opportunities for us to take advantage of.
Q -
Great. Thanks, guys.
I'll hop back into queue.
Operator
[Operator Instructions] And you next question does come from Alan Winston from Elle Investment [ph]. Please go ahead.
Unidentified Analyst
Hi, gentlemen. Thank you for the call.
Kyle Kazan
Operator, we can’t hear anything.
Operator
Yes. Unfortunately, we did lose him.
Your next question will come from Scott Fortune from ROTH Capital Partner. Please go ahead.
Scott Fortune
Good afternoon, and thanks for taking the questions. Can you expand a little bit, you talked about cooperation prices instead extend on the retail side the footprint.
Obviously you have some stores as they're under litigation right now but kind of how you looking at acquiring organic wins, kind of, accelerating the retail side and then also accelerating your expansion. I think you said you're in 475 doors.
How do you view that as we look forward going into 2020 expanding your retail opportunity from that standpoint?
Kyle Kazan
Well, Scott, thank you for the question. Appreciate that.
You know, what I would tell you is we watch the data from BDSA and headset. We also have a lot of friends in the market friendly competitors, I would say.
And we were a little bit surprised to see that year-over-year there's been a decline in the market. We're -- we can only guess guesstimate what that is.
I'm sure you have some thoughts as well. But I think it's really post-COVID, the world's sort of opening back up.
When in regards to increasing our retail footprint it is something we are going to do. We – the reason we brought our business development person in Eric at the C-suite level is that's how serious we take it.
And we decide that really pay up for that kind of talent and that kind of experience. And what -- if you're not vertically integrated, if you are just on the retail or just in the manufacturing, you're just you know in one area it is particularly hard not to have the vertical integration in the state.
And retail remember you also have to battle to 280E IRS code. So we're finding there are some very interesting retail targets.
We are in conversations with a number. Nothing to announce at this point.
But we see them as a value add to us. And we -- and they're seeing us as a value add to them.
So it's one of those things where it's not a hard conversation to have. Obviously, there's negotiations about certain things, but at the end of the day, I think you're going to see more consolidation and the benefits to some of the folks we're talking to, they already have open stores.
So while we're building out that takes some time, and typically my rule of thumb is, you don't really hit your full stride until the sixth quarter. So there is an advantage if you can actually bring in some already operating stores.
And by the way, when our brands are on our store shelves, I mentioned earlier, we sell almost 15 times as many of our products on our shelves than we do on the outer shelves, the shelves that say neighboring stores, and so that's a huge -- as a brand builder that's a massive -- that's fantastic for us.
Graham Farrar
Yeah, I think Scott…
Scott Fortune
I appreciate the color. Maybe standing upon that Graham, on your stores and in the store metrics for a while, metrics that you're seeing in your stores, obviously, COVID put a little challenge in there, but kind of expectation there and the opportunity of improving your store yield from that standpoint?
Graham Farrar
Yeah, so I was just going to say I think, one of the things that's important to remember is we look at, what we call flat to declining as if that was on top of a regular year, it would be concerning, it was not on top of a regular year, right, it was on top of a COVID year where we saw 54% and 46 and 35% growth on a year-over-year basis. So we took a huge jump up now and I would you know, it's almost like we're just in the market, right.
You get a big run up and you take a little breather. So, I think we're seeing a back off of that trend and I would call it return to normal or version to the mean, right as people have spent a lot of time sitting on their couch watching Netflix, smoking joints, and now they're back to travel and restaurants and things like that.
But we're still seeing year-over-year, its still growth, right? It's just 2% growth and 20 -- instead of 30% growth, right.
So I think overall we're going to catch back up and continue the trend that we were on and it's important to remember is flat to declining in the market. Our stores beat that trend, right.
So if you normalize out the market, you will see our stores still growing relative to the background, the market background trends. So overall, I think making good progress on retail against the slight downdraft in the broader market.
And again, continuing to see acceleration of our brands on our shelves, right. So we're currently tracking somewhere around 24%, 25% of the revenue coming out of our stores and our products.
And we're still not even in all the categories, right, it's something that we certainly intend to do. So that's 25% for flower only when we add edibles, we expect that to grow, right, when we add other infused -- pre-rolls, which we just launched and they're just starting to take hold and growing rapidly.
We've got smalls that are out now, we've got a number of brands in development. We got a number of exciting M&A conversations going on.
So we really, really continue to believe and be confident in that synergy that we're building between large scale, high quality, low cost cultivation, turned into products and then sold in our retail shelves and think that that formula is a really durable competitive advantage that we're building that will last far into the future for us.
Kyle Kazan
I was going to say -- competitive advantage. You cut me to the chase.
Scott Fortune
Thanks, thanks for the color and continue to move forward obviously.
Graham Farrar
Thanks Scott.
Kyle Kazan
Yeah, thanks.
Operator
Your last question comes from Alan Winston from Elle Investment [ph]. Please go ahead.
Unidentified Analyst
Gentlemen, can you hear me now?
Kyle Kazan
We can hear you Alan?
Mark Vendetti
We got you.
Unidentified Analyst
Okay, good. Sorry about that technical problem before.
I have a quick two-part question; one looking back, and one looking forward. When you guys decided to become a Public Company, and de-SPAC, I'm sure you probably had many opportunities with MSOs who are interested in getting a footprint in California.
Can you talk a little bit about your decision to stay dependent as an SSO? And then part two of the question is, when you think about the long term vision for Glass House and the company, can you talk about, how do you see monetizing all the value you've built in the company and ultimately, it paying off for long term shareholders like us?
Kyle Kazan
Sure Alan. Let me -- I'll take one shot and then I'll ask my co-founder Graham to take a shot.
I too, in the long term shareholder -- look, I think as the largest investor coming into the dispatch transaction. There is no perfect situation to invest in prohibition cannabis.
The advantage to being a superstate operator in the largest market in the world, California, is that, someday when the walls come down, and I would imagine, as part to your question, let's say companies from outside of cannabis, very large alcohol, tobacco, pharmaceutical CPG decide to make acquisitions or make offers. When you look at MSO, and let's say, you're vertically integrated in 25 states, there is no other industry that has 25-state vertical integration.
So there's going to be a cleanup that every one of those MSOs are going to have to do to drive efficiency or else they are going to have some real problems. And so, I would expect that there's going to be some write downs and there's going to be just clean us.
Us being in California, we don't have that. Right now, our focus is just building a very, very large platform in the state that we think has that appellation, much like tequila, Mexico has tequila champagne, France has champagne.
We see California having a very special appellation, so -- and I want to answer part two just yet. I'm just going to say that, yes; we talked to a lot of people.
Yes, we considered some very interesting options. And we felt that the de-SPAC opportunity with Mercer Park was the best opportunity for us and just help accomplish you know what Graham and I -- had envisioned, so but it came with a lot of inflation.
Graham?
Graham Farrar
Yeah, I think there's a couple of things that makes me think of. One is, I've got a favorite Warren Buffett quote right now, which is you don't buy a farm because you think it's going to rain next year, you buy a farm because you think it's a good value for the next 10 years.
And I think that's very much encapsulates how we're thinking of things here, right. I like to think back to the early days of Amazon, where for a long time, they ran very low margins and very low EBITDA because they were building and investing and really trying to create something of long term value and I think there's parallels to that and what we're doing here.
At this price range, purchasing a share a glass house stock is not too far away from the real estate value, and don't quote me on the exact number.
Unidentified Analyst
No, I totally.
Graham Farrar
Right. So, so you're almost a real estate value on a company that's playing for the long ball and in the ballpark, like relative like term lease.
I think what we're building right now is 2.5 to 3 times the size of term lease total combined cultivation footprint. You can buy us at 3% of their market cap, right.
So, we're thinking of where is this going to go and at some level, we believe in interstate commerce, I won't try and play the timing. Luckily, we're in California, fifth largest market and in the fifth largest economy in the world, a 25% of the US’s total market, right.
LA has more people in it and Colorado and Oregon combined, yet today has the same number of dispensaries, right. So there's this amazing upside within California.
And then the walls are going to come down and we think that the appellation of California from a brand building platform point of view, it's like a Cuban cigar. You can get cigars anywhere.
People give them the choice they pick a Cuban cigar. California has the advantage of it's a better place to grow.
Like there's a reason that 50% of the agriculture in the US comes from California. It's not because the land is cheaper, labor is easy.
It's because the other factors are so overwhelmingly good for cultivation and growing products that it overcomes those things, right and so now you have this beautiful place to grow, and a place that consumers across the country and in and around the world pay a premium for it. So at some point, someone's going to have to grow the cannabis for the country and eventually the world.
We think we've got the building blocks and a unicorn acid that happens to be the hardest market today. But long-term, it is the best place to grow and distribute and create cannabis brands from.
So the competition in California today is a challenge. But it also – it breeds excellence, right, like iron sharpens iron.
And this is not a place, where being number one means you're better than four or five other people. It is the place for being number one, means you're better than 1,600 other brands nipping at your heels and struggling for dominance and you're still winning, right.
And I think that's the long-term formula the way and they make it hard quarter. It makes a really exciting 10 years.
Unidentified Analyst
Good luck. Yes, I'm sorry, I'm with…
Mark Vendetti
In regards to your second question, when you said a long-term investor, I've been called a vulture of investor by Bloomberg magazine. I've been called value investor.
Typically, I look for the value of fronts. It's here, when it comes to the market.
But busted condo deals, I bought – I bought all kinds of things that need to reposition and whether it was from the RTC in the 90s or whether it was during the financial crisis. The timing is always hard to see when are we going to see that value?
When are we going to see the upswing and here a lot of this is going to be timed with what happens through the federal government. The sooner that happens, I think you're going to see the 99% plus, people that are not able or not willing to invest in cannabis to come on in, so what I would expect is for the companies that are run, right, that have good assets and a solid, a solid company.
I think you're going to see – I think you're going to see a very good demand for those companies. When capital comes and I would call this the biggest capital dislocation I have ever seen.
And I've thrived under much smaller capital dislocated markets.
Unidentified Analyst
I've been in the financial markets for about 40 years myself and I wouldn't disagree with anything you said. The only thing I would add is I hope you don't use your current stock price to make acquisitions, because the current valuation as your CFO said is below replacement value.
Mark Vendetti
I hear you, right. We're doing we can on that but we also have to continue to grow in the business too.
So that said, I hear you loud and clear as a investor myself, a very large equity holder. I know exactly what you're thinking and as I will just say, I hear you loud and clear.
Unidentified Analyst
All right. Well, thank you for taking my questions and good luck.
I’m with you all the way. Good luck, guys.
Thank you.
Mark Vendetti
Thank you, Al. I appreciate.
Kyle Kazan
Thank you.
Operator
There are no further questions at this time. You may please proceed.
Kyle Kazan
Yeah – So yeah -- oh here it is -- Thank you for joining us today I would like to take this opportunity to thank our team who has worked diligently to move forward with expanding our cultivation and distribution footprint, improve supply chain and production efficiencies and enhance our consumer brand profile. We look forward to speaking to you next year, we announce our fourth quarter results.
Have a great day. But before I say anything -- before I end the call.
I really want to make sure those two words are echoed from our board to every single person on the team. And that is, Thank you.
You guys have done a heck of a job in a challenging environment. Thank you.
Have a great day.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that you please disconnect your lines.