Get Out of Glass House Brands

Glass House Brands (GLASF) closed last night at $7.25. This is a lot higher than where it was when I explained in July why I don't like it after it had plunged following the ICE raid, but it is down from when I discussed its Q2 here in mid-August. I concluded in that piece that it was too expensive. Well, the company reports this evening after the close, and I still don't like it.

The Glass House Brands Chart

GLASF has rallied by 25% from its year-end close of $5.80. This gain compared to the Global Cannabis Stock Index declining 2.8% to 6.69. MSOS has increased 16.8% to $4.45. Here is the six-month chart of GLASF:

The stock is way up from the April low pf $3.80, but it is also down substantially from the recent peak of $9.75.

What Is Expected for Q3

According to Koyfin, analysts are expecting revenue to decline substantially to $36 million, a fall of 44%. Adjusted EBITDA is projected to fall from $20.4 million a year ago to -$2.3 million.

What is going on is related to the ICE raid from this summer and was communicated to investors and analysts on the Q2 call. What is more important for investors is how sales and earnings will pan out over time. Currently, the three analysts are projecting that revenue will fall 4% in 2025 to $193.6 million and then rise 32% to $255.2 million in 2026. Adjusted EBITDA is expected by them to be down 37% in 2025 to $25.3 million and then rise by 86% in 2026 to $47.1 million. EPS are expected to be -$0.38 in 2025 and then -$0.26 in 2026. This compared to $0.01 in 2024 and positive EPS year-to-date so far.

The Challenges

Glass House commands interest from investors for many reasons, some of which are not really something to bet on yet. 280E taxation elimination may happen, and this would be very helpful, but it's been three months since Trump discussed rescheduling and nothing has yet happened. If 280E taxation remains, it will be bad for American cannabis companies, including Glass House.

Another problem is that the company has been talking up potential entry into hemp. Whoops! The federal government is in the process of making hemp-based THC products illegal. This may not happen, but, if it does, it takes away a potential growth driver and pivot.

The Valuation Is Too High

As I discussed three months ago, GLASF seems awfully expensive. If there are 81.4 million shares, as I explained, the market cap is currently $590 million. way above the tangible book value. At least there is tangible book value! The enterprise value (market cap less net debt) is 13X the current projected adjusted EBITDA for 2026, which is well above peers.

Conclusion

I don't yet include Glass House on my Focus List at 420 Investor, but it is in the Global Cannabis Stock Index. I definitely keep an eye on it. For those that hold it, they should consider exiting it.