Legal cannabis farming space in California is set to shrink dramatically.
The amount of legal cannabis farming space in California is set to shrink dramatically this year, and Glass House Brands stands poised to seize more market share as competing growers exit the industry, CEO Kyle Kazan said this past week during the company’s most recent earnings call.
“We estimate that from June 2022 through the end of April, licensed California cultivation capacity has fallen by more than 16 million square feet of canopy representing about a 21% reduction in acreage under cultivation,” Kazan said, adding that “523 cultivation licenses are up for renewal in May and another 1,075 in June, meaning that one in four active licenses in California are up for renewal in the next 60 days.”
Not only that, but Kazan pointed out that the current “provisional” licenses for grows over 22,000 square feet are set to be phased out, and that unless those businesses are able to obtain full “annual” licensure, they’ll be shut out of the legal market because their provisional permits will no longer be renewed by regulators.
“In Monterey County, for example, only about 10% of the farms had converted as of the end of March, and in Mendocino County, only 1.5% had converted,” Kazan said.
On top of that, there’s brand contraction happening at the same time, said Glass House CFO Mark Vendetti during the call.
“We calculate there were 171 less brands with revenue of at least $10,000 per Q1 2023 than in Q3 2022, a reduction of 15%,” Vendetti said, adding that many non-vertically-integrated companies are “dealing with retailers who are not paying.”
“They are getting squeezed on both cost and incoming cash collection,” Vendetti said, noting that Glass House’s vertical integration has become a major asset in such an environment.
The ongoing market contraction is actively happening on a weekly basis, emphasized Glass House President Graham Farrar.
“In the first two weeks of May, we have seen 107 licenses that have left already,” Farrar said, referring to cultivators that let their grow permits lapse. “So that’s — those are typically 10,000 square foot licenses. So basically in the last two weeks, we have seen another 1 million square feet of supply that is not renewed and falling out of the market. So the trend continues.” (Full Story)