管理層發言
Good afternoon, ladies and gentlemen. Welcome to the Glass House Brands Second Quarter 2026 Earnings Call. Matters discussed during today's conference call may constitute forward-looking statements that are subject to risks and uncertainties related to Glass House Brands' future financial or business performance. Actual results could differ materially from those anticipated in those 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 also like to remind everyone that this call is being recorded today, Thursday, August 13, 2026. On today's call, we have Kyle Kazan, Co-Founder, Chairman and Chief Executive Officer of Glass House Brands; and Chief Financial Officer, Mark Vendetti. Following prepared remarks, management will open up the call to analyst questions. Also joining for questions is Graham Farrar, Co-Founder and President. And with that, I'll turn the call over to Kyle Kazan.
Good afternoon. Thank you, operator, and to all of you for joining today's call. For greater detail on results, please refer to our second quarter 2026 earnings press release. Before I discuss results, I want to acknowledge the quarter's landmark event within our industry, the rescheduling of medical cannabis to Schedule III in late April. This represents the most important drug reform in my lifetime and overdue common sense drug regulation. I applaud President Trump and his administration for progressing with this change and remain encouraged by the rapid response from administrators in both California and at the DEA in updating systems, opening new licenses and registrations. Changes made to date have not been just lip service. They appear to be designed to produce tangible results for industry participants and, more importantly, patients. We are confident that subsequent updates will lead to an eventual normalization of operations for consumers and cannabis operators. We are optimistic for further legislative progress to come in connection with the Administrative Law Judge or ALJ hearings regarding the rescheduling of adult-use cannabis, which concluded last month, and anticipate further regulatory updates from both the state of California and the DEA in coming months. With that said, while we favor freedom for the patients and plants, we at Glass House do not require adult-use rescheduling as we built in optionality. We are registered with the DEA and operate today under a Schedule III designation. We are confident that medical cannabis rescheduling is sufficient to support interstate commerce between companies with appropriately registered DEA licenses and export to international medical cannabis markets. The opening of interstate commerce and export dramatically expands our addressable market size and unlocks profitability and cash generation potential at a magnitude beyond what is achievable with exclusive California operations. California is the most difficult cannabis market on the planet, on account of fierce competition, high regulatory costs and taxes, and low wholesale prices, which come in large part from illicit competition. It also has the most discerning cannabis consumers in the world who know great marijuana. We survived and grew despite the challenge on account of our low-cost, large-scale production model and because, at our farms, we produce top-quality cannabis flower. In addition to our Allswell brand remaining a top seller in California measured by unit sales, we continue to win awards for quality in the state. In July, at the 2026 California State Fair Cannabis Awards, we won 17 individual awards within the Mixed Light Flower category, showcasing the quality and consistency of our cultivation. I take my hat off to the cultivation team because winning awards while competing with California growers who are the very best in the world is an amazing accomplishment. I would compare it to winning the MVP at the All-Star game. We are confident that our products will sell for premium prices in other markets, whether in other U.S. states or Europe. We know that consumers outside California want our and other California-grown products. And we know that continuing to win in our home state will be key to large demand for our products worldwide as the walls come down. In addition, we believe rescheduling will soon enable us to supply academic and research institutions with cannabis, assisting in their efforts to further unlock the therapeutic power of the plant. This includes our partners at UC Berkeley with whom we've been working on novel medical development with hemp for more than a year. To best take advantage of medical cannabis rescheduling, we have made significant changes to the business, our licenses and operating structure, including registering our cultivation and processing licenses with the DEA, as I mentioned previously, and converting all of our cultivation and processing licenses to state medical licenses. In addition, we completed a deconsolidation transaction whereby we fully separated our retail operations. Mark will discuss the direct impact on reported results later in the call, but our former retail business consisting of 10 stores is now a fully independent entity and our remaining business is now fully medically licensed and Schedule III compliant. The finance and legal team did an outstanding job in deconsolidating our legacy retail business. The deconsolidation resulted in our being able to uplist to the New York Stock Exchange. They are unsung heroes. I thank the retail team for their years of hard work and service. We still supply these stores, own a 90% economic interest in them and look forward to further collaboration in the future. They are on the front line with the most discerning cannabis consumers on the planet and serve them extremely well. In connection with the deconsolidation, we applied for and successfully uplisted our U.S. OTC-listed equity share to the New York Stock Exchange commencing trading on June 30 under our new ticker, GLAS. The listing reduces trading liquidity constraints for investors and reflects an important milestone for Glass House and the industry overall. We are proud of the listing and are excited to announce that our team will be in New York on the exchange floor for a bell-ringing ceremony on August 28. Turning to second quarter results, revenue was $47 million. I note that this is below guidance of $55 million to $60 million. However, our original guidance included retail revenue, which, as I mentioned, has been deconsolidated from results. Retail revenue through the date of deconsolidation was $10 million. Gross profit was $15.8 million, up from $4.1 million in the first quarter. Gross margin was up from 14% in the first quarter but down from 55% in the second quarter of 2025. The lower gross margin stemmed from an unfavorable trim mix, particularly later in the quarter, and slightly higher cost of production versus guidance. Retail gross margin through the date of deconsolidation was approximately 50% for the quarter. Adjusted EBITDA for the second quarter was $5.7 million. On the mix, there are three parts of the plant which are sold: the flower, smalls and trim. While all have value, flower and smalls drive the most, while trim, by far, the least. This quarter, our mix percentage of trim was meaningfully higher than our historical levels, better than quarter 1, but clearly off our best. There are three primary drivers of the current higher trim level. Coming out of last year's disruption, we replanted our greenhouses with strains that we were able to source quickly rather than the varieties we would have normally planted. These sourced strains are producing higher levels of trim. We are now back to our planned genetics, which we expect will get us back closer to historical levels. It is important to remember that as we are one of the largest cultivators on this planet, nobody who supplies clones was prepared to restock us. So we had to work with a myriad of suppliers in a bit of a scramble to fully replant. Second, our workforce. We have hired and trained a large number of new people—estimated over 90% of the team were hired through the rebuild—who continue to gain valuable experience. Bringing the remaining two-thirds of Greenhouse 2 online required adding many more new workers. So a bigger share of the team remains early on their learning curve. Both are improving with time, and we are already seeing improvement. Plus, we are happy to have another greenhouse online. Finally, one of our cogenerators has been offline, which is our primary source of CO2. This had a larger impact than expected. It is being repaired, and we expect to have it back online within this quarter. We are aggressively moving forward on additional labor training, maintenance updates and upgrades to the facility to help address all of these issues. The retail exit and higher trim mix offset meaningful gains in returning to more fully efficient operations at our farms. We produced 246,000 pounds of biomass during the quarter, a record for the company and ahead of our 240,000 pound guidance and the 231,000 pounds we produced last year. We will see a further scaling of production for the second half of the year as we begin to get a full contribution from Greenhouse 2 at the end of this quarter, and we remain on track to produce 1 million pounds of biomass and we'll exit this year at a more than 1.1 million pounds of biomass run rate. Remember, the reference production levels do not include hemp contributions and that we still maintain a vacant sixth greenhouse to develop at our Camarillo farm. Second quarter cost of production was $122 per pound, reflecting significant improvement from the $175 per pound reported in the first quarter and the $129 level from the second half of last year. The improvement comes from the fact that our less-than-fully seasoned workforce gains valuable experience every day and we are seeing the benefit in volume from expansion efforts undertaken in the first half of this year. We expect to set new harvest records in the second half of this year, producing more than 600,000 pounds. I note that in anticipation of beneficial opportunities ahead, we put the pedal down on expansion this year, including a full replanting of scaled-back operations. Training newer people posed a real challenge, one the team has made significant progress on. For the second half of the year, we anticipate a further reduction in cost per pound as a result of higher production scale. We expect to exit the year with a cost of production below the $100 per pound level. Longer term, on an annual basis, our $95 a pound production target cost remains achievable as we will never have to pay the high price and growing energy bills of warehouse operations and we do it at a scale that no one else comes close to. It is these benefits that have sustained us despite challenging California cannabis market conditions and makes us an ideal supply partner for operations in other markets, which rely heavily on far more expensive cultivation inside of warehouses. More importantly, our Michael Jordan of growing cannabis, Graham Farrar, has launched an upgrade process for our existing greenhouses, including optimizing Greenhouses 5 and 6 to the latest version of the Ultra-Clima system, adding additional screens and environmental controls. We expect these upgrades will give us enhanced control over climate, allowing us to utilize even more of the natural Southern California sun and increasing our yields from our existing footprint. Those two greenhouses are the backbone of our operations. And like every big technical capital improvement, it is necessary. In this case, the cultivation team has found ways to optimize as part of upgrading, which will give even better tools to our growers. Since nobody has grown cannabis at this scale while utilizing the sun and fresh ocean air, every tool which can improve their utilization of mother nature drives more consistency for our plants. Meanwhile, our average wholesale selling price for the quarter was $211 a pound, up from $206 last year and well ahead of guidance at $185 to $190 per pound. We continue to see modest California pricing improvements year-over-year, albeit still at deflated levels compared with prior years and the national average. As we and other California operators eventually sell products outside the state, we expect California pricing to improve while simultaneously seeing an indirect decline in illicit market supply. Premium pricing within compliant channels presents a healthy barrier for opportunistic illicit market operators. In addition to cannabis cultivation and wholesale distribution, in the second quarter, we commenced initial commercial operations for hemp. We completed an initial harvest from Greenhouse 4 and had initial sales. While, as expected, these sales were not material to second quarter results, they reflect a historic step for the company as it represents the first plant sale of any Glass House product outside of California and provides an operational test for future near-term medical cannabis sales in new markets. We are closely monitoring a potential longer-term push off of the federal hemp ban connected to recent congressional action, which delayed a federal ban on intoxicating hemp from November until December of this year after the midterm elections. A long-term or permanent end to the hemp ban could present an exciting opportunity for Glass House to supply the existing multibillion dollar market leveraging our core competency of producing low-cost, high-quality cannabinoids. We support a federal one-plant rule, which includes hemp. Consumers want cannabis, no matter what it is called, and driving consumers into the illicit market is a bad solution for society. As regulators remain dynamic in this space, we are evaluating the best next steps pending the updated regulations and where our facilities and expertise can best be leveraged. This includes possibly changing strain production priorities as we put our focus on where we can maximize the value of our facilities and team. We will provide further updates as these regulations develop. As I have previously stated, whatever the end market, we aim to compliantly grow cannabinoids for sale in whatever markets offer us the highest possible price, and that may end up including intoxicating hemp. Now before I turn the call over to Mark Vendetti to discuss financial results in greater detail, I want to take a moment to thank our entire team at Glass House. Between getting farm operations back on track, accelerating expansion efforts and preparing for the opportunities presented by rescheduling, the team has worked diligently to put the company in a position to achieve long-term success. I am proud to lead this group, and I'm consistently impressed with the grit and determination displayed by each team member. I do not have a crystal ball that presents an exact time frame for when interstate commerce and exports will occur, but I promise you that we are working diligently to prepare for those opportunities. I'll share some of those efforts. We formally engaged Pharma Compliance Group, led by Matt Murphy, to work with the regulators of jurisdictions outside of California so that we may ship our cannabis to those markets. Matt has been successful in building those bridges in the past and we are confident that under Schedule III, we can legally deliver medical marijuana to medical jurisdictions with willing participants. Matt is a former senior DEA official who served as Khiron's Chief Compliance Officer, helping that company become Colombia's first medical cannabis producer to comply with DEA security and compliance protocols as an exporter of compliant products to Europe. As we aim to develop and implement track and trace processes that comply with existing closed-loop California systems and enable us to distribute outside the state, we will lean on Matt's experience and expertise. Furthermore, we hope that Matt can assist federal and state regulators throughout the country, providing a pathway to better understand and implement viable regulatory frameworks. When it comes to interstate commerce, underdeveloped states face real inefficiency problems. It is economically inefficient and environmentally damaging to develop cultivation capacity for cannabis programs that are and will be expanded in response to rescheduling when supply already exists along the West Coast of the United States, which could better fill demand more cheaply and more clearly. Scaling local cultivation also slows new patient access to a plant that has been proven to contain beneficial therapeutic capabilities, delaying and reducing access to the care regulators aim to provide. We are in regular discussions with California regulators to develop a system for tracking cannabis sales as happens for all other Schedule III drugs for both out-of-state and international market sales. We are engaging with potential future customers about supply agreements for distribution of products and are collaborating with potential production and distribution partners. We continue to progress towards a Good Agricultural and Collection Practices, otherwise known as GACP compliance audit at the farms. This is a prerequisite for the European medical cannabis market supply. As mentioned before, we will continue to invest in our greenhouses for the long term in order to further optimize our farms. Leaning on Graham's tech background and his embedded Moore's Law mentality, the near term will include adding additional cooling capacity and air flow for Greenhouses 5 and 6, better shade light management at Greenhouse 6 and bringing one of our cogenerators back online. These are all focused and significant investments that we expect will reduce our cost per pound, increase our yields and improve the flower mix we grow. I am committed to making sure that our cultivation team always has the very best tools so that we make our former selves obsolete, as we are an ag-tech company more than anything else. We are always in search of ways for us to be an even lower-cost grower with even better quality. That is embedded in our 10-year-old DNA. We are working with the team at UC Berkeley to evaluate possible technology additions to ensure greater automation, including AI upgrades. This thinking will be at the heart of planning the retrofits of Greenhouses 3 and 4 as well to ensure that they are state-of-the-art so that we may do more with less. As we're working to open up markets outside the state of California, we are also looking at opportunities for expansion outside of our existing farms so that we are prepared when demand far exceeds our supply. I look forward to updating everyone further on out-of-state progress whenever possible and appropriate. With that, I'll turn the call over to Mark Vendetti, our Chief Financial Officer, to discuss our financial results for the quarter in detail.
Thank you, Kyle. Good afternoon, everyone. As Kyle mentioned, during the quarter, we completed a deconsolidation transaction whereby we spun out our retail operations. Our former retail business is now fully independent and our remaining business is fully medically licensed under a Schedule III designation. Due to the deconsolidation, our reported financial results include retail results as discontinued operations through June 11, and as an equity method investment beginning June 12. Second quarter revenue was $47 million, down from $47.6 million in the same period last year. Both periods exclude retail revenue. Retail revenue was $10 million through the date of deconsolidation, down from $12 million for the entire quarter last year. Within reported revenue, $41.7 million stem from wholesale biomass, while $5.3 million was CPG sales. This compares to $42.1 million and $5.5 million in the second quarter of 2025, respectively. We produced 246,000 pounds of wholesale biomass in the second quarter, up from 152,000 in the first quarter and 231,000 pounds last year. As a reminder, we measure production late on sellable product. As we look forward, we continue to anticipate further production growth on a sequential basis due to increases created by more sunlight and as the final new cultivation capacity from Greenhouse 2 comes online this quarter. Driven by increased scale and achieved operating efficiency, cost per pound was $122, down from $175 in the first quarter and the $129 level from the second half of 2025. Second quarter cost of production, while improved from recent periods, is above last year's $91 record-low second quarter level, a number that we remain confident is achievable with improved workforce efficiency and production scale. We sold 198,000 pounds of wholesale biomass in the quarter, up significantly from 140,000 in the first quarter, but still down from 204,000 last year. In the second quarter, selling price for biomass sold was $211 per pound versus $206 last year as California pricing improved as the quarter progressed compared to last year and it was up slightly during this period. Second quarter consolidated gross profit was $15.8 million and gross margin was 34%. To clarify, the gross margin guidance previously provided in the high 40s included retail. The underperformance was attributable to the higher proportion of trim within the production mix and higher-than-anticipated cost of production. Retail gross margin through the date of deconsolidation was approximately 50% for the quarter. Adjusted EBITDA for the period was $5.7 million, down from $18.1 million in the second quarter last year, but up almost $10 million from the loss of $4.2 million in the first quarter of this year. Adjusted EBITDA reflects the factors that impacted gross margin performance as well as a modest increase in cash operating expenses. Second quarter operating cash flow was $139,000. We ended the quarter with $22 million in cash and restricted cash compared to $23.4 million at year-end 2025. Included in the reported cash position is approximately a $6 million reduction that moved with the company's former retail operations as part of the deconsolidation transaction as well as $4.9 million raised during the quarter through the company's ATM facility. Subsequent to quarter end, we raised an additional $10 million in proceeds from the accelerated call of the company's Series B and C preferred equity warrants and $1.6 million from the ATM. In June, warrant holders were given a 30-day notice of expiration on July 23, and were provided an option to convert on either a cashless or a cash basis. In total, we issued 7.4 million shares from the redemption of the Series B, C and D warrants. The accelerated warrant conversion followed the redemption of the company's backbone shares in May. Through the redemption, the company terminated $30.6 million in warrants in exchange for the issuance of 362,000 shares. Both the conversion and redemption highlight recent efforts to meaningfully simplify our cap table. In total, 7.8 million shares were issued for the redemption of all warrants. As previously mentioned, we've had discussions with our tax advisers regarding the implications of rescheduling on taxes, specifically the elimination of the 280E tax burden on medical cannabis. Going forward, the company will no longer need to recognize 280E in its future tax provisions. Through June 30, the company has included $38 million of uncertain tax provisions on its balance sheet but has taken the position that 280E does not apply when making cash tax payments. Turning to forward-looking expectations. On account of the deconsolidation transaction and elimination of retail from financial results, the guidance we previously provided for full year revenue, gross profit and adjusted EBITDA should no longer be relied upon. At this time, we are not updating guidance as we await greater clarity on the timing of potential sales outside the state of California, our hemp strategy and expansion initiatives at the farm. We continue to plan to produce approximately 1 million pounds of biomass this year. We expect to exit the year with a cost of production below $100 per pound while noting the company's long-term $95 cost of production target remains intact. And with that, I turn the call back to Kyle for his closing remarks before opening up this call to questions and answers.
Thank you, Mark. And again, thank you for joining us today and to all of our investors for their continued support. I am encouraged by medical rescheduling and what I'm hearing about adult use. I believe ongoing reforms represent a true breakthrough for the industry and may well prove to be just the beginning of a change and long-anticipated normalization for this industry. I am genuinely optimistic for the months and years ahead. I am hopeful that we will also see social reform and appeal upon the President to pardon the many people that remain incarcerated in federal prison for nonviolent cannabis offenses. Just as he did with his current pardon czar, Alice Marie Johnson, and my friend and adviser Weldon Angelos, among many others, President Trump can correct a wrong and give these people their lives back, many of whom are staring bleakly at a nightmare future of decades more behind bars. I hope the President shows compassion as the war on cannabis won't truly end until these people are brought home. People like Parker Coleman, who is serving a life sentence for nonviolent cannabis sales, and Jose Valero Jr., who has served years for selling less than 8 pounds of cannabis. Jose is also a nonviolent offender. One request for all cannabis investors listening: please take a moment and call your congressperson and ask them to request that President Trump grant clemency to all nonviolent federal cannabis prisoners. These requests make a difference as I communicate with several of these people who are living that nightmare right now. It is sincerely appreciated. Let's not leave them behind. Thank you again, and I will now ask the operator to open the line for questions.
分析師問答
The floor is now open for questions.
Just with respect to the margin performance in the quarter, specifically gross margins—obviously, a very impressive rebound, but perhaps not as strong as you were expecting. Can you speak to and help us better handicap what the drag was in the quarter from the items you called out, higher trim and the other issues that affected the performance, such that we can at least have a better indication of how to think about the evolution of gross margins here in the second half?
Kenric, this is Mark Vendetti. So the big drag in Q2 was basically just that we had a higher mix of trim than we typically do, and trim sells in the roughly $25 range where flower is selling in the $500 range for premium flower. So a one-point shift has a fairly negative impact on margin. And the other thing that happened is, particularly towards the second half of the quarter, we produced more trim and that actually ended up in inventory and has a much lower value than flower and smalls, which actually depressed what we kept on our balance sheet. So those two factors fundamentally drove Q2. As I think about Q3, the ability for margins to go up significantly is really going to be driven by our ability to get the mix back more toward our historical level. We haven't provided guidance for the back half of the year as we work through the items mentioned earlier in the call related to improving the current mix. Longer term, there's nothing in what's happening right now that causes us to feel we won't get back to where we were, and our about $95 long-term target remains intact. The simplest way to think about this is, if we can average $200 selling price, you're going to have a gross margin that's north of 50%. And as we get higher pricing outside the state, gross margin is going to go up significantly.
And Kenric, this is Graham, and thanks for the question. Let me jump in since this is primarily a cultivation operations question. I think two things to stress. One is that this is a transient issue as we ramp back up. A couple of reminders: a year ago, the greenhouses were mostly empty. In the last year, the cultivation team has replanted about 3.5 million square feet of cultivation footprint, which includes adding almost 1 million square feet of additional footprint to our largest historical format. They have done an incredible job relaunching and rescaling the operation. The first step is to get open. The next step is to get operational. The final step is to get optimizing. If you look at what we're doing with the ASPs, you can see that for the flower we're growing, pricing and demand is still strong. There was no shortage of demand and pricing was actually up slightly versus our forecast on our flower component. You can also see it reinforced by the 17 gold medals that the team won at the California State Fair. So this isn't a flower quality issue. What it is, is an issue of getting everybody consistently doing the same operation. An easy way to think of it is when you're harvesting the plants, the team goes through and removes some of the leaves; the leaves that end up as trim. If you don't have an experienced team doing that, they don't do as consistent an even job, so that ends up in the final product and it shifts ASP down. So if you think about what's going on here, you see that we planted the greenhouse, you see an additional 1 million square feet added. You see a cost reduction from $175 a pound down to $122 a pound, which is a 30% reduction in the period of a quarter. We missed what we were aiming at by about $2, but the 30% reduction, I think, paints a clear picture of the team rebooting, resetting and getting back to the work that we've done. As a reminder, our historical best-ever was $91 a pound. There is nothing in here that prevents us from getting back to where we were. It is just the process of getting it open, getting the scale up, getting people efficient and now getting them consistent, so we get back to what we've done historically. I don't see anything here that won't improve with time as we now have scaled up and can fully focus on optimizing the consistency and efficiency of the team that we have.
That's some great insight. I appreciate it, Graham. Just a quick second question there. With respect to bringing Greenhouse 2 online, is it fair to assume that the spend required to bring it online would have led revenues and that we'll see some normalization on the SG&A line as you start to see more benefit from Greenhouse 2 being online? Is that a fair characterization?
Yes. I'll defer the specific SG&A questions to Mark, our CFO. But from an operational point of view, Greenhouse 2 is now fully planted. We actually just started, for the first time, harvesting some of the additional square feet. One of the ways I think of it is there's a lot of investment that goes in before you get any return out of it. First, you have to set up the greenhouse; you start back in the nursery building the mother plants and the clones, you're spending labor hours and dollars investing in creating those plants, then you turn them into teams, then you plant them in the greenhouse, you maintain them, you harvest them, you dry them, you trim them, you sell them before you see a dollar back in that revenue. So the pipeline is fully filled and the additional production from that is just about to start coming out. If you think about how we do COGS, it's the dollars you spend divided by the pounds you produce. There's a decent amount of dollars that go into the system before any pounds start coming out. That is about to start happening from the additional 600,000 square feet that we brought on during the quarter.
And Kenric, just on the SG&A front, the wholesale and cultivation business is very efficient for SG&A. So where there might be growth related to the expansion in the second half, it's just that as revenue ramps up in wholesale, we end up having to pay a roughly 4% cannabis tax to the County of Ventura. So with sales growth, that tax grows, but underlying SG&A from management doesn't grow materially; there isn't a large additional headcount flowing through SG&A from the sales growth perspective.
Your next question comes from the line of Frederico Gomes with ATB Cormark.
First question on hemp. If the intoxicating hemp ban gets delayed federally, let's say, for a year until the end of next year, how beneficial could that be for you? And how willing are you to really scale up that hemp production and take advantage of that?
That's a great question, Frederico. We like to keep our optionality open. It's the same plant, and so we're always looking at what's best for the company. Do we want to go bigger? Do we not? Remember, we haven't spent on a million square foot greenhouse even $1 million on CapEx—we've saved a ton there just to learn, and we're watching closely. As I mentioned, we cheer on the one-plant solution. Hemp and cannabis together could open up our ability to turn off a license here and upgrade there. Right now, nothing is final. Graham, do you want to add in?
Yes. As a reminder, what we were working on was CBD flower. So there's absolutely nothing we are doing on the intoxicating hemp space that is at risk. Everything that we are working on, experimenting with and learning for R&D was fully federally compliant—less than 0.3% total THC—meaning it is compliant with the existing Farm Bill. It's also compliant if the Farm Bill additional restrictions in the hemp ban go into effect. It's also compliant with what many countries in Europe are doing. So we face no additional contraction, risk or negative impact if the ban does go into effect. That said, as Kyle mentioned, we do believe in a one-plant, one set of rules. We think people deserve access to legal, licensed, tested and age-gated cannabinoids of all types. We're generally advocates of a rational public policy that doesn't treat the same plant under two different regulatory frameworks, but we have no risk or downside if the ban is enacted. If it's delayed, that only presents potential additional opportunities.
Appreciate that. Second question on interstate commerce. I think you would be a supplier for operators in other markets given your cost of cultivation and the quality. Have you had any discussions with other operators? How far along are you in those discussions? What can you share? And how do you think the U.S. market could look once interstate commerce is allowed?
So another very good question. Some people tell me nothing's going to happen with that legislation, and I point out that back in the early days we were discussing safe banking legislation for a long time. To date, we still have no federal safe banking law, yet we've been banked by a very large publicly traded bank for a long time. We see this in a similar dynamic. In this case, the regulator for Schedule III drugs is the DEA, and we've already applied for our DEA Form 225 license. We are confident that the construct is here. To your question, absolutely we are talking to companies in other states and companies internationally, and there is a lot of interest in getting this across the table. Nothing to announce as far as a supply agreement at the moment, but without a doubt, people would love to be able to import our cannabis from California to everywhere.
I think it's worth noting that there's sometimes a perception that no states want imported cannabis. That's not accurate, based on the conversations we've had. You can look to states like Vermont, who have put potential import regulations into their cannabis ordinances. You can look to the New Jersey Senate President, who has introduced the idea of importing cannabis multiple times. You can look to new markets that don't have existing infrastructure and have not built cultivation supply chains and ask who would want to underwrite the construction of a new facility in a new market that requires a year of permitting, a year of construction and a year of operation before you get a first harvest. Then you can expect to see higher pricing. For example, there are markets like Georgia where medical pricing is around $6,500 a pound. At $6,500 a pound for medicine that is available in California at much higher quality for a fraction of the price, if you are operating for patients, you're going to look to source the highest quality for the lowest cost, and that currently exists on the West Coast. Building new supply in markets that are not long-term viable does not make sense. We do not build glass ponds in Texas to grow lobsters when lobsters can be imported from Maine. That is analogous to building a new cultivation facility where importing is more efficient and cost-effective.
Let me add one more point. The American public is screaming about affordability across the country. One of the biggest drags right now is cost of energy. Energy costs drive consumer prices up. For a fraction of the price, you can import from the West Coast—California, Oregon, Washington—where climate and scale allow for much lower-cost cultivation. This will benefit consumers, and I hope legislators listen to the voters rather than a few large special interests.
Your next question comes from the line of Ryan Meyers with Lake Street Capital Markets.
First one for me. Can you talk about what you're seeing so far in Q3 in terms of cost of production and whether you're moving toward that $95 long-term target?
Welcome, Ryan. Thanks for the question. Our long-term goal of $95 a pound remains intact and is something we're firmly focused on and believe is attainable. From Q1 to Q2, we went from $175 a pound down to $122 a pound, and that's the direction we expect to continue moving. The challenge we went through was that much of the operation is new. The good news is that each day there are parallel processes that are gaining steam and improving experience, consistency and efficiency. I would expect we continue to significantly reduce COGS, and there's no reason the transient issues we're facing prevent us from getting to the long-term goal we've aimed at from the beginning.
Got it. Great to hear. And then looking at ASPs, it was above the original target. Can you walk us through what you're seeing specifically in California and how sustainable that number could be?
Forecasting prices is one of the tougher things. There are tangible items you can look at, like the number of licenses. A few years ago there were about 8,000 cultivation licenses in the state; now that number is around 4,000—so almost half of cultivators have exited the market. You see slight ongoing attrition, but generally it feels like stabilization. The pricing we saw being above forecast was around the quality of the flower we are growing, which is separate from mix. Mix meant we had more trim relative to smalls and flower, but the flower we were growing was fetching better-than-expected pricing, backed by the 17 awards at the State Fair. We expect seasonal fluctuations; historically pricing dips in the second half of the year when outdoor supply hits the market and then tightens back up. One benefit we should have coming is Greenhouse 2, our first greenhouse with supplemental lights. It allows us to avoid some of the seasonal dip because we can grow with supplemental lighting during periods of lower natural light. So the front half of 2027 should show stronger production than historically, thanks to supplemental lights and on-site power from our cogenerators.
Your next question comes from the line of Marc Cohodes with Alder Lane.
So I might as well go with all of them. Are you guys going to have a supply—or multiple supply—agreements between now and the end of the year?
I'll take that one. Marc, I would tell you I believe we will absolutely have more than one supply agreement before the end of the year.
Okay, that's excellent. The probability of shipping to one or more states or one or more countries by the end of the year?
We get up every day and are pushing against that wall. From everything I'm seeing, if I had to estimate, I think there's a better chance of international coming first among those two.
Okay. Third question: given the price that Curaleaf wants to pay for Aurora for only 150,000 pounds a year, does that surprise you? Does that surprise you where this bottleneck is? Because it doesn't even solve their problem.
You broke up a little bit there. I didn't catch all of it—were you asking about price?
I get it, Mark. Marc, to me this is a very bullish sign. We cheer on all of our fellow cannabis companies and see Boris out there. To me, this is quite bullish because we can grow better quality at a far lower price than Aurora, and his activity shows how desperate some are for supply. I don't blame him for being bullish on the growth in the U.K. and Germany. We take this as a very positive sign for Glass House. Aurora doesn't appear to have the supply necessary, and so we are watching how this plays out. For us, this makes us happy.
I would add that if the supply is worth what they're offering for it, it's not hard to look at how many pounds they're producing versus how many pounds we're producing and get to a valuation that would excite many people. If that's representative of demand and the price people are willing to pay to fill it, it's very bullish for our strategy and what we're building.
And by the way, if you even further look at the assets of Aurora, you almost think he's only paid for the growth. That only makes us even more bullish.
Final question: given Dr. Oz and President Trump's desire for this product to become a component in the country's health and wellness platform, what are you guys doing to get more into consumer health and wellness—balms, tinctures, ointments, things like that?
You're asking a broad and important question. We're watching and taking positions. We have a health and wellness balm prototype that we've been working on that has performed well for a number of people and could be a candidate for a Medicare CMS CBD pilot. That opportunity is contingent on current McConnell language not going into effect because that language would restrict THC per container to very low levels and effectively negate the Medicare program lane. We do think there's pressure to keep those lanes open and see potential for products that bring relief without addictive risk or high-priced pharmaceuticals, at a far better price. We have strains in our library and work with our partners at Berkeley that could be relevant here. So this could be a lane that becomes a very large opportunity going forward.
With no further questions in queue, I'll now hand the call back over to Kyle Kazan for closing remarks.
Thank you, operator, and thank you to everybody—our investors and everyone who took the time to listen to this call. We look forward to speaking with you in a few more months. Have a great day.
Thank you once again for joining us today. This does conclude today's conference call. You may now disconnect.