Glass House Withdraws Defamation Suit, Citing Catalyst Financial Viability Concerns and Harassment Threats to Customers

Rhea-AI Summary

Glass House Brands has announced the voluntary dismissal of its defamation lawsuit against Catalyst Cannabis.

The decision is based on concerns about Catalyst’s financial stability and potential harassment of Glass House's customers.

Glass House accused Catalyst of defamation, claiming Catalyst's statements about Glass House selling into the unlicensed cannabis market were unsubstantiated.

Despite a promising outcome, Glass House cited Catalyst's recent financial instability, including layoffs and store closures, as key reasons for withdrawing the suit.

Additionally, Catalyst's CEO admitted to tax underpayments and is facing multiple litigations, including an audit by the State of California.

Glass House emphasized that its operations are entirely legal, involving only licensed customers, and chose to protect its customers from potential harassment.

Positive

• Glass House Brands decided to dismiss the lawsuit to focus on business growth and customer service.
• Glass House exceeded Q1 2024 guidance across all operating metrics, including cash, sales, production, and Adjusted EBITDA.
• Glass House's operations are confirmed to be entirely legal, selling only to licensed brands, manufacturers, and distributors.

Negative

• Concerns about Catalyst Cannabis's financial viability could render any potential judgment worthless.
• Catalyst Cannabis faces multiple legal challenges, including state audits and disputes with municipalities and unions.
• Catalyst's CEO admitted to paying significantly less excise tax, which may reflect poorly on the industry.

LONG BEACH, Calif. & TORONTO--(BUSINESS WIRE)-- Glass House Brands Inc. ("Glass House" or the "Company") (CBOE CA: GLAS.A.U) (CBOE CA: GLAS.WT.U) (OTCQX: GLASF) (OTCQX: GHBWF), one of the fastest-growing, vertically integrated cannabis companies in the U.S., announced today that it will be voluntarily dismissing without prejudice its defamation lawsuit against Catalyst Cannabis Co., citing serious concerns about Catalyst’s financial viability, which could render a judgment worthless, and harassment threats by Catalyst to Glass House’s customers, and its customers’ customers.

Glass House sued Catalyst (South Cord Holdings and South Cord Management) and its two principals (Elliot Lewis and Damian Martin) for making defamatory statements accusing Glass House of selling into the unlicensed cannabis market, claims that Glass House has vehemently denied. Catalyst has not provided any credible evidence supporting its defamatory statements, despite promising to do so nine months ago. Instead, Catalyst has said that industry-wide, up to “93% of all legally cultivated cannabis ends up being diverted to the illicit market,” and that licensed operators should be held responsible for downstream diversions to the illicit market. Essentially Catalyst wants to put the entire industry on trial, something that Glass House does not want to be a part of. Glass House only conducts business with licensed operators and has no interest in subjecting its customers to similar harassment from Catalyst.

While Glass House is confident it would prevail in its defamation litigation, it said it has grave concerns about the financial viability of Catalyst and its ability to pay a judgment. As is widely reported, the cannabis retail market in California is under serious distress. Catalyst recently announced layoffs and the closure of one of its stores, citing the need for “some repairs.”

Moreover, Catalyst CEO Eliot Lewis boasted on social media about his company’s practice of systematically paying less excise taxes than what the state would want, paying $2 million less in one quarter alone (please see this link: https://www.linkedin.com/posts/elliotlewisceo_wftp-activity-7158590677461725184-96Ym). If this number is consistent throughout the year, it would mean that Catalyst would be paying $8 million a year less in excise taxes than most, if not all, other cannabis retailers in the State with comparable sales.

Catalyst’s CEO also revealed that his company is being audited by the State of California and is embroiled in separate litigation challenging emergency regulations enacted by the CDTFA (the State agency responsible for collecting excise tax), which he says are directed at Catalyst and calls the “Catalyst regs.” Catalyst is also involved in several other lawsuits including a case against the Department of Cannabis Control (the State agency charged with enforcing cannabis laws) and is in disputes with municipalities and its employee’s union.

Addressing the customer harassment issue, Glass House said that proceeding with the lawsuit would necessitate revealing details about its customers, even though they are all licensed. Catalyst made clear that its intent was to then serve similarly invasive subpoenas on Glass House customers looking for diversion downstream, even if Glass House’s customers, like Glass House, had no knowledge of any such diversion.

Glass House said, while protecting the identity of its customers, it produced to Catalyst voluminous documents including manifests for all of its sales over the relevant time period. Glass House’s documents prove it only sells legally to licensed brands, manufacturers and distributors through California’s track-and-trace system, METRC. Since all of Glass House’s customers are licensed, Catalyst does not need to know their identities. Glass House said it believes this substantiates that Catalyst knows Glass House does not divert and instead that Catalyst is only interested in harassing Glass House’s customers. The Company said while it has no knowledge of any of its customers selling to the illicit market and it has nothing to hide, it is not willing to subject its customers and the industry to such abuse.

Kyle Kazan, Co-Founder, Chairman and CEO of Glass House, said, “Despite the difficulty of the retail market in California, our business continues to thrive. The first quarter of 2024 was another very successful quarter for Glass House where we exceeded Q1 guidance across all operating metrics including cash, sales, production and Adjusted EBITDA."

“Given the foregoing,” a spokesperson for Glass House added, “we concluded that from a financial standpoint, there was a high likelihood the judgment against Catalyst, Mr. Lewis and Mr. Martin wouldn’t be worth the paper it was written on. We felt our time and money was better spent serving our customers and growing our business, so that we can continue to provide the best quality cannabis at the lowest price.”

Glass House said Catalyst’s claims will be proven false through the defeat of the separate litigation Catalyst filed against Glass House for unfair competition.

ABOUT GLASS HOUSE

Glass House is one of the fastest-growing, vertically integrated cannabis companies in the U.S., with a dedicated focus on the California market and building leading, lasting brands to serve consumers across all segments. From its greenhouse cultivation operations to its manufacturing practices, from brand-building to retailing, the Company's efforts are rooted in the respect for people, the environment, and the community that co-founders Kyle Kazan, Chairman and CEO, and Graham Farrar, Board Member and President, instilled at the outset. Through its portfolio of brands, which includes Glass House Farms, PLUS Products, Allswell and Mama Sue Wellness, Glass House is committed to realizing its vision of excellence: outstanding cannabis products, produced sustainably, for the benefit of all. For more information and Company updates, visit www.glasshousebrands.com and https://glasshousebrands.com/press-releases/.

FORWARD LOOKING STATEMENTS

This news release contains certain forward-looking information and forward-looking statements, as defined in applicable securities laws (collectively referred to herein as "forward-looking statements"). Forward-looking statements reflect current expectations or beliefs regarding future events or the Company's future performance or financial results. All statements other than statements of historical fact are forward-looking statements. Often, but not always, forward-looking statements can be identified by the use of words such as "plans", "expects", "is expected", "budget", "scheduled", "estimates", "continues", "forecasts", "projects", "predicts", "intends", "anticipates", "targets" or "believes", or variations of, or the negatives of, such words and phrases or state that certain actions, events or results "may", "could", "would", "should", "might" or "will" be taken, occur or be achieved. Forward-looking statements in this news release include, without limitation the Company’s statements that: Glass House will be voluntarily dismissing without prejudice its defamation lawsuit against Catalyst Cannabis Co., citing serious concerns about Catalyst’s financial viability, which could render a judgment worthless, and harassment threats by Catalyst to Glass House’s customers, and its customers’ customers; Glass House is confident it would prevail in its defamation litigation; Glass House has grave concerns about the financial viability of Catalyst and its ability to pay a judgment; Catalyst’s practice of systematically paying less excise taxes than what the state would want, paying $2 million less in one quarter alone (please see this link: https://www.linkedin.com/posts/elliotlewisceo_wftp-activity-7158590677461725184-96Ym), if consistent throughout the year, would mean that Catalyst would be paying $8 million a year less in excise taxes than most, if not all, other cannabis retailers in the State with comparable sales; Glass House proceeding with the lawsuit would necessitate revealing details about its customers, even though they are all licensed; despite the difficulty of the retail market in California, Glass House’s business continues to thrive; Glass House concluded that from a financial standpoint, there was a high likelihood the judgment against Catalyst, Mr. Lewis and Mr. Martin wouldn’t be worth the paper it was written on and that Glass House felt its time and money was better spent serving its customers and growing its business, so that the Company can continue to provide the best quality cannabis at the lowest price; Catalyst’s claims will be proven false through the defeat of the separate litigation Catalyst filed against Glass House for unfair competition. All forward-looking statements, including those herein are qualified by this cautionary statement. Although the Company believes that the expectations expressed in such statements are based on reasonable assumptions, such statements are not guarantees of future performance and actual results or developments may differ materially from those in the statements. Accordingly, readers should not place undue reliance on forward-looking statements. There are certain factors that could cause actual results to differ materially from those in the forward-looking information, including those risks disclosed in the Company's Annual Information Form available on SEDAR+ at www.sedarplus.ca and in the Company's Form 40-F available on EDGAR at www.sec.gov. For more information on the Company, investors are encouraged to review the Company's public filings on SEDAR+ at www.sedarplus.ca. The forward-looking statements in this news release speak only as of the date of this news release or as of the date or dates specified in such statements. The Company disclaims any intention or obligation to update or revise any forward-looking information, whether as a result of new information, future events or otherwise, other than as required by law.

View source version on businesswire.com: https://www.businesswire.com/news/home/20240520481387/en/

Glass House Brands Inc.

John Brebeck, Vice President of Investor Relations

T: (562) 264-5078

E: ir@glasshousebrands.com

Mark Vendetti, Chief Financial Officer

T: (562) 264-5078

E: ir@glasshousebrands.com

Investor Relations Contact:

KCSA Strategic Communications

Phil Carlson

T: (212) 896-1233

E: GlassHouse@kcsa.com

Media Contact

Sitrick And Company

Terry Fahn

T: (310) 614-9995

E: Terry_Fahn@Sitrick.com

Mike Sitrick

T: (310) 432-4150

E: Mike_Sitrick@Sitrick.com

Source: Glass House Brands Inc.

FAQ

Why did Glass House withdraw its defamation lawsuit against Catalyst Cannabis?

Glass House withdrew its lawsuit due to concerns about Catalyst's financial stability and potential harassment of its customers.

What were the accusations made by Catalyst Cannabis against Glass House?

Catalyst accused Glass House of selling into the unlicensed cannabis market, which Glass House vehemently denied.

How did Glass House perform in Q1 2024?

Glass House exceeded its Q1 2024 guidance across all operating metrics, including cash, sales, production, and Adjusted EBITDA.

What financial issues is Catalyst Cannabis facing?

Catalyst is experiencing financial instability, including layoffs, store closures, and an audit by the State of California.

What is Glass House's stock symbol?

Glass House's stock symbol on the OTCQX market is GLASF.