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spk01: Hello, and welcome to the ColumbiaCare first quarter 2021 earnings conference call and webcast. At this time, all participants are in listen-only mode. If anyone should require operator assistance, please press star zero on your telephone keypad. A question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It's now my pleasure to turn the call over to Lee Evans, Vice President, Investor Relations. Please go ahead.
spk10: Thank you, Kevin. Good morning, and thank you for joining Columbia Care's first quarter 2021 earnings conference call. With me today are Nicholas Vita, our Chief Executive Officer, Lars Boesgaard, our Chief Financial Officer, and David Hart, our Chief Operating Officer. Earlier this morning, we issued a press release reporting our first quarter results, which we also filed with the applicable Canadian Securities Regulatory Authorities on CEDAR. A copy of this release is available on the Investors section of the corporate website, where you will also be able to access a replay of this call for up to 30 days. Please note that the remarks we make today regarding future expectations, plans, and prospects for the company constitute forward-looking statements within the meaning of applicable Canadian securities laws. Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors, which we disclose in more detail in the risk factors section of our annual information forum dated March 31st, 2021, as filed to the applicable regulatory authorities and posted on CEDAR. We remind you that any forward-looking statements represent our views as of today. and should not be relied upon as representing our views as of any subsequent date. While we may update any such forward-looking statements in the future, we specifically disclaim any obligation to do so, except as otherwise required by applicable law. Also, please note that on today's call, we will refer to certain non-IFRS financial measures, such as adjusted EBITDA and gross profit margin, excluding changes in fair value of biological assets. These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Columbia Care considers non-IFRS measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for, our IFRS results. A reconciliation of such non-IFRS financial measures to their nearest comparable IFRS measure is included in our press release issued earlier today. With that, I will turn the call over to Nick to get us started. Nick?
spk04: Thank you, Leigh, and good morning, everyone. Following a record-breaking year for ColumbiaCare in 2020, we've begun 2021 with significant growth across both top and bottom line. Once again, we are pleased to report record combined revenue and adjusted EBITDA for the quarter. In Q1, we generated $92.5 million in combined revenue, up 13% sequentially and 220% year-over-year. Eleven of our markets generated positive adjusted EBITDA during the first quarter, contributing to a record combined adjusted EBITDA of $10.4 million. an increase of $20 million year over year. Combined adjusted gross profit was $37.7 million in Q1, an increase of 316% year over year. We continue to build scale and leverage in our existing markets, leading to positive trend lines for growth and profitability. The sequential increase in combined revenue and adjusted EBITDA more than offset expected seasonality in Colorado and recently lifted COVID restrictions in California and was driven by substantial growth in Florida, Arizona, Illinois, and Ohio. Legacy ColumbiaCare same-store sales increased 60% year-over-year. Excluding contributions from our newly acquired businesses in California and Colorado, wholesale revenue within our legacy footprint grew over 700% year-over-year, a trend that we intend to maintain with an eye towards generating more than 50% of revenue from wholesale within the next 24 months, a significant increase from today's mid-teens percentage. Adjusted gross margin of 41% in 1Q is up 10 percentage points year-over-year and a continuation of the improvement from the 27% in 2019 and 38% in FY2020. Existing and maturing legacy markets showed continued improvement in gross margin in the quarter, with markets open 24 months or more, reporting an average of 42% for the quarter. Results in 1Q were impacted by expected seasonality in certain markets, in particular Colorado, and the decision to partially take offline and upgrade the largest indoor grow in Colorado in advance of the 100 days of heat during 2Q and 3Q, which we expect to result in accelerated gross margin and EBITDA expansion into 2Q and 2H 2021. In addition, recognizing the tremendous opportunity we have before us, We continue to deepen our state, regional, and national footprint by adding cultivation scale and automated manufacturing to capitalize on additional upside and rapidly expanding medical programs, and in particular, in markets transitioning to adult use across the country. We are deploying targeted human and financial capital throughout the first half of 2021 by building additional cultivation capacity and filling infrastructure gaps to maximize scale and drive profitability in the second half of 2021 and 2022. As we have seen in the past, CapEx spend continues to serve as a leading indicator for current quarter upticks in COGS until harvested finished goods are commercialized, translating into sustainable sequential gross margin improvements. Transition points like the ones we currently see throughout our portfolio represent extraordinary market windows to generate shareholder value. Significant strategic investments in markets such as New York, New Jersey, and Virginia will enable us to be the most efficient and scaled leaders in those markets and will cement our position as the industry leader on the East Coast. In New York, we are adding approximately 1 million square feet of cultivation and production capacity. In New Jersey, we expect to reach our maximum permissible limit for balloon canopy. And in other targeted states like Ohio, Virginia, Florida, and Massachusetts, we have continued to expand our cultivation, manufacturing, and retail capacity on a parallel path to meet current and future wholesale and retail demand. In New York, as an existing medical operator, we are leaning into cultivation with our latest acquisition of the single largest cannabis cultivation and production facility on the East Coast. In April, we announced the acquisition of approximately one million square feet of cultivation and production capacity in Long Island, New York. The sheer scale of the facility will allow us to maximize the production capacity in New York and provide us with the ability to leverage developed expansion capacity as needed based on the pace of New York regulatory developments and demand growth, which is expected to include the addition of flour in the second half of 2021. The first harvest and commercial sales for the medical program from this facility are expected to take place in Q4 2021. In New Jersey, retail sales growth outperformed expectations year-over-year and doubled sequentially. Two additional dispensaries will open in 2021, one in Deptford and a third by year end to match the expanded cultivation capacity, bringing us to the state maximum of three. We are also accelerating our canopy development with our first significant harvest expected later this year. Virginia, one of our newer markets, was our first market to be adjusted positive within 90 days of the first sale. Sales increased more than 50% each month of operations, and we achieved our first harvest in Q1. We are developing significant cultivation expansion plan to meet expected market demand as flour enters the medical program later on this year. As we've engaged in a number of accretive acquisitions, we have built a best-in-class integration team and implemented a methodical workstream-based approach to mitigate integration risk and ensure success in incorporating these entities and driving shareholder value. Brian Olson, our chief people and administrative officer, leads a team with decades of M&A integration experience that manages all post-closed M&A integration activity for ColumbiaCare. We established a project management office in November of 2020, staffed with talented resources experienced in leading strategic and tactical projects to mitigate negative impacts and to operationalize an execution and integration. We are fortunate to have such a talented team in sharing smooth integrations across our platforms. Before I turn the call over to Lars, I would like to quickly review some of the exciting initiatives we have in motion for the quarter ahead. Last week, we unveiled our new retail ecosystem called Cannabis, which is now open in Utah, a new market for Columbia Care. Our new retail brand introduces a higher standard to our in-store experience with a carefully curated selection of products, high-end storefront, interior design, and a unique technology-enabled personalized customer experience. providing access, support, and information without sacrificing the ability to offer a wide spectrum of product types and price points that our customers and patients have become accustomed to. The cannabis experience will be introduced across the country throughout the coming months, from San Diego to Boston, complementing ongoing nationwide rollout of our product brands such as Seed & Strain, 777, Press, Amber, and Classics. We look forward to continuously improving and innovating on these products we provide. As we look ahead, we remain on track to close the acquisition of Greenleaf Medical at the beginning of the third quarter, which will solidify our fully integrated leadership presence in Pennsylvania, Maryland, Ohio, and Virginia. Greenleaf is tracking well according to plan and expected to be accretive in both gross and EBITDA margins. We have dispensaries currently in development in Missouri. New Jersey, Virginia, and West Virginia that will open in 2021 with additional locations in the commercialization pipeline, along with the cultivation and product upgrades throughout our portfolio. As we are about halfway through the second quarter, we'd like to provide some insight into what we are seeing. The pickup in sales in late March was sustained in April, and we have very encouraging results out of markets like Illinois and Florida. We are on track to meet our expectations for the quarter and remain confident in our annual guidance of $500 to $530 million in combined revenue, adjusted EBITDA of $95 to $105 million, and combined adjusted gross margin of 47%. I'm proud of our entire team and organization and grateful for the communities we serve. Our first quarter results and the future growth drivers we simultaneously advance during the quarter will ensure that 2021 will indeed be a breakout year for ColumbiaCare. I will now turn the call over to Lars to review our Q1 financials.
spk09: Lars. Thank you, Nick. And good morning, everyone. I'll provide a brief summary of the key financials for the first quarter. Please note that combined metrics include our reported financials as well as the results from our four dispensaries operated by our partner in Ohio. Both our combined and reported results include our first full quarter of contribution from Project Cannabis, which we acquired in December 2, 2020, as well as almost the full first quarter impact from the Healing Center in San Diego, which was acquired on January 7th of 2021. Combined revenue in the fourth quarter, excuse me, the first quarter was 92.5 million, which was a more than twofold increase year over year. And as Nick mentioned, an increase of 13% quarter over quarter. Excluding the 6.4 million of sales revenue we realized from four dispensations in Ohio, we reported total revenues in the first quarter of $86.1 million. also an increase of approximately 13% sequentially, and that was primarily driven by the inclusion of Project Cannabis and the Healing Center of San Diego, as well as growth in Florida, Arizona, Illinois, and Ohio, as Nick mentioned, and partially offset by seasonally lower sales in Colorado. Combined adjusted gross profit for the first quarter was up 11% sequentially to $37.7 million, resulting in a gross margin of close to 41%. Our reported gross profit before fair value adjustments for the first quarter was $35 million, an increase of 15% on a quarter-over-quarter basis and a more than four-fold increase on a year-over-year basis. Reported operating expenses for the first quarter were $47.5 million compared to $45.3 million last quarter and $31.6 million in the year-ago period. Combined adjusted EBITDA improved 10% sequentially to $10.4 million compared to $9.5 million last quarter and a negative $9.9 million in the year-ago period. Reported adjusted EBITDA for the first quarter increased to $9.1 million compared to $8.3 million the last quarter and we incurred a negative $10 million in the year-ago period. Capital expenditures for the first quarter were $7.2 million compared to $22.9 million in the year-ago period. As of March 31, 2021, our cash balance was $176.5 million compared to $61.1 million at the end of last year. As Nick mentioned earlier, we completed the acquisition of a large greenhouse facility on Long Island during the quarter to support the market's transition to recreational use. Total consideration would be $42.5 million, which includes $15 million in cash and $27.5 million in ColumbiaCare stock. The initial payment of $30 million was made in April, so after the quarter ended, and the remaining $12.5 million in stock payment will follow in August of this year upon completion of the second phase of the transaction. Having sustained our financial and operational momentum into 2021, as Nick mentioned, we reiterate our combined revenue adjusted gross margin and adjusted EBITDA guidance for 2021. On a pro forma basis, we expect combined revenue for the full year 2021 to be between $500 and $530 million, combined adjusted gross margin to be at least 47%, and combined adjusted EBITDA to come in between $95 and $105 million. As a reminder, this outlook assumes that our pending acquisition of Greenleaf closes on or around July 1, 2021, but it does not include any contribution from future acquisitions. It also does not assume any changes in the regulatory environment in markets where we currently operate, nor does it include markets where conversion for medical only to adult use is under consideration. This concludes my prepared remarks. I'll now turn the call over to David Hart, our Chief Operating Officer. David?
spk05: Thank you, Lars. To provide some color on our progress by market, our top five markets by combined revenue and adjusted EBITDA during the first quarter, California, Colorado, Massachusetts, Ohio, and Pennsylvania. In California, we benefited from having our first full quarter of contributions from Project Cannabis, as well as adding the Healing Center of San Diego to our platform in early January. Our resale momentum across the market experienced some softness related to COVID-19-driven restrictions on foot traffic and in-store social distancing, which have only recently begun to ease. We continue to grow our wholesale operations, which ramped throughout the first quarter and are expected to remain about one-third of our total revenue in this market. We've also begun manufacturing Project Cannabis finished goods out of our DeSoto facility in San Diego. In Colorado, revenue improved 27% year over year, and we grew our participation in the state's wholesale market despite being impacted by seasonality and weather-related headwinds. Colorado growth margin was 42% for the quarter, up 2% year over year. As Nick mentioned, Sequential improvement in gross margin across the portfolio, especially in California, Florida, and Arizona, was offset by seasonality and our decision to partially take offline and upgrade our largest indoor grow in preparation for the 100 days of heat during Q2 and Q3 in Colorado. In Massachusetts, we have continued to drive solid year-over-year revenue growth. This is primarily fueled by earlier-than-expected contributions from wholesale, but partially offset by supply constraints throughout the market. We have made progress towards opening our co-located medical and adult use dispensary in downtown Boston, and we expect adult use sales to begin by the end of the second quarter. We also achieved robust year-over-year revenue growth in Pennsylvania. Revenue momentum continues to accelerate up 80% year-over-year. In Q1, we increased our operational hours to drive revenue growth as weather and COVID-19 restrictions impacted early months. We are adding incremental canopy with the pending acquisition of GLEAF. to support 2022 growth opportunities and drive gross margin improvement. In Ohio, we maintained our strong performance across both retail and wholesale, with significant year-over-year expansion in same-store sales. We expect this progress to be further fueled by the opening of our manufacturing facility, which has commenced operations and is now producing and selling finished goods in the wholesale market. Finally, on Florida, we are pleased with the progress we are making in the state. Our revenue is up 3x year-over-year due to dispensary-level supply chain improvements, and flower availability. This demonstrates the success of our efforts to make our individual dispensaries more productive as we implemented more efficient in-store processes, expanded product offerings, and updated dispensary websites across the retail footprint. A restructured production planning process resulted in a 61% quarterly improvement in cultivation yields. Gross margin increased more than 2,000 basis points quarter over quarter in Q1. Commercialization at our Alachua greenhouse complex initiated in Q1 slowed gross margin improvement trend line. The first harvest out of Alachua is expected by the end of Q2 with products hitting the shelves in early Q3. I'm proud to report that we've achieved record cultivation yields in Florida, Ohio, and Illinois this quarter. We will continue to focus on leveraging our retail presence to continue expanding margins while concurrently capturing additional market share. Recent CapEx spend will deliver enhanced efficiencies Once normalized, production cycles begin and revenue is generated by these assets. This concludes my prepared remarks. I'd now like to turn the call over to Nick.
spk04: Thank you, David. Through our current and upcoming initiatives, we will continue to work to sustain our momentum, leverage our expansive platform, and solidify our leading position across our markets. We have made incredible progress to date, and we greatly look forward to the growth opportunities ahead. With that, I will turn the call over to the operator for questions.
spk01: Thank you. And I'll be conducting a question and answer session. If you'd like to be placed in the question queue, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing star 1. One moment, please, while we poll for questions. Our first question today is coming from Aaron Gray from Alliance Global Partners. Your line is now live.
spk06: Hi, good morning, and thank you for the question. Good morning, Aaron. So first question for me is just on the overall guidance. So you guys reiterated, you know, the poor form of guidance, which implies GLEAF closing, you know, early 3Q, I think, July 1st. So just wanted to get some incremental color in terms of the legacy of ColumbiaCare and then the GLEAF contribution. So just we'll stick on EBITDA specifically because, you know, we have some color there. When you did the acquisition, you know, in December, it implied an EBITDA of about, you know, $50 million. You know, the guide right now is $95 to $105. We're just wondering if we kind of like triangulate into that, like how much of that is really back half-weighted for GLEAF with a lot of that EBITDA expected to be in 2H, just trying to get some incremental color in terms of how much of a contribution we should really be expecting from GLEAF coming in and then from some of the other cultivation and retail you have coming online from Legacy ColumbiaCare. Thank you.
spk04: Sure. If I can, I'd like to start off by talking about Legacy first, and then I can sort of describe GLEAF. I think your numbers are generally kind of in the right ballpark for GLEAF. I don't think we've actually published what we expect those numbers to contribute from GLEAF's perspective. But I think the most important thing is that if we look at our actual markets where we have ongoing sort of what's called productivity expansion efforts and we have ongoing sort of harvests that are waiting to actually hit the market, we've got significant capacity coming along in Colorado, in Arizona, in Florida, in Massachusetts, in Ohio, in New Jersey, in New York. And then we have several markets that are actually just turning on altogether, such as, you know, Missouri and West Virginia. So if you think about what we've seen in the past, there's always a bit of a drag on gross margin, which obviously has an impact on EBITDA. But once that capex spend is done, once you actually start recognizing revenue and driving that real scale out of the manufacturing side, it falls right to the operating margin line. As far as G&A, we're actually finding an enormous amount of scale from our corporate activities, and so those numbers continue to look better over time. But the, you know, we would expect, you know, a significant portion of the back half of the year to be driven by things that we've made investments in the first quarter and the second quarter this year. And that's just, you know, those are just kind of fundamental. You know, obviously there are things that we have not baked in. So, for example, we are expecting flour to hit the markets in Virginia sometime sort of the end of the third quarter, beginning of the fourth quarter. We'd hope New York would be about the same timeline. Those would be great kind of additional contributors. But the ColumbiaCare kind of historical business continues to, I think, really sort of push in the right direction, beginning with gross margin improvements that are being driven by those investments. David, I don't know if you have anything to add to that.
spk05: In addition, the canopy that we've brought online where we start to take down harvests in Q3 and early Q4 will obviously drive the second half of the year as well. So it's about scaling into that. the production that we're bringing online in addition to turning on the new markets in partnership with the G-Leaf acquisition.
spk06: Okay, great. Thanks for that color. And the second question for me will just be on Colorado. You mentioned sequentially you had some seasonality. But just looking at the state data, it looks like it was roughly flat Q over Q. And I recall in 4Q, you guys had a pretty big outdoor harvest. So just wondering, and I believe you guys outperformed in 4Q, or at least it was implied that way. So Was it also just on a sequential basis that maybe you just had such a big benefit from the outdoor crop in 4Q, and then maybe you were more normalized to the market in the first quarter, and that caused maybe the sequential trends to look a little bit worse? It looks like you over here are 27% about in line with the market. So just love any incremental detail on Colorado. It's such a big market for you guys today. Thanks.
spk04: Yeah, it's sort of interesting because a lot of people haven't spent much time focusing on Colorado because I think we're the only sort of MSO that has a footprint there. But if you compare sort of let's call it fourth quarter where we did actually see some outperformance, the gross margin was about 47%. And, you know, historically first quarter and fourth quarter are the, let's call it the weakest in Colorado. And you have this real bump in the second and third quarter. This year there was a contributing factor. We kind of looked at the infrastructure and we realized we've got You know, we've done a great job, I think, of bringing additional cultivation capacity online there, and the team's done a great job of executing. But we also are supply constrained. And one of the things we've faced in the past, you know, one of the things that we're able to solve for TGS is that they didn't have the same balance sheet we have. And so we've actually made a couple of investments in steel, which is that five-stack facility in Denver that is, you know, incredibly productive. And we would expect, what, between 40% and 60% additional productivity coming out of that one facility. to hit the market this year towards the second half of the second quarter. And that ought to be, you know, that will be very well received by the market because it'll enable us to rely less on the wholesale market than we have historically. And so when we think about the sort of the impact of Colorado, it was meaningful. But it was also somewhat self-inflicted. I mean, we had underutilization because we really wanted to make sure that we basically did as we've done in the past, which is pull the Band-Aid off. So if you think about what we did in Florida, when we recognized there was an opportunity to improve the business, we really kind of did a deep dive and spent some time thinking about the way to really plan through and actually execute on a transition. That wasn't great in the fourth quarter last year, but it's turning out to be a great decision in hindsight this year. I would say the same thing for Colorado. You know, we have very, very – high degree of confidence that the margin profile in Colorado is actually going to be a contributor in a material way, both at the operating margin level and at the gross margin level. And we wanted to make sure that that was as pronounced as possible. So, yes, there's definitely seasonality that we expected. And, you know, candidly, we actually improved materially year over year just from a comparative perspective, both on a margin basis and on a revenue basis. But the fact is that we really wanted to take advantage of that weakness when there was expected to be weakness in the market so that when the market really turns on, which it typically does right around this time of year, we were going to be very, very well positioned to see that gross margin and operating margin kick up along with revenue. I don't know, David and Lars, do you guys have anything to add to that?
spk05: This is David. I would just add that we do have a large one-turn outdoor cultivation facility in Colorado. And we've spent Q1 and Q2 preparing for that process for 2021. We are adding a significant amount of automation to that production facility to allow us to drive labor costs and to speed the turnaround from harvest to get product on the market. So it was a strong cue for the supply-demand. Structure in Colorado remains, you know, like a growth market, frankly, and so we did take advantage of it in Q4, and the automation we're bringing in the second half of this year to our outdoor cultivation facility ought to allow us to bring more trim into Q4 this year and into Q1 2022, which is, you know, obviously high quality, but more importantly, low-cost trim for us to continue to push through our manufacturing assets.
spk04: Yeah, and just to quantify that for you, Aaron, if you think about the You know the sort of the difference between q4 q1 2021 a little over half of the gross margin decline result that was caused by that under utilization was specifically because we decided to fix the really upgrade the facility. And so, you know, we could have avoided that and we could have shown kind of a different profile. But, you know, frankly, we're expecting to see that materialize over the next couple of quarters. And, you know, we didn't think that that, you know, if we were going to take a bet, I'd rather do it at the beginning of the year to make sure if something didn't go perfectly, we'd be able to fix it in time. And so far, so good. Everything seems to be tracking in the right way. But it was, you know, that's the type of, you know, impact that some of these really large markets and really large facilities have when you decide to sort of take something offline and really fix it and improve it.
spk09: Okay, thanks. The only quick additional comment is that, as I think both Nick and David alluded to, the first quarter we were actually ahead of our internal targets for Colorado. So even though there's seasonality, this was expected. we are actually on track and slightly ahead of target for Colorado, according to our internal targets.
spk06: That's helpful, Collar, and thanks for that, Lars. All right, guys, I'll jump back into the queue. Thanks. Thank you.
spk01: Thank you. Our next question is coming from Vivian Azar from Cowan. Your line is now live.
spk11: Hi, good morning.
spk04: Good morning, Vivian. How are you?
spk11: Very well, thank you. I was hoping we could double back on California, please. You noted some of the softness in the market due to COVID restrictions from a retail standpoint. However, you know, obviously COVID restrictions in that market have eased. And, you know, much more recently, the CDC has changed its guidance. And so given that we're in a six or seven weeks into the quarter, can you comment at all on whether you're seeing trends improve as California lockdowns have eased? Thanks.
spk04: Sure. I mean, just at a very high level before I turn it over to David, it's like night and day. There's been a huge, huge change, not only in the retail side, but also on the wholesale side, because those restrictions were statewide. And they were meaningful, right? I mean, we could only use 30% of our retail footprint. So that was a painful period, and we're glad to see those restrictions relieved. But It has been a very different marketplace for us since they've started to ease. But, David, let me turn it over to you and see if you have any sort of details to share.
spk05: Sure. Good morning, Vivian. It was definitely some dark days, you know, late January, early February in California with respect to not only retail foot traffic, but it did translate into wholesale trends as well because they're almost directly correlated. We have seen a material increase in foot traffic and wholesale activity in as we sort of got into March, and it's continued in April and May. So I think while we're sort of having, I think, this spring effect, it was much more restrictive in California than other parts of the country. And with the easing that's taken place over the last six weeks or so, you've seen, I think, a larger rebound in terms of foot traffic and wholesale demand. So we're encouraged by the trends we see in California right now relative to late January, early February.
spk04: I mean, the only thing I would say is Southern California, for some reason, there seems to be an element of cyclicality. We've noticed this over the past couple of years. It's not nearly as pronounced as Colorado, but there is an element of cyclicality in Southern California, which, you know, I think that we're working through right now, and I think what our plan is to really mitigate that to the extent possible by really leaning into the wholesale markets going forward. But, you know, anytime you have a regulatory sort of change that precludes people from coming into your store, that always has a – has kind of a chilling effect for a period of time, but that seems to be behind us.
spk11: That's encouraging to hear. Thank you very much.
spk01: Thank you. Next question today is coming from Kendrick time from ATB capital market. Your line is now live.
spk14: Thank you. And good morning, Nick morning. If we could just touch on Florida. Um, obviously I've been a bit of a problem child through the course of last year. Seem to be some noteworthy improvements there and sort of heavily cultivation focused and driven. But can you sort of speak to beyond the improvements you've seen, what we could look to or expect to see out of Florida this year? What's not obvious in your press releases, any call out on store count or store count increases? And let's just think about how you see Florida evolving as a market and how you intend to sort of spend your time and money in Florida this year.
spk04: So I think the first thing we wanted to do was really rate the ship, and we wanted to make sure that the core business was performing at a level that we felt comfortable. It's getting there, meaning we have made incredible strides at the gross margin and operating margin level. If you remember last year, the story about Florida was it was a negative gross margin contributor. That's clearly not the case now. And so I think that what you've seen us do is to, I think, lean in to our manufacturing and cultivation capacity so that we have adequate supply in our stores. We'll be bringing out new branding conventions, new products, all of those things this year, which I think will be very helpful from an awareness and a consumer perspective. But the other kind of, I think, contributing factor is that the theory that we've had that there's an enormous amount of white space and there's a large swath of the population that really is unaddressed I think is holding true. And we're seeing a lot of very interesting sort of demand trends that ultimately will result in us increasing the store count. But what we don't want to do is have a lot of stores that aren't really outperforming. We want to be more methodical about it and really kind of introduce new stores once we know that we're hitting the types of margin profile that we would expect in a market like Florida. And we're not there yet, but we're getting there. So, you know, if you think about the trend line you're seeing in the first quarter, if we perpetuate that in the second quarter, In the third quarter and fourth quarter, you might see us start expanding into bricks and mortar facilities in addition to the rollout of cannabis, which has a very significant technology platform, which will allow us to do things like home delivery more effectively. But let me turn it over to David.
spk05: Sure. So in addition to what Nick just mentioned, I think we continue to be focused on optimizing our cultivation manufacturing assets. We now have three cultivation facilities available. in the state of Florida across greenhouse, hybrid, and indoor cultivation. We are, in Q2, implementing and commercializing a number of scaled automation post-harvest equipment that's going to allow us to drive further scale. So we have an ambitious goal for 2021 in the state of Florida. We're excited about the trends. The team is definitely energized. We've introduced a number of new products. We solved, I think, the primary issue, which was flower availability and diversity of the offering. Through production planning, we've now landed the plane on where we need to be with respect to the garden. Things like edibles and CO2 cartridges and other things that we're introducing in short order, we know there's a market for it. We continue to move in the direction of having a comprehensive portfolio that patients are looking for, which allows you to do a number of things. Drive repeat traffic, but also minimize the impact and need for discounting, which obviously impacts gross margin and operating margin. So we're excited about the trends. We want to be hyper-focused on getting everything we can out of our production facilities and the existing stores we have. We continue to look at opportunistically locations that are either available semi-built or complementary to where we are from a footprint perspective. And so we'll continue to do that in Q2 and Q3. So no definitive plan that we're going to communicate at this point in time, but we are driving aggressively down there. And as everybody on the call knows, it's a weekly benchmark that everybody gets to see. So we're excited to continue to move up the league table in Florida.
spk04: Yeah, I mean, just in terms of my expectations, and I don't think this is something that necessarily we're sort of putting down as a firm commitment, but I would like to see, and I think it's achievable to see Florida as a top five market in terms of gross margin, EBITDA contribution, and revenue. And I think that's very achievable with what we're seeing on the ground right now. So, you know, one of the reasons why we started providing sort of insight into what the top five markets look like is so that people can track over time to see exactly how impactful and how meaningful the portfolio is as different markets begin to really evolve and kind of, let's call it, you know, outperform relative to sort of other markets. And so it'll be a really interesting exercise, but we feel very good about Florida.
spk14: Thanks, James. And then just a quick further line for me. Nick, if memory serves, some 23 of your stores out of your 68 total are in Colorado. Can you just help us better understand sort of the relative sizing of those stores and their revenue contribution? Is there a fair characterization that, you know, while representing a 30-year retail footprint, they represent a significantly higher percent of your, from a revenue contribution perspective? I'm just really trying to handicap the the Colorado impact and potential drags of that facility being partially offline this quarter and better understand sort of the relative weighting of Colorado versus just the headline numbers.
spk04: So I guess I would put it this way, and before I turn it over to David, I think historically what you're saying is correct, and I think we're at an inflection point where you're beginning to see other markets begin to really outperform relative to Colorado, not in terms of margin profile necessarily, but in terms of just the growth characteristics. So, you know, Florida is a perfect example. Florida was really nowhere last year. This year it's actually going to be a real contributor. New York isn't a huge business for us, but it will be. Virginia is coming out of left field. I think no one expected Virginia to really be as meaningful as we expect it to be this calendar year. And so if you look at it over the prior 24 months and you compare it, you're absolutely right. But we've had so many new markets and so many new facilities and so many new sort of, let's call it, aspects of the supply chain built out and optimized, that I think that that comment generally becomes less meaningful as time goes on. And so in 2022, it'll be a very different conversation than in 2021, just like it would have been in 2020 versus 2021. But let me turn it over to David.
spk05: Yeah, the only thing I would add is when we took on TGS and you review the store level data, that portfolio is very much a portfolio approach to the Denver and Aurora marketplaces. They have a handful of really strong dispensary operations on a standalone basis, but to cover that entire market comprehensively the way they do with their loyalty program and their marketing spend, it is a portfolio approach. So we're excited about the whole portfolio there. They have probably some of the sharpest data warehouses in our portfolio, so their ability to manage intra-day revenue, gross margin, and labor spend is tremendous. And so we are taking best practices out of Colorado. So it is a portfolio approach. And as Nick mentioned, as we see some of the East Coast markets come online, some of those standalone single stores will be significant contributors to revenue and EBITDA in 2022.
spk04: Yeah, I mean, I think just not to put too fine a point on it, but, you know, Boston Colo for adult use, It's a quarter, it's at least a quarter behind what we hoped, and we thought that would be a bigger contributor in Q1. Unfortunately, it's not. We're hopeful that's going to be a contributor in Q2. The tripling of the dispensary in Chicago, I mean, one dispensary shouldn't really move the needle, but when you're talking about big city and metropolitan areas, they really do have a pretty big impact. The only other thing I would say about Colorado is that there's a part of the story that I don't want to get lost, which is You know, a year ago, we had about mid, our wholesale business was somewhere in the mid single digits, mid to high single digits. Today, it's in the mid to high teens. That wholesale business is growing rapidly. And so, you know, our retail mix as a percentage of total revenue is going to be declining. It'll still be growing very quickly, but as a percentage of the total pie, it's going to become less and less pronounced. And so, you know, think about the Colorado of the individual dispensaries, I think a more meaningful statistic would be to keep an eye on exactly what we've been able to achieve in a highly fragmented market by consolidating the wholesale market. And I would say the same thing in a number of other jurisdictions.
spk14: Thanks, Nick. I'll leave the Boston teaser to somebody else to follow up on, but appreciate the call. I'll get back in here.
spk01: Thanks. The next question is coming from Andrew Semple from Echelon Capital Markets, who is now live. Hi there, and good morning, everyone.
spk16: Good morning. My first question here, I just wanted to touch on some of the comments in the press release and the prepared remarks, you know, noting possible supply shortages in Colorado in the months ahead. Could you maybe speak to some of the dynamics that you see driving that? And would you consider ColumbiaCare adequately supplied in that market? given the actions you took in Q1, or do you still run the risk of maybe being a little bit tight on the supply side in the coming quarters?
spk04: So let me answer that at a very high level, then I'll turn it over to David. I would say, you know, Ohio, Colorado, New Jersey, New York, you know, many of our markets, you know, Massachusetts are facing supply constraints right now. In Colorado, it's particularly unique because you do have the cyclicality. The second and third quarters are just different than the first and fourth quarters. And the reason why we've done what we've done is because the additional supply will make a meaningful impact on our ability to not only supply our own distribution retail channel, but also the wholesale channel. We like to believe that we've taken steps to kind of get closer to that inflection point where we're driving as much product through our supply chain as the market will bear. But it's, you know, with the way this market is growing, it may be that we are, you know, again, under supply just to a lesser degree. You know, time will tell. But there are a couple of contributing factors, one of which is that you just don't have the same type of institutional focus in Colorado that you do in other markets, and therefore you don't have as much investment, you don't have as much you don't have as much sort of time. You have many, you know, going into very substantial grows, and there's also a time amount that's required. So, for example, our Trinity location, which is, you know, several hundred acres, every time we develop sort of an additional amount of capacity there, we are then the following year allowed to add more capacity. So it's not like you can just kind of grandfather yourself into some of these some of these supply chain dynamics, you really have to build into them along with, you know, or in part and parcel with the regulatory approval process. So, you know, David, I don't know if you want to add a few things to that to sort of add some different color.
spk05: Yeah, I would just add that we are a buyer and a seller in the wholesale market in Colorado routinely, and I think Nick mentioned earlier in the call that We have the benefit of using capital if we need to when the time is right in Colorado. So we've tried to, and I think we did it in Q1, and we're being opportunistic now. We're trying to acquire material biomass when the timing's right so that we can be sellers when the timing's right. And the legacy TGS didn't always have that opportunity to deploy capital strategically like that. So we've been planning to do that, and I think Nick has mentioned it, the better we get with our indoor yields and automated post-harvest and our outdoor grow, we will have the ability to become more and more of a price maker as opposed to a price taker in Colorado. So I just think it's encouraging at a macro level to see that there continues to be growth opportunities in a market like Colorado where people, I don't think, recognize the continued year-over-year commercial opportunity and the growth and the fact that the supply-demand challenges remain even in a market that's been an adult use market for a number of years. So we're encouraged by the opportunity.
spk09: Lars, do you have anything to add to that? No, I do agree with what David was saying. I think the real benefit for us really is to take advantage of the, if you like, the ebbs and the flows, right, in product supply in markets like Colorado. So it allows us really to, if you like, manage those fluctuations, especially in the wholesale market. and that does distinguish us, I think, from many of our competitors, especially in the recreational markets.
spk04: Yeah, I mean, you know, I don't know if for those of you who are watching the news, the tape right now, but Pure Leaf just announced that they're buying Los Buenos, which is the other large outdoor grow producer in Colorado, and they've had some issues with some crop failures recently, but it's a good asset, and so I think that, you know, if there was ever a ever a sort of a leading indicator for what, you know, where people are spending their money. Obviously, you know, this is an interesting market to be in for a lot of the reasons we're seeing.
spk16: That's great, Collier. I appreciate that. Switching gears now, I just wanted to ask on New York, you know, I would love your insights on the expanded New York medical cannabis program. I guess, what are your expectations for patient demand building in that state? Do you expect it to be kind of a spike once we see dried flower approved, or do you think it's going to be a more gradual process over time? Maybe you could also comment whether you anticipate the beginning of adult use sales having any impact on medical cannabis demand.
spk04: Well, two things, and then I'll turn it over to David and Lars to ask them to weigh in. The inclusion of flour is kind of the sea change moment. We're seeing very steady growth, both in the wholesale and the retail side of New York, but nothing spectacular. It's still effectively a pilot program. The real moment of change, just like we saw in Pennsylvania and Florida, will come when you actually have flour introduced into the marketplace. And that's what we have been preparing for, and that's what we are preparing for. The advent of adult use is another sea change moment. And one of the reasons why, you know, we got lucky because we wanted to expand our flower capacity for the medical program through the acquisition out in Long Island is that, you know, we have the most scaled facility in the state of New York now. So we can be the low-cost provider of the highest quality products, and we can really, you know, hopefully facilitate not only the success of some of the social equity licensing initiatives that will be underway, but also success of the market in general. There's no reason why someone needs to pay a premium for something of dubious sort of background in the illicit market when you can buy very high-quality tested products with the right brands, the right locations, with total access throughout New York State. So we're cautiously optimistic, not only about the expansion of the medical program, but also with the development and evolution of the adult use program. One thing I would say is that medical in New York, because it does have a very, very good tradition of high quality and unique form factors, we would expect the medical program to remain somewhere in the neighborhood of 20% to 30% of the total market once it's reached its peak maturity point. So that's still a billion-dollar market, right? So set aside the multibillion-dollar opportunity in adult use. New York is going to be a very, very considerable market, and so even if we don't see enormous growth from the standpoint of the adoption curve. Immediately, you know, once flour comes online, I think that the actual, what we've observed in other markets is that the introduction of flour actually creates a lot of awareness, which leads to a very easy and successful implementation of adult use. And so the way this data is approached, we think, is very logical and very reasonable from a consuming perspective and from a patient perspective. I don't know, David, Lars, you guys have anything to add to that?
spk05: David, I would just add that we've seen what has taken place in markets like Massachusetts and Illinois with the introduction of adult use sales on the medical program, and those medical programs have continued to have pretty strong growth. So we expect that would be the same in New York. Ultimately, it comes down to, I think, microeconomic decisions for patients and how their purchasing behavior translates into taxes and limits. So we expect that to be the same in New York.
spk09: This is Lars, and the only thing I think I would just add to that would be the experience we already have in a number of markets with large greenhouse operations. So this is not going to be a first for us as we get cultivation started and up and running in New York. And so we've got plenty of experience coming into New York with with preset operational procedures, preset tracking, and reading management of the operations.
spk16: Great. Thank you.
spk01: Thank you. Our next question today is coming from Matt Bottomley from Canaccord Genuity. Your line is now live.
spk03: Good morning, all. Yeah, I just wanted to circle back to the margin profile again. And considering, you know, a lot of the expansion initiatives in New York, you know, New Jersey coming online, hopefully in the back end of this year, you know, some of the color you give in Northland, Virginia. I'm just wondering how we should look at the path to ColumbiaCare reaching this, you know, 47%. gross margin by the end of the year, given a lot of the ebbs and flows and continued investment in infrastructure, which we know can make that line very choppy. So just wondering if you can provide any more color on the pathway to reaching that level and what we can expect in the next kind of three quarters directionally.
spk04: Yeah, absolutely. I mean, I can give some specifics, but let me turn it over to David and Lars as well. I would say the following. The investment that we're making in New Jersey is is coming online in second half, right? So by definition, that revenue recognition trend line that you expect to see after the CapEx is spent is materializing. The same thing is gonna happen, is happening in Florida, the same thing is happening in Arizona, the same thing is happening in Virginia, the same thing is happening, sort of go down state by state. And so, by luck or by design, we made the conscious decision in the first quarter to really begin to lean in in our largest markets so that we could really see that acceleration in the second half of the year. In some cases, that happens to dovetail with the introduction of flour in a couple of medical programs. In other cases, it happens to, I think, position us very well for the increase in the new licenses that are coming online in advance of the rollout of adult use in places like New Jersey. And so all of those things are kind of – they're just factual, right? I mean, we know how long it takes for the plant to grow. We know how long it's going to take to package. We know how long it takes to get in the market. And I think that that immediately gives us additional scale. So when you look at our top five markets by adjusted gross margin, you know, you're going to see improvements in growth. It means material improvements in Colorado. You'll see material improvements in New York. You'll see material improvements in Massachusetts. But you're also going to see material improvements in Ohio, in Virginia. And so you've got to go down all these states because that's where we've been deploying the capital. So it's going to be less of a... less of a drip, meaning, you know, it's, yes, we're going to continue to be expanding in places like New Jersey, but we'll have our first material harvest, and that's going to go a long way to basically ship, you know, sort of riding the ship. You know, this Alachua facility in Florida, online, we were going to have sales, you know, by the end of the second, you know, by the basically the end of the second quarter, beginning of the third quarter, right? That's revenue that's coming online and be pushed through our retail channel. So, I think that the, you know, if you look at our pattern of operations, we've always sort of torn the band-aid off quickly, and that's what we want to do here, which is really just get this phase out of the way. You know, candidly, you know, a year ago or even half a year ago, you probably would have seen more volatility in the top line, but we've seen such spectacular performance in some of our newer markets and some of our more mature markets that it really offset it nicely. But, you know, we were cognizant of that, but rather than having kind of a continuous drip, I felt strongly that we should just try to pull, you know, get everything done as quickly as possible, and then really prepare ourselves for the second half of the year, which is why we feel so good about, you know, sort of maintaining our guidance for the full year, because there's nothing that we're seeing on the ground. And as Laura mentioned, we weren't just ahead of our internal budget in the state of Colorado. We were ahead of our internal budget, you know, portfolio-wide. All things being equal, the numbers are tracking the way we had hoped them to track, especially when you take into consideration all these projects that are actually opening up for commercialization. David and Lars, let me turn it over to you.
spk05: The only thing I'll add quickly, and then Lars I'll hand it over to you, is Matt, we are adding a significant amount of post-harvest automation for flour and flour derivatives. Right now, in a number of our larger markets, a lot of labor. Those are pieces of equipment that are landing this quarter, this month, and next month, and they will be commercialized in Q3. That will add a gross margin lift, given the labor efficiencies we're going to gain through that type of productivity, which we've seen in markets like Colorado. We have four or five markets where that equipment is ... Again, it was delayed probably by a quarter, just given supply and shipping issues. globally but it will be implemented this quarter and we'll start to see those benefits in Q3 and Q4 in a number of our older markets.
spk09: And the only thing I can really add to what Nick and David have already said, this is Lars, is really the performance that we expect out of GLEAF and really I think on two levels. As I think Nick alluded to, we're seeing and we're hearing good things from the first couple of months of the year out of GLEAF. I think also importantly, we don't necessarily need a big improvement, quite frankly, from GLEAF. GLEAF is well on track, so we're not baking in any major improvements really from GLEAF's side.
spk03: Got it. Thanks, guys. And then just one more on buy-in. From an M&A capital deployment standpoint, I think, you know, one of the big benefits from Greenleaf is it's really helping you guys get 100% vertically integrated in your core markets there on the East Coast. But just wondering, looking at the West and Midwest here, it seems like Arizona and Illinois are going very well for you from an operational standpoint. And I'm just wondering if there's any sense of needing to go deeper in that market as it continues to grow as You know, a lot of your peers seem to be targeting certain markets. I know Pennsylvania is one of them and really sort of spending a lot of capital to get expanded out in markets that have these very healthy growth profiles. So those are two of the better states right now from a growth perspective, and it is where you have exposure. But just curious if you think GIFs is more needed in those markets as they grow, just given how well it's done so far, please.
spk04: So the answer is we're looking at all of our markets. There are opportunities, and I think now that what we thought would happen in Arizona is kind of what has happened, which is we thought it would be a nice bump when adult use came, but you wouldn't see that type of seismic change that you've seen on the East Coast because the maturity of the medical market was so significant. But we are looking at all of our markets all the time for the right assets to really drive value. But if I may for a minute kind of go off script, you look at the adjusted EBITDA table that we included in the slide deck we prepared, Maryland wouldn't even be a consideration for that analysis. Post-GLEAF, Maryland is going to be pretty high performing relative to where it is today. And so I think that Lars brings up a good point. I don't like to sort of put the cart before the horse, but they've built a great business. And, you know, we've built very complementary assets to those business and vice versa. And I think that that's, you know, so when you think about Pennsylvania, it's a top-five market today, and it's not even fully vertically integrated. When we actually are able to recapture some of those gross margin points and some of that, it's going to flow right to the operating margin. And so, you know, it's a really – we positioned the business – very well for what we expect to see in the second half of the year. And it's been, you know, and that's been part of a kind of a very deliberate approach for the past 12 months to kind of make sure all these pieces are lined up for this moment. But we're, you know, there's nothing that I'm, I mean, I don't know, David, do you have anything to add to that?
spk05: I would just highlight the fact that I do think there are certain markets, Matt, where I think it's the time, time, money, and energy to take market share versus acquiring market share at the valuations rate is something we weigh all the time. So, for example, In Florida, we've demonstrated the ability to take market share just through execution. And markets like Arizona and Illinois, I think there's an opportunity, if the price is right, for us to expand our footprint. I think in a market like Arizona, high level, you look at the total size of the market, you look at what flower and flower derivative probably is on a retail and wholesale basis, and you start looking at the canopy that's there. I'm not sure we're in a position where we feel like we need to go deep in the CapEx budget into Arizona, where we might find opportunistically the ability to find something that's complementary to us. So I think in addition to looking at all the markets, we do weigh the TAM, the competitive matrix, and the ability for us to take market share organically versus actually leaning in and taking established market share, especially if there's a brand attributed to it.
spk03: Great. Appreciate all those comments, guys. Congratulations.
spk01: Thank you. Our next question today is coming from Glenn Mattson from Lattenburg-Palmer. Your line is now live.
spk02: Hi, thanks. Just one for me. Nick, I'm curious to get your thoughts or updated view on your thoughts on the federal legalization outlook, the interstate commerce kind of debate, and just how you're positioning and setting up ColumbiaCare for folks you know, for how you're looking at how it's going to work out or just the flexibility in case it works out different than what you expect. So color on that would be great. Thanks.
spk04: Sure. I mean, look, there are two kind of outcomes. One effectively allows the states to continue to operate their programs in the way that they do. The other one is, you know, a national legalization that incorporates some form of interstate commerce. Our hedge for interstate commerce has always been overscaling in certain markets. So, for example, if we really wanted to lean in in Colorado, that could very quickly become our national hub for cultivation because it's a fantastic market, it's employer-friendly, and it's not overly regulated. And that's very different than a place like California, which has the right climate, but it's almost impossible to do business there. That hedge, I think, is effective. And it's something that we thought about when we thought about leaning into Colorado. It just so happens that the Colorado market continues to grow at an outsized rate, which is why we seem to be selling more than we're able to grow, which is great. But the flip side is I think the more likely outcome is that you have a federal market approach that allows the states to continue as they are expected to continue because of a variety of political priorities. Among them are, frankly, the tax and job creation within individual states and then the social equity debate because nothing is going to pass the House of Representatives from a democratic perspective if it doesn't include social equity considerations. we're very happy that the most recent states to convert from medical to adult use, beginning with Illinois and ending with New York, all have significant social equity components to them. And those are incredibly important, not only for the integrity of the industry and the integrity of the state-level programs, but also for the political support at the federal level to get something done. And so I think there are It would be early to sort of say we expect XYZ, but I think it would be politically untenable to take action that would undermine the social equity initiatives at the local and state level without some kind of penalty at the federal level. And that penalty is a lack of support. So we're, you know, we're cautiously optimistic. We do see movement in the federal legislative landscape. Is it sweeping? Is it comprehensive? I don't know. I think those are more subjective than objective terms. But I do think it's something material because anything we have is material, right? If we get access through the Safe Banking Act, that's material. If they come up with a combination hybrid approach where you've got the SAFE Act and the States Act and the Moore Act, I mean, that would be a great outcome for us. But ultimately, you know, politics is a very tough business, and I think that some people look at cannabis as a political – political need based on what their own circumstances reflect, not necessarily what they want to be their legacy. And so, you know, we'll take a win any way we can get it, and I think we're going to have a win this year. I just don't know if it's going to look like what everybody's thinking about, but it doesn't really matter because anything from here, you know, the market is fantastic as it is. If we have additional expansion, you know, and approvals from the federal level, that's only upside.
spk02: Great. Thanks for that, Colin.
spk01: Thank you. The next question is coming from Pablo Jr. from Cantor Fitzgerald. Your line is now live.
spk00: Thank you. Nick, two questions. Can I ask in terms of the cannabis concept, is that going to be just for the new stores, or is that going to replace the whole network right now, including the green solution? Although we have the press release, just more color in terms of why cannabis on the retail side is going to be such a differentiated concept. And the second one, very briefly, I don't think you disclose what net wholesaling is as a percentage of revenue. Can you give that number? Is it 5%, 10%? And over time, what do you think is the right mix, thank you, for wholesale versus retail in terms of revenues? Thanks.
spk04: If it's okay with you, Pablo, I may answer the second question first and then hand it over to Jesse Shannon, who's on the phone. Our percentage of wholesale is in the mid-teens currently. A year ago, it was kind of mid-single digits, so it's gone up pretty significantly year over year. I would expect in the next 24 months it to be north of 50%. So we're seeing a massive, massive expansion of our wholesale revenue that is basically coming online concurrent with a lot of the cultivation and manufacturing expansion projects that we've been talking about. We just haven't had enough capacity to really supply the wholesale market, even though there is demand. And I think that supply side is finally catching up to the demand. In terms of the cannabis, before I give it to Jesse, I would just say that for us it was as obvious as it gets. It encompasses all of the important aspects of the customer journey, customer experience, customer access that we've been hearing about since 2012. And what I love about it is that it's exactly what it is, right? If you're looking for cannabis, if you're looking for information, if you're either an expert in the products or if you're a novice in the products, you still want to have that connectivity and that uniqueness that is appropriately designed for you as an individual consumer. And I think that's what cannabis really provides. But, Jesse, maybe you could weigh in and give a little bit more color here for Pablo.
spk07: Yeah, good morning. Happy to. So for the first part of your question with regards to will it only be new locations or will there be a retrofitting and a rebranding to existing locations, it's the latter. So we will continue to develop in new markets under the banner, but we will also be working backwards in retrofitting and converting many of our locations. I believe in the press release around cannabis we committed to 80-plus locations over the next couple of years. And that comes from that mix. With regards, I think you specifically highlighted Colorado and TGS. Colorado and TGS is an interesting market and something that's a bit unique in our portfolio in that there's an enormous amount of locations, but there's also great brand awareness and great brand equity there for TGS. So do we envision there being cannabis locations in Colorado or Absolutely. Do we think that that comes at the cost of a complete sort of wiping of the TGS brand? Probably not. I think that there's an incredible opportunity to have sort of a co-location of those two brands in market from a location to location and audience by audience point of view that allows us to still have that portfolio approach and sort of service such a large portion of the population in Colorado and while also having fairly unique offerings and unique attributes to those retail experiences. Cannabis is inherently a bit different as far as a retail experience than TGS. And I think that leads into the last part of the question with, you know, to briefly answer what makes it different. The thing that makes it different is that we have, you know, almost a decade of data and interactions with patients and customers across medical and adult use. recreational markets at this point that really informed a lot of the initial platform that we rolled out, which is how do people really tend to enjoy interacting and engaging inside of the four walls, but what are also some of the opportunities to create optionality for that experience? So whether you are a buyer that is looking to come in and either leverage pre-ordering or in-store self-service, Or on the complete opposite end of the spectrum, you're someone incredibly new to the space who really just wants to be able to come in and learn and have an opportunity to have a place that really engages in that practice and leans into that concept of empathetic education, helping to onboard this ever-expanding addressable market that we have. And all of that ultimately comes back to being technology-enabled. It's very different to create those unique experiences under a cohesive brand without building tools that directly help to facilitate those experiences. And so we see technology and the upcoming announcements around some of the proprietary technology that we've built as being a first stepping stone to continue to innovate on creating excellent experiences in whatever optionality people take when they come in those, whether it's to, you know, buy as quickly as possible or stay a while and engage and learn more about the products in the plant.
spk00: Thank you. That's very helpful. Can I add just one last one? Regarding New Jersey, I think you said, Nick, that the store doubled in sales sequentially. Do you think that's an indication of just the state growing, or are you taking share from that Belmar store there, or was there something unique to your experience in the Vineland store? Thank you.
spk04: I can offer you a tongue-in-cheek answer, which is we obviously offer a different experience, but I think that the market is just starved for access. Have we taken market share from somebody else? It's possible. But the market is so underserved right now, I'm not sure if that's really the benchmark that we're focused on. We have two more dispensaries coming online. We have wholesale requests coming in all the time that we can't satisfy. It's just a very, very – it's a very high-demand market with a low supply coefficient. And so, you know, ultimately, do we take market share from other people? I think so, because I think we've got great locations, and I think, you know, cannabis is going to be a completely different customer experience. But what's really going to drive value for us in New Jersey is going to be our wholesale relationships. And so our ability to play nicely in the sandbox is going to be very important. And I like to believe that a lot of the new operators that will be coming online at some point in the near future, they would like access to supply to really sort of start driving cash flow throughout their own businesses. But it's a question that I could give you an answer to, but it would not be based on data. It would be based on a kind of gut, which I don't think is that helpful. Got it. Thank you. Sure.
spk01: Thank you. Our next question is coming from Russell Stanley from Beacon Securities. Your line is now live.
spk15: Good morning and thank you for taking my question. Just one at this point with respect to Virginia. Just wondering if you have further color from the state as to whether you'll be allowed to keep that second license and on that basis what your development plans are at this point given the structure of that medical market and the two different health service areas. How do you plan to develop retail assuming you've got both markets locked down? Thank you.
spk04: So the honest answer is I can't really answer that until we have signed on the dotted line until we've gotten to a close, and so I'm a little bit superstitious. I don't want to be in a position where I say something that could come back and be misinterpreted. We're cautiously optimistic because we've been good stewards of the program in Virginia so far, as has GLEAF. We really fundamentally believe that Virginia is a great market to be in, so whether we have one license or two licenses, it's upside for us in a very profound way. But the way you should think about anybody in this market, let alone ColumbiaCare, in my opinion, is people should be building out as quickly as possible because what the state, I don't think, should ever have to deal with is a scenario where the licensed operators are unable to fulfill the demand of the purchasing population, whether they're patients or in an adult use context. That means that every single dispensary that we can be licensed for will be developed. And if G-Leaf, you know, G-Leaf is doing exactly the same thing, they are not, you know, taking their foot off the gas. That means that every single square foot of canopy and manufacturing capacity that can be developed in an efficient way, you know, we are pushing forward on, and so are they. The Richmond market is a fantastic market to be in. But you know what? The Hampton Roads area is a fantastic market to be in. So it's a very, you know, I'm not going to sort of pick and choose one or the other because right now we're Columbia Care and G-Leaf is G-Leaf. I hope that combination happens soon, and I hope it happens favorably. But we are very, very positively disposed to the whole, to sort of the entire market, and especially focused on our own, to make sure we have optimized every single asset that we can to make sure that the regulators and the consumers know that we are investing appropriately into the state of Virginia. I don't know, David, do you have anything to add to that?
spk05: No, I think you covered it perfectly.
spk15: Great. Thanks for the call.
spk01: Thank you. Our next question is coming from Scott Fortune from Roth Capital Partners. Your line is now live.
spk13: Good morning. Thanks for the question. Real quick, provide your strong capital position now. Can you provide a little more color or estimate on the growth of CapEx for the year and what that will look like? I know it's come off a little bit in the first quarter. And then what is the cannabis portion needed CapEx to build out on the retail side with the new rebranding here?
spk04: So the vast majority of the CapEx you're hearing about now is really new infrastructure development on the manufacturing and cultivation side to improve our scale and our efficiency from a supply chain perspective because we've just had such a limited – we've had so many markets with supply chain constraints. I think a close second will be in terms of intensity of capital use is going to be the – The build-out of new dispensaries. Remember, we're building out new dispensaries in Missouri. We just finished one in Ohio. We've got West Virginia. We've got Virginia, per se. We've got a bunch of them that are going to come online in New York. So all of those are going to be sort of normal, let's call it brownfield builds, and those will be cannabis facilities. And then we've got sort of the retrofits, which, you know, Jesse touched on earlier. The retrofits are actually not that capital intensive. You know, we've found a way to do it with scale and in an efficient way so that we can turn them around fairly quickly so that on a per square foot basis, it doesn't require anywhere close to the degree of capital intensity that a brownfield buildout would. And so we're cautiously optimistic that we can get that done. in a very capital-efficient way. And also, we've given ourselves a timeline to do it, so we don't have to do it all at once. And I think that's one of the things that you'll see us be able to scale. I mean, oftentimes, as you know, in the world of construction, there's a tradeoff between timelines and cost. And what we're saying is we're going to transition. We're going to transition methodically and efficiently, but we're not going to do it in a way that costs us an arm and a leg because we don't think we need to. We're going to be more focused on making sure that the business itself is as streamlined and optimized as possible and that we really lean into both the wholesale and the retail opportunities and that we move forward into the cannabis paradigm in a very effective way. The other thing I might add is just the thing about cannabis is that it's not just about the four walls. And I keep on saying this, and I know that, Jesse, I won't be a spoiler here, but it's about the technology platform that's being layered on top of the four walls and about the way that it creates a continuity with the consumer at any point in their day and at any point in time. And so that's a very different sort of proposal than just a simple rebrand for the bricks and mortars. So technology is scale. And so that is the single most important piece of the puzzle, in my opinion. But David and Jesse, I don't know if you guys have anything to add to that. Jesse, I'll let you speak.
spk05: I think Nick covered the financial component of it.
spk07: Yeah, no, I mean, I think Nick hit on some of the most important parts, but I will say with regards to just thinking about the ecosystem that we're trying to build with cannabis, I think it is sort of this intersection of technology and products and curation. And I think that that technology, to Nick's point, has to do two things. It has to ultimately enhance the customer experience, but also speak to all points that they could engage. So whether they're at home or inside the four walls, there has to be something there for everyone. And then I think the other part is it has to empower us. as an operator with a data set that we don't really have access to right now. And I don't believe is really readily available in the industry because there have not been platforms and tools that have been built by the operators themselves specifically to make sure that we're able to activate and capitalize on the sort of behavioral and contextual data that ultimately should be informing everything from merchandising to garden planning to capacity planning and all of these things moving forward in both mature markets as well as as we expand into new markets and prepare for things like the arrival of flower or movements from adult use and recreational. So that level of strategic planning and those data sets that we'll ultimately be able to aggregate and make use of, I think, are also really important hallmarks of the upcoming transition. so that it becomes something that's a little bit more, you know, robust than just changing paint color on the walls. And I think that was really important to us.
spk13: A real quick follow-up on the New Jersey second store coming on board here timing-wise. What's holding that up or kind of what you expected timing-wise here for that New Jersey store here?
spk05: This is David. We're hoping to bring it online at the end of this quarter. The holdup, as I guess probably everybody has said before, New Jersey is not the easiest state in the union to navigate all of the state and local permitting requirements. So moving forward as quickly as we can on that one and are excited to bring it online at Deptford.
spk04: Yeah, I mean, the only other thing I would say to that is one of the things, one of the mistakes we've made in years past is we brought on board dispensaries with the expectation we would have access to wholesale. and the market is so constrained right now in New Jersey, that's not necessarily a lesson that we want to forget. And so what I asked the team to do is to roll out our dispensaries only on a timeline that would actually allow us to supply our stores. And it's not because I was worried about the margin profile. I think we can drive margin in the wholesale and the retail market. It was really about access. I just never want to be in a position where we don't have access to adequate supply. So one of the things that you should... expanding dramatically is we're doing that now in a way that gives us surety from the standpoint of access, and so an access to inventory.
spk13: Okay. I appreciate the call. Thanks.
spk01: Thank you. Next question is coming from Graham Grandler from Inc. Capital. Your line is now live.
spk12: Hi, good morning, and thank you for taking my question. Just regarding the top five markets by revenue and the composition of how that's changed year over year, notice that Arizona has slipped out of that top five, and obviously there's been M&A activity, in particular California and Colorado, moving up into those top five market spots here. But based on what you've seen out of the early days in REC and following up on some of the comments made earlier in the call regarding M&A, D.C., Arizona is having potential to be a top-five market for ColumbiaCare, and how does the company feel about that market with respect to how it fits in with the rest of the portfolio, and particularly all the other catalysts from different states that were mentioned at the top of the call? Thank you very much.
spk04: Sure. It's a great question. I think the problem you're going to have with Arizona is the same problem you're going to have with the state like Massachusetts. And it's not that we don't love Arizona and Massachusetts. They're great markets. And we're going to continue leaning in to both Arizona and Massachusetts because I want every market to have a chance to be in the top five. But the reality is you've got six, seven million people in Arizona. You've got six, seven million people in Massachusetts. You have a finite market, TAM. New Jersey is going to be a $3 billion market. Virginia could be a $3 billion market. You know, Arizona, maybe it's a billion, billion and a half dollars, you know, at peak. And so you just – it's just a simple question of the availability of consumers and the size of the market that you're selling into. New York is going to be a monster, right? New York is not even, you know, nowhere close to our top ten right now. But I got to tell you, you know, if you look at this a year from now, I bet, you know – It's very possible that three or four out of these five are actually not in the top five because we have so many markets that are growing so quickly and moving into the next stage of evolution. So could it be Virginia, New York, New Jersey, Florida? Absolutely. But then we also have, if you look at Maryland versus Arizona, they're roughly the same population size, but you have a much larger traveling population and tourism population. So it's a really fascinating statistic to keep an eye on. And by the way, California and Colorado are just massive. They're still today the two largest markets in the world. And so it's very hard to sort of predict what happens in California. I would anticipate California and Colorado are going to continue to be growth markets for us because they actually are great. The reason why we always give annual guidance rather than quarterly guidance is because we are starting to notice that different markets have different, I guess, sort of localized aspects of seasonality and cyclicality to them, which is something you don't just pick up overnight. It's something you learn over many, many years. But knowing that those are still high-growth environments gives us a great deal of confidence that when we think about it over a 365-day period, everything is tracking exactly the way we would hope, if not better. So it's a good question, but I think the best part about the question is the fact that we have so many markets, particularly after GLEAF, is consolidated in ColumbiaCare, you're going to see some real movement on that top five over the next two, three years on an ongoing basis.
spk01: Thank you. We've reached the end of our question and answer session. I'd like to turn the floor back over to management for any further closing comments.
spk04: Thank you, everybody. We really appreciate your time today. Of course, if anyone has any questions, We're always available. What you should expect us to continue doing is providing not only our press release and the financials, but also additional slide deck with additional color to really help people give some transparency in the business to a greater degree than we've been able to do in the past. So thank you all very much. We appreciate it. We're very excited about this year. We're very excited about the quarter. And I have to tell you that we've never seen a better set of growth opportunities in front of us that we think are going to deliver enormous amounts of shareholder value.
spk01: Thank you. That does conclude today's teleconference and webcast. You may disconnect your line at this time and have a wonderful day. We thank you for your participation today.
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