The Cannabist Co Hldg

Thank you for standing by, and welcome to the ColumbiaCare Third Quarter 2022 Earnings Conference Call. At this time, all participants are in listen-only mode. After the speakers' presentations, there will be a question and answer session. To ask a question at that time, please press star 1-1 on your touch-tone telephone. As a reminder, today's conference call is being recorded. I will now turn the conference to your host, Ms. Leigh Ann Evans, Senior Vice President of Capital Markets. Please go ahead.

Leigh Ann Evans, Senior Vice President of Capital Markets Thank you, Operator. Good afternoon, and thank you for joining Columbia Cares third quarter 2022 earnings conference call. With me today are Nicholas Vita, our Chief Executive Officer, David Hart, our Chief Operating Officer, Derek Watson, our Chief Financial Officer, and Jessie Shannon, our Chief Growth Officer. Earlier today, we issued a press release reporting our third quarter 2022 results, which we also filed to the applicable Canadian Securities Regulatory Authorities on CDAR and the US Securities and Exchange Commission on EDGAR. A copy of this release is available on the Investors section of our 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, including statements relating to the Cresto Labs transaction, constitute forward-looking statements within the meaning of applicable Canadian and U.S. 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 and the risk factors section of our annual Form 10-K, dated March 31, 2022, as filed with applicable regulatory authorities and in subsequent securities filing. 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-GAAP financial measures, such as adjusted EBITDA, These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. ColumbiaCare considers certain non-GAAP measures to be meaningful indicators of the performance of its business in addition to, but not as a substitute for, our GAAP results. The reconciliation of such non-GAAP financial measures to their nearest comparable GAAP measure is included in our press release issued earlier today. With that, I will turn the call over to Nicholas Vida-Diego to start it. Nick?

Thank you, Leigh. Good afternoon, everyone, and thank you for joining the call. The financial results of the third quarter demonstrate once again the value of the embedded growth in our strategic footprint and the operational excellence we've developed as we capitalize on the transition to adult use in emerging markets, and as we work to perfect our operations in more mature states. From the beginning, we recognized that markets would mature and experience different points in their life cycles at various times. In Q3, we had some markets like New Jersey that were up over 75% sequential in revenue, while others, such as Maryland, showed sequential declines. It was our decision to develop a diverse national platform that has enabled us to hedge these natural market cycles. In another challenging environment, we achieved solid sequential top line growth and standout profitability improvements with revenue increasing 2.4% sequentially to $133 million in the quarter and adjusted EBITDA improving 74.5% over Q2 to $21 million. Our adjusted EBITDA margin improved approximately 650 basis points over the last quarter. We continue to drive growth in our emerging markets such as New Jersey, Virginia, and West Virginia, two of which are now among our top five markets by revenue and EBITDA. As we discussed last quarter, we continue to leverage our expanding scale while also implementing proactive strategies in mature markets as they mature and rationalize. As David will discuss in a few minutes, we have executed upon our plan and have shown material improvement in both our California and Colorado operations in the space of one quarter. which is one of the reasons we achieved a 74.5% sequential improvement in adjusted EBITDA Q3 versus Q2. Another reason for the surge in profitability is our concerted effort to capture efficiencies and drive costs out of our system and the receptivity of our products in the wholesale market. As we discussed last quarter, we made tactical investments in our infrastructure and cultivation operations that have significantly lowered the production costs for both harvested flour and packaged products. Across our national footprint, Trimmed flower cost per gram has continued to trend downwards and in Q3 was the lowest we've seen in seven quarters. Meanwhile, flower quality has consistently and materially improved. These improvements and enhanced capabilities have enabled us to introduce new phenotypes and optimize them to their full potential. As has been shown in every market condition, there is a direct correlation between product quality and pricing. During prior earnings calls, we stated that we expected to see the positive impact of the capital investments we made in the back half of 2022 and that benefit has begun to materialize. We made significant progress on those initiatives during Q3. It is reflected in our financial results, and it has positively impacted both our momentum and our cash flow. David and his team have worked tenaciously to drive efficiencies across our operations and modulate production as needed to address supply-demand issues market by market. These strategic decisions to prioritize quality production and efficiency, combined with the heightened efforts to manage costs as we face persistent headwinds, have generated results. 16 of our 17 markets generated positive EBITDA on the quarter. Our smallest market by revenue, Missouri, was the outlier. Despite revenue increasing more than 30% sequentially, driven by the growth of our wholesale operations, price compression impacted margins. Strong execution at the operating level and significant improvement in profitability is even more remarkable given the challenging environment that we are operating in. Consumers remain under pressure due to macroeconomic headwinds and we've seen basket sizes declining as a result. We are fortunate to have house brands that provide consumers with selection and value while supporting gross margins as well as high growth markets that provide meaningful upside and potential to revenue and profitability. Our in-house flower brands made up over 60% of flower sales at ColumbiaCare locations, complemented by steady to improving foot traffic. Derek will give you an update on our outlook in a few moments, but suffice it to say, strong execution continues to drive growth on both the top and bottom line. ColumbiaCare is well positioned today in recently transitioned markets such as New Jersey and soon to be transitioned markets such as New York and Virginia. And as of last week, the newest states to approve adult use via voter referendum, Maryland and Missouri. I'm extremely proud of the ColumbiaCare team and our ability to grow profitability, particularly in this demanding environment. Before turning the call over to Derek, allow me to give you an update on our merger with Cresco Labs. Recall that both companies will be divesting certain assets as we work through the regulatory approval phase ahead of closing our transactions. which is anticipated around the end of Q1 2023. I'm very pleased to note that on November 4th, we had our first divestiture announcement, as we will divest assets in New York, Illinois, and Massachusetts to an entity owned and controlled by Sean Combs, who is creating the largest black-owned cannabis company in the world. Total consideration of the transaction is an amount up to $185 million, and it is expected to close concurrently with the closing of the ColumbiaCare acquisition by Cresco Labs. This is a major step in closing our merger. We continue to work towards finalizing the remaining asset sale agreements and are making progress as we work through the regulatory approval process. As you've heard me say before, the current economic environment and the opportunities afforded to ColumbiaCare and Cresco by our combined scale reaffirm our decision to merge. Together, we have access to both mature and emerging markets. We will have market leading retail and wholesale operations. We will have one of, if not the strongest brand portfolio and we will have highly efficient operations. Finally, we will have the best of both organizations to successfully execute on the growth strategy and lead the cannabis industry. With that, I will now turn the call over to Derek to review our financial results and outlook in more detail. Derek?