The Cannabist Co Hldg

I'd like to take a moment to share why I have such confidence in our ability to capitalize on our unique position. First, we will accelerate growth by opening the remaining dispensaries in Virginia, West Virginia, New Jersey, and Maryland. Our cultivation and manufacturing is already scalable to capture wholesale opportunities, and we have expanded the capabilities in every market to produce concentrates, edibles, and higher margin branded products that our customers and patients want. Every wholesaler needs access to retailers. we can provide that access and intend to do so in an equitable manner that allows us to sell our full suite of products and brands into other retailers in order to develop brand leadership positions around the country over time. Second, we have implemented 60% of our restructuring plan, with the remaining cost reductions and operational synergies coming later this year. This gives us line of sight on EBITDA margin improvement and lays the foundation for the next phase of our plan to drive cash flow, recapturing gross margin points over the next 24 months by leveraging the scale of our cultivation and manufacturing assets around the country. Third, we believe we have the potential to drive adjusted EBITDA margin higher in the midterm as the business operates with the new cost structure. There is additional opportunity for improvement upon further optimization of cultivation. This includes utilizing available square footage, launching improved products, brands, and SKUs into the wholesale market, and leveraging our expanding retail channel, as well as implementing better systems to improve quality and reduce the absorbed costs on every gram sold. And fourth, We have retained a talented professional team that operates with integrity and is passionate about the opportunities that lay ahead in cannabis at Columbia Care. The leadership team has taken the past 12 months to review and assess every aspect of our business. In spite of the headwinds, our market continues to grow. My enthusiasm is a reflection of the entire team's perspective. As we pursue a pathway to a transaction with Presco, we look forward to executing on our potential and delivering the most attractive platform in the sector to all of our partners and investors. ColumbiaCare is uniquely positioned with embedded best-in-class growth, the right positioning for our market conditions, and high potential for margin improvement. We are excited for the road ahead and the opportunity to build substantial shareholder value. With that, I'll turn it over to the call of Derek from New York Financial Results and outlook in more detail. Derek?

Thank you, Nick, and good morning, everyone. I'll provide a summary of the key financial results for the fourth quarter and the full year of 2022. discuss the key trends we're seeing in our markets, and comment on the pending CRESCO transaction. For the full year, we achieved a record $512 million in revenue, representing growth of 11% over 2021. Revenue in the fourth quarter was $126 million, a decrease of 5% sequentially versus Q3. The decline over Q3 was driven almost entirely by wholesale pricing in a challenged environment that all MSOs exposed to wholesale have been experiencing recently. Our retail revenue was flat quarter over quarter despite continued pricing and discounting pressures in certain markets and reflected another quarter of solid retail transaction growth. In the fourth quarter, we added a net one new retail store with two new store openings in Virginia and one closure in Colorado as part of our broader restructuring efforts. More about that in a moment. In Q4, our retail revenue was flat sequentially, while wholesale revenue declined 30% sequentially and represented just 12% of total revenue in the quarter. Average basket size, which is a combined measure of pricing, discounts, and share of wallet from customers at our retail stores, decreased quarter over quarter, but at a slower rate than we experienced in Q3. As we've talked about before, 2022 was a challenging year for consumer spending. with pricing down in a number of key markets and inflationary pressures resulting in a lower share of wallet available to spend in cannabis stores. The industry continued to grow in 2022, but at a slower pace than anticipated at the beginning of the year. Despite that, the long-term fundamentals of the industry remain strong. Once again, we saw continued growth in our emerging markets, like New Jersey and Virginia. with Virginia now joining Colorado as one of our markets, contributing over 10% of revenue during the year. Pennsylvania, California, and Colorado continue to be challenged and declined again sequentially, but we've started to see stabilization. Adjusted gross profit for the fourth quarter decreased sequentially to $47.2 million, down from $56.9 million in Q3, resulting in an adjusted gross margin of 37.4%, also down from Q3. Our Q4 gross margin was impacted by lower pricing, particularly in wholesale, and also due to unfavorable absorption at underutilized cultivation sites that require us to expense cultivation overhead costs rather than capitalizing them into inventory. For the full year, our gross margin was 39.3%, with an adjusted gross margin of 42.4%, the difference primarily being inventory write-offs at facilities we closed in Colorado as part of our restructuring. Our canopy reduction will continue to generate cash savings, but will also create an unfavorable impact on gross margin in the short term while these assets are underutilized. Adjusted EBITDA for 2022 was $67.4 million, bringing our full-year adjusted EBITDA margin to 13% and up 60 basis points from 2021. Adjusted EBITDA was $17.4 million in the fourth quarter, or 14% of revenues. Despite an adjusted gross margin decline in the quarter of 5.5 percentage points, EBITDA was only down 2 percentage points as our restructuring initiatives continued to lower SG&A. To expand on the topic of restructuring, we took early and meaningful steps throughout 2022 with three separate rounds of initiatives. Our latest cost-saving initiative announced in early January reduced or exited cultivation operations in six of our markets, closed four unprofitable retail stores in Colorado and California, and eliminated approximately 25% of our corporate overhead positions. This latest initiative is anticipated to generate a net $35 million in annualized savings alone. On to our liquidity. We ended the year with more than $48 million in cash, having burned less than $2 million in the fourth quarter, a result of cost savings, lower CapEx, and improved working capital management. Capital expenditures in the fourth quarter were approximately $3.4 million, down from $11.9 million in the third quarter. For the full year, CapEx was $73.8 million. During the fourth quarter, we generated $5.2 million in positive cash flow from operations. A number of other liquidity initiatives are also worth noting. As we announced yesterday, we've extended the maturity on all 38.2 million of our 13% notes, which are now due in May of 2024. This extension was done under the existing indenture agreement and did not require consent or fees. There are no additional maturities in the short term until December 2023, when less than 6 million of our convertible notes become due. As a reminder, we also have capacity under our existing indenture that would allow for additional senior secured financing, should we need it. During 2022, and as disclosed in our 10-K filing, we reduced our overall cost of capital on our senior and commercial debt positions in a year when interest rates were rising. In 2022, we also negotiated a lower interest rate on any future capital lease needs and reduced the finance lease obligations disclosed on our balance sheet by over $18 million. We've not taken on any significant liabilities since announcing the CRESCO transaction. In summary, we took early and meaningful actions to strengthen our balance sheet and make operating adjustments necessary in the current environment. This has created a clear path to positive free cash flow, building on the positive operating cash flow we achieved during Q4. So far in 2023, we've taken further steps to optimize our asset base. As Nick mentioned earlier this month, we signed a definitive agreement to divest our interests in the Missouri market. One dispensary and one processing center for a total consideration of 6.9 million. 3.5 million of this has already been paid on signing of the agreement in March. As we're well into the first quarter of 2023, we can say we expect a revenue to be slightly down sequentially from Q4, which is consistent with normal seasonality and would represent low single-digit growth when compared to the first quarter of 2022. We're maintaining our focus on cost management discipline preserving cash, and deploying capital efficiently. In Q4, the majority of CapEx supported store openings and cultivation projects in growth markets, and will continue spending on similar priorities in 2023 to support continued growth. As we've mentioned, and as you heard on the Cresco earnings call, we continue to support Cresco as we move towards closing of the transaction, and we look forward to the growth that ColumbiaCare's portfolio will bring to the combined company. Despite the delayed timing of the Cresco transaction, and as you've heard today, we've independently taken actions to make ColumbiaCare stronger and will continue to execute on initiatives to strengthen our business through closing. With that, let me turn the call over to David to cover operational highlights. David.

Thank you, Derek. I will now highlight important operational developments during the fourth quarter, particularly in our top markets. On a revenue basis, our top five markets alphabetically were California, Colorado, New Jersey, Ohio, and Virginia. On an adjusted EBITDA basis, our top five markets were Massachusetts, New Jersey, Ohio, Pennsylvania, and Virginia, with Massachusetts replacing Colorado since Q3. I want to highlight that New Jersey and Virginia both remained in the top five this quarter, further demonstrating the strength of our emerging markets. As Nick mentioned, in Q4, we leaned into cash preservation and inventory management, which negatively impacted gross margin in the quarter. In cultivation, we remained focused on increasing quality and potency while lowering our production costs per pound. During the quarter, we continued to optimize production planning, genetic selection, environmental controls, and plant management across the portfolio. A number of our markets are seeing improved potency THC percentages through strict adherence to SOPs, and have identified numerous high-potency strains of 26% THC or greater. We currently have over 68 high-potency strains in our library with plans to increase our genetic diversity in the coming months. On the manufacturing side, we are ramping the production of concentrates in the portfolio and launched heady edibles in the beginning of Q4, followed by our cannabis tablets under PRESS 2.0. We continue to expand SKU and product offerings in each of our markets as we meet customer and patient trends. Now to discuss a few markets in more detail. In California, we closed our downtown LA dispensary and cultivation site in January as part of our efforts to optimize our portfolio as pricing pressure has stabilized but nevertheless persists. In Colorado, we took down a significant amount of canopy and closed one store during the quarter. We saw a sequential decline in sales as compared to Q3 due to competitive pricing, lower average dispensary sales, and decreased transactions. Colorado was the focus of restructuring efforts during the first quarter of 2023, where we've continued to drive efficiency and cut costs by beginning to wind down several cultivation sites. We've closed a total of four retail locations in the state, yet still remain a leading market position with 23 active dispensaries. Turning to Massachusetts, where we saw a sequential improvement in gross margin as we continued to optimize automation and streamline processes throughout our manufacturing facility. We launched numerous SKUs in 2022, including roll your own pre-roll kits, triple seven and seed and strain popcorn and press 2.0. The market continues to see wholesale pricing pressure, mainly in the flower category. In New Jersey, revenue was up 150% in the second half of 2022 due to ramping adult use sales and strong wholesale opportunity. Our cannabis locations in Deford and Vineland were some of our top retail locations in our portfolio in the second half of 2022. During the quarter, we introduced multiple SKUs, brands, product line extensions, and flavors, including Dablicators and Amber Hash. We achieved automation for flower and pre-rolls at our second cultivation site in the state, which helped streamline production to meet strong demand for the adult use market. In Ohio, we saw an increase in internal deliveries to our own stores, which led to a significant expansion of shelf space, providing us a platform to reintroduce genetics and overall quality to the market with increasing competition. 50% garden canopy reduction late in the fourth quarter helped to mitigate an overabundance of finished products. We also introduced strain-specific CO2 carts and RSO duplicators under seed and strain brand during the quarter, which provided more product diversity and allowed us to increase internal sales year over year. New operators are set to open throughout 2023, which we expect will lead to an increase in wholesale opportunities for production, as well as an increase in competition for our retail portfolio. We remain optimistic that our introduction of high quality products in the market will position us well as competition on the retail front intensifies. Turning to Pennsylvania, revenue is down sequentially due to lagging wholesale demand, but we saw an increase in adjusted EBITDA margin as we skewed toward retail. One of the biggest changes to canopy capacity as part of our January restructuring initiative was the reduction of canopy in the 270,000 square foot facility in Saxton, Pennsylvania. We retain optionality to scale up when marketing conditions warrant. Finally, turning to Virginia, which continues to be a top market for ColumbiaCare. During the fourth quarter, we opened two new cannabis locations in Richmond and Williamsburg. Virginia expansion has continued in 2023 with two additional openings thus far. We have eight retail locations open to date with four more in development. Revenue in Virginia has increased nearly 100% year over year. We are still seeing double-digit growth on a quarterly basis as the medical program continues to expand. In a state with more than 8.5 million people, there are currently just 55,000 patients registered in the state, or about 0.6% of the population. We're seeing that number increase as the program has become one of the most accessible medical programs in the country. There's significant room to grow the patient population, and we look forward to serving them as we add additional retail locations in the Commonwealth. In closing, I'm pleased with the progress that our team has made in all of 2022. We've carried our momentum into 2023 with three new store openings so far and are determined to ensure we are well positioned in growth markets with a strong retail footprint. We will be ready to hit the ground running as adult use comes online in more states like Maryland in the future. I will now turn the call back to Nick, and we will take your questions. Nick? Thank you, David.