The Cannabist Co Hldg

Good day and welcome to the first quarter 2023 earnings conference call. At this time, all participants are in a listen-only mode. After the speaker's presentation, there will be a question and answer session. Instructions will be given at that time. As a reminder, this call may be recorded. I would now like to turn the call over to Leigh Ann Evans, Senior Vice President of Capital Markets. You may begin.

Thank you, Operator. Good morning and thank you for joining ColumbiaCare's first quarter 2023 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 Jesse Shannon, our chief growth officer. Earlier this morning, we issued a press release reporting our first quarter 2023 results, which we will also file with applicable Canadian securities regulatory authorities on CDAR and the U.S. 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 Cresco Labs transaction, constitute forward-looking statements within the meaning of applicable Canadian and US 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 for the year ended December 31, 2022, which has been filed with applicable regulatory authorities and also in subsequent securities filings. 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 just claim 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 EBITDA and 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. Fleming & Kerr 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. 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 Leda to get us started. Nick?

Thank you, Leigh. Good morning, and thank you all for joining our call today. As we discussed on our fourth quarter 2022 earnings call just six weeks ago, as an organization, we remain intensely focused on optimizing our asset portfolio and operational structure. We are leaning into the areas of our business that are driving value and eliminating those that don't. We've prioritized rigorous cost management and we are moving towards positive cash flow generation, which we anticipate later this year. In the first quarter, we achieved positive top-line growth of 1% year-over-year, despite the closure of three dispensaries at the beginning of the quarter. The need to amortize a portion of our revenue attached to the rewards accrued by our Stash Cash Loyalty Program members and ongoing pressures on consumers' wallets and pricing pressures in certain markets. These factors, along with the expected seasonality in 1Q we discussed during our last earnings call, impacted our top line on a sequential basis and resulted in a revenue decrease of approximately 1%. Our adjusted EBITDA margin in 1Q reflected the flow-through from the absorption accounting, reallocation, and gross margin that occurred due to the rationalization of cultivation assets at the beginning of the quarter at the end of 4Q. This anticipated decline in gross margin was partially offset by the cost reduction measures that we executed upon during the second half of the first quarter. As we mentioned in our last call, we expect the cost reduction measures announced in January to generate $35 million in net annual savings, significantly contributing to improved cash flow this year. Due to the timing of implementation of these changes, especially for cultivation rationalization, Reductions in our operating and overhead costs aren't expected to show a full quarter's benefit until the end of the second quarter. Our focus on cash flow from operations does come with some trade-offs. To utilize our canopy square footage more efficiently, reduce headcount, and right-size operating costs, we saw an over-allocation of certain fixed costs, such as sale leaseback payments to COGS. This was anticipated and discussed during our last call. However, we made the decision to focus first on our SG&A and back-of-house utilization rates. With that behind us, we expect to begin implementing our plan to improve absorption and costing strategies across the country to utilize cultivation square footage and manufacturing space as effectively as possible. Concurrent with that initiative taking hold, we expect to continue to invest in areas and locations that are driving profitable growth, and we continue to bring new form factors, fresh genetics, and differentiated brands to our customers and patients. David will be sharing more color with you in a moment on our key markets, but suffice it to say, we are very pleased with the progress we are making in our fastest growing markets, and we are seeing meaningful improvements in markets like Ohio and Pennsylvania, as well as green shoots in the more mature markets where we have made the most significant operational adjustments, such as California and Colorado. Finally, We have very specific development programs to optimize our dispensary portfolio in Virginia, New Jersey, and Maryland, all of which have significant market growth potential in very attractive submarkets, such as Prince George's County, Maryland. Lastly, we are very excited about the launch of adult use in Maryland in July and Delaware in the second half of 2023. And finally, New York, one of the largest cannabis markets in the world, where we are extremely well positioned with ample cultivation capacity and prime retail locations. As Derek will discuss momentarily, we have improved the liquidity profile of the company through recent actions, such as extending the maturity of more than $38 million of senior secured notes to May 2024, investing non-core and unprofitable assets, and continuously evaluating appropriate measures to further deliver the business in the current environment. With a commitment to improving the fundamentals of our business, we are continuing the momentum of our ongoing operational and financial reprioritization of resources, which includes targeted cost reduction measures, non-core asset divestitures, improvements in cultivation and manufacturing, and optimizing our liquidity position. Stepping back and assessing where we stand today, I firmly believe two things. First, we are exceptionally well positioned with continued growth momentum in the best markets in the U.S. thanks to our strategic footprint and asset base. Second, we have strong and sustainable differentiated advantages with best-in-class potential, limited capital needs, and the right positioning for current market conditions. We are poised for expanding margins to generate free cash flow as the year unfolds. We are pleased with the progress that we have achieved in the first quarter, and we look forward to additional meaningful progress over the coming quarters. We continue to see embedded potential in our organization and our markets, with known catalysts on the horizon. Our retail and cultivation portfolios are well-positioned, ready to take advantage of the growth opportunities ahead, now with reduced burden from underperforming areas and operations, as well as an improved liquidity profile, thanks to the measures taken during the first quarter to extend near-term maturities. Turning to the Cresco Labs transaction, Columbia Care continues to collaborate with Cresco Labs on the divestiture transactions required to obtain the regulatory approvals that are conditions of closing of the agreement. Aside from our best efforts, we have limited updates to provide today on the timing for execution of the agreements relating to outstanding divestitures transactions and look forward to answering your questions during Q&A. With that, I will now turn the call over to Derek to review our financial results and outlook in more detail. Derek?