UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the quarterly period ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the transition period from __to __
Commission File Number:
(Exact Name of Registrant as Specified in its Charter)
(State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer |
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Registrant’s telephone number, including area code: (
Securities registered pursuant to Section 12(b) of the Act: None
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Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, smaller reporting company, or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.
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Emerging growth company |
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If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes
Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Sections 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes ☐ No ☐
As of May 11, 2023, there were
G
Table of Contents
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PART I. |
FINANCIAL INFORMATION |
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Item 1. |
Financial Statements (Unaudited) |
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3 |
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Condensed Consolidated Statements of Operations and Comprehensive Loss |
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5 |
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6 |
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Notes to Unaudited Condensed Consolidated Financial Statements |
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Item 2. |
Management’s Discussion and Analysis of Financial Condition and Results of Operations |
18 |
Item 3. |
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Item 4. |
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PART II. |
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Item 1. |
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Item 1A. |
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Item 2. |
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Item 3. |
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Item 4. |
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Item 5. |
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Item 6. |
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i
FORWARD-LOOKING STATEMENTS
This Quarterly Report on Form 10-Q contains “forward-looking statements” regarding Columbia Care Inc. and its subsidiaries (collectively referred to as “Columbia Care,” “we,” “us,” “our,” or the “Company”). We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as, but not limited to, “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Particular risks and uncertainties that could cause our actual results to be materially different from those expressed in our forward-looking statements include those listed below:
The list of factors above is illustrative and by no means exhaustive. Additional information regarding these risks and other risks and uncertainties we face is contained in this Quarterly Report on Form 10-Q and our Annual Report on Form 10-K for the year ended December 31, 2022. Although the Company has attempted to identify important factors that could cause actual results to differ materially from those contained in forward-looking information, there may be other factors that cause results not to be as anticipated, estimated, or intended.
We urge readers to consider these risks and uncertainties in evaluating our forward-looking statements. We caution readers not to place undue reliance upon any such forward-looking statements, which speak only as of the date made. We undertake no obligation to publicly update any forward-looking statements, whether as a result of new information, future events, or otherwise, except as required by law.
2
COLUMBIA CARE INC.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Unaudited)
(Expressed in thousands of U.S. dollars, except share data)
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March 31, 2023 |
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December 31, 2022 |
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Assets |
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Current assets: |
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Cash |
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$ |
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$ |
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Accounts receivable, net of allowances of $ |
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Inventory |
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Prepaid expenses and other current assets |
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Assets held for sale |
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Total current assets |
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Property and equipment, net |
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Right of use assets - operating leases, net |
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Right of use assets - finance leases, net |
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Goodwill |
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Intangible assets, net |
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Other non-current assets |
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Total assets |
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$ |
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$ |
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Liabilities and Equity |
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Current liabilities: |
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Accounts payable |
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$ |
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$ |
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Accrued expenses and other current liabilities |
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Income tax payable |
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Current portion of lease liability - operating leases |
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Current portion of lease liability - finance leases |
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Current portion of long-term debt, net |
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Liabilities held for sale |
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Total current liabilities |
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$ |
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$ |
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Long-term debt, net |
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Deferred taxes |
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Long-term lease liability - operating leases |
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Long-term lease liability - finance leases |
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Derivative liability |
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Other long-term liabilities |
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Total liabilities |
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Stockholders' Equity: |
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Common Stock, |
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Preferred Stock, |
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Proportionate voting shares, |
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Additional paid-in-capital |
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Accumulated deficit |
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( |
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Equity attributable to Columbia Care Inc. |
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Non-controlling interest |
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Total equity |
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Total liabilities and equity |
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$ |
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$ |
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The accompanying notes are an integral part of these Condensed Consolidated Interim Balance Sheets.
3
COLUMBIA CARE INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Unaudited)
(Expressed in thousands of U.S. dollars, except for number of shares and per share amounts)
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Three months ended |
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March 31, 2023 |
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March 31, 2022 |
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Revenues, net of discounts |
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$ |
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$ |
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Cost of sales related to inventory production |
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Gross Margin |
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Selling, general and administrative expenses |
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$ |
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Total operating costs |
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Loss from operations |
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( |
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( |
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Other expense: |
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Interest expense on leases |
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Interest expense |
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( |
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Other (expense) income, net |
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Total other expense |
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Loss before provision for income taxes |
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Income tax expense |
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Net loss and comprehensive loss |
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Net (income) loss attributable to non-controlling interests |
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Net loss attributable to shareholders |
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$ |
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Weighted-average number of shares used in earnings per |
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Loss attributable to shares (basic and diluted) |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Statements of Operations and Comprehensive Loss.
4
COLUMBIA CARE INC.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
(Unaudited)
(Expressed in thousands of U.S. dollars, except for number of shares)
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Units |
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Common |
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Proportionate |
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Additional |
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Accumulated |
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Total Columbia Care Inc. |
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Non-Controlling |
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Total |
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Balance as of December 31, 2021 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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Equity-based compensation(1) |
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— |
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— |
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— |
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— |
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Warrants exercised |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2022 |
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— |
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$ |
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$ |
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$ |
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$ |
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$ |
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Units |
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Common |
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Proportionate |
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Additional |
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Accumulated |
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Total Columbia Care Inc. |
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Non-Controlling |
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Total |
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Balance as of December 31, 2022 |
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$ |
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$ |
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$ |
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$ |
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$ |
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Equity-based compensation (1) |
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— |
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— |
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— |
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— |
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Conversion between classes of shares |
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— |
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— |
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— |
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— |
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— |
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— |
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Deconsolidation of subsidiary |
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— |
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— |
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— |
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— |
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— |
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— |
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Net loss |
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— |
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— |
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— |
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— |
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( |
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( |
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Balance as of March 31, 2023 |
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— |
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$ |
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$ |
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$ |
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$ |
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The accompanying notes are an integral part of these unaudited Condensed Consolidated Statements of Changes in Equity.
5
COLUMBIA CARE INC.
CONDENSED INTERIM CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(expressed in thousands of U.S. dollars)
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Three months ended |
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March 31, 2023 |
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March 31, 2022 |
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Cash flows from operating activities: |
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Net loss |
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$ |
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$ |
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Adjustments to reconcile net loss to net cash (used in) operating activities: |
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Depreciation and amortization |
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Equity-based compensation |
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Debt amortization expense |
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Loss on deconsolidation of subsidiary |
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Provision for obsolete inventory and other assets |
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Deferred taxes |
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Change in fair value of derivative liability |
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Other |
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Changes in operating assets and liabilities, net of acquisitions |
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Accounts receivable |
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Inventory |
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( |
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( |
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Prepaid expenses and other current assets |
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( |
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Other assets |
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( |
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Accounts payable |
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( |
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Accrued expenses and other current liabilities |
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( |
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( |
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Income taxes payable |
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Other long-term liabilities |
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Net cash used in operating activities |
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Cash flows from investing activities: |
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Purchases of property and equipment |
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Proceeds from sale of plant, property and equipment |
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Proceeds from deconsolidation of MO entity |
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Cash received (paid) on deposits, net |
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Net cash used in investing activities |
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Cash flows from financing activities: |
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Proceeds from issuance of debt and warrants |
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Payment of debt issuance costs |
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Repayment of debt |
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( |
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( |
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Payment of lease liabilities |
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( |
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( |
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Repayment of sellers note |
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Exercise of warrants |
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Taxes paid on equity based compensation |
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Net cash (used in)/provided by financing activities |
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Net (decrease)/increase in cash |
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Cash and restricted cash at beginning of the period |
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Cash and restricted cash at end of period |
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$ |
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$ |
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Reconciliation of cash and cash equivalents and restricted cash: |
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Cash |
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$ |
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$ |
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Restricted cash |
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$ |
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$ |
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Cash and restricted cash, end of period |
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$ |
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$ |
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Supplemental disclosure of cash flow information: |
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Cash paid for amounts included in the measurement of lease liabilities: |
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Operating cash flows from operating leases |
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$ |
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$ |
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Operating cash flows from finance leases |
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$ |
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$ |
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Financing cash flows from finance leases |
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$ |
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$ |
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Cash paid for interest on other obligations |
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$ |
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$ |
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Cash paid for income taxes |
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$ |
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$ |
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Lease liabilities arising from the recognition of finance right-of-use assets |
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$ |
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$ |
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Lease liabilities arising from the recognition of operating right-of-use assets |
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$ |
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$ |
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Supplemental disclosure of non-cash investing and financing activities: |
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Non-cash fixed asset additions within accounts payable and accrued expenses |
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$ |
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$ |
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Non-cash equity issuance costs within accrued expenses and accounts payable |
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$ |
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$ |
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6
COLUMBIA CARE INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE three months ended March 31, 2023, and 2022
(Expressed in thousands of U.S. dollars, except for share and per share amounts)
(Unaudited)
Columbia Care Inc. (“the Company” or “the Parent”), was incorporated under the laws of the Province of Ontario on August 13, 2018. The Company's principal mission is to improve lives by providing cannabis-based health and wellness solutions and derivative products to qualified patients and consumers. The Company’s head office and principal address is 680 Fifth Ave. 24th Floor, New York, New York 10019. The Company’s registered and records office address is 666 Burrard St #1700, Vancouver, British Columbia V6C 2X8.
On April 26, 2019, the Company completed a reverse takeover (“RTO”) transaction and private placement. Following the RTO, the Company’s Common Shares were listed on the Aequitas NEO exchange, trading under the symbol “CCHW”. As of the time of this report, the Company’s Common Shares are also listed on the Canadian Securities Exchange (the “CSE”) under the symbol “CCHW”, the OTCQX Best Market under the symbol “CCHWF” and on the Frankfurt Stock Exchange under the symbol “3LP”.
On March 23, 2022, the Company jointly announced with Cresco Labs LLC (“Cresco Labs”) that the Company and Cresco Labs have entered into a definitive arrangement agreement (the “Arrangement Agreement”) pursuant to which Cresco Labs will acquire all of the issued and outstanding shares (the “Company Shares”) of the Company (the “Cresco Transaction”). Subject to closing conditions and necessary regulatory approvals, closure of the Cresco Transaction must occur no later than June 30, 2023 per the terms of the Arrangement Agreement, as amended. Under the terms of the Arrangement Agreement, shareholders of the Company (the “Company Shareholders”) will receive
Basis of preparation
The accompanying unaudited condensed interim consolidated financial statements of the Company have been prepared in accordance with accounting principles generally accepted in the United States (“U.S. GAAP” or “GAAP”) for interim financial information and the rules and regulations of the Securities and Exchange Commission (the “SEC”).
The accompanying unaudited condensed interim consolidated financial statements contain all normal and recurring adjustments necessary to state fairly the consolidated financial condition, results of operations, comprehensive income, statement of shareholders’ equity, and cash flows of the Company for the interim periods presented. Except as otherwise disclosed, all such adjustments consist only of those of a normal recurring nature. Operating results for the three months ended March 31, 2023 are not necessarily indicative of the results that may be expected for the current year ending December 31, 2023. The financial data presented herein should be read in conjunction with the audited consolidated financial statements and accompanying notes as of and for the years ended December 31, 2022, and 2021 included in the Annual Report on Form 10-K for the year ended December 31, 2022 (the “2022 Form 10-K”).
The preparation of these unaudited condensed interim consolidated financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, and the reported amounts of revenues and expenses during the reporting periods. Actual results could differ materially from those estimates.
Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted pursuant to the rules and regulations of the SEC and the instructions to Form 10-Q.
Significant Accounting Judgments, Estimates and Assumptions
The Company’s significant accounting policies are described in Note 2 to the Company’s 2022 Form 10-K, filed with the SEC, on March 29, 2023. There have been no material changes to the Company’s significant accounting policies.
7
Revenue
The Company’s revenues are disaggregated as follows:
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Three months ended |
|
|||||
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
Dispensary |
|
$ |
|
|
$ |
|
||
|
Cultivation and wholesale |
|
|
|
|
|
|
||
|
Other |
|
|
|
|
|
|
||
|
|
|
$ |
|
|
$ |
|
||
During the three months ended March 31, 2023, and March 31, 2022 the Company netted discounts of $
Income taxes
The Company calculated its actual effective tax rate for the interim period and applied that rate to the interim period results. In accordance with ASC 740-270, at the end of each interim period the Company is required to determine its best estimate of its annual effective tax rate and apply that rate in providing income taxes on an interim period. However, in certain circumstances when the Company concludes it is unable to reliably estimate the annual effective tax rate for the year, the actual effective tax rate for the interim period may be used. The Company believes that, at this time, the use of the actual effective tax rate is more appropriate than the estimated annual effective tax rate method as the estimated annual effective tax rate method is not reliable due to the high degree of uncertainty in estimating annual pre-tax income due to the stage of growth of the business, the correlation of Selling, General, and Administrative ("SG&A") expenses to revenue that are permanently disallowed via Section 280E of the Internal Revenue Code, and the timing of the completion of the Cresco transaction.
Modification of debt
The Company accounts for modifications of debt arrangements in accordance with ASC 470-50 Modifications and Extinguishments (“ASC 470-50”). As such, the Company continues to amortize any remaining unamortized debt discount as of the debt modification date over the term of the amended debt. The Company expenses any fees paid to third parties and capitalizes creditor fees associated with the modification as a debt discount and amortizes them over the term of the amended debt.
Business Combinations
We include the results of operations of the businesses that we acquire as of the acquisition date. We allocate the purchase price of the acquisitions to the assets acquired and liabilities assumed based on their estimated fair values. The excess of the purchase price over the fair values of identifiable assets and liabilities is recorded as goodwill. Acquisition-related expenses are recognized separately from the business combination and are expensed as incurred.
Details of the Company’s inventory are shown in the table below:
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Accessories and supplies |
|
$ |
|
|
$ |
|
||
|
Work-in-process - cannabis in cures and final vault |
|
|
|
|
|
|
||
|
Finished goods - dried cannabis, concentrate and edible products |
|
|
|
|
|
|
||
|
Total inventory |
|
$ |
|
|
$ |
|
||
The inventory values are net of inventory write-downs as a result of obsolescence or unmarketability charged to cost of sales. As a result of certain restructuring efforts there was a $
8
Current and long-term obligations, net, are shown in the table below:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
2026 Notes |
|
$ |
|
|
$ |
|
||
Term debt |
|
|
|
|
|
|
||
2025 Convertible Notes |
|
|
|
|
|
|
||
Mortgage Note |
|
|
|
|
|
|
||
2023 Convertible Notes |
|
|
|
|
|
|
||
Acquisition related real estate notes |
|
|
|
|
|
|
||
Acquisition related promissory notes |
|
|
|
|
|
|
||
Acquisition related term debt |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Unamortized debt discount |
|
|
( |
) |
|
|
( |
) |
Unamortized deferred financing costs |
|
|
( |
) |
|
|
( |
) |
Unamortized debt premium |
|
|
— |
|
|
|
|
|
Total debt, net |
|
|
|
|
|
|
||
Less current portion, net* |
|
|
( |
) |
|
|
( |
) |
Long-term portion |
|
$ |
|
|
$ |
|
||
*The current portion of the debt includes scheduled payments on the mortgage notes, acquisition related promissory notes and acquisition related notes payable, net of corresponding portions of the unamortized debt discount and unamortized deferred financing costs.
The Company was in compliance with all financial covenants and was not in default of any provisions under any of its debt arrangements as of March 31, 2023.
2025 Convertible Notes
On June 29, 2021, the Company completed an offering of
The 2025 Convertible Notes require interest-only payments until June 29, 2025, at a rate of
2023 Convertible Notes
On June 19, 2020, the Company completed the first tranche of an offering of senior secured convertible notes (“Convertible Notes”) for an aggregate principal amount of $
9
Dollars, using the end-of-day exchange rate published by the Bank of Canada on the date immediately preceding the date that the Convertible Note is surrendered for conversion. The Convertible Notes require interest-only payments until December 19, 2023, at a rate of
Private Placement
On February 3, 2022, Columbia Care closed a private placement of $
The premium and paid interest were paid out of funds raised from the February 2022 Private Placement. The total unamortized debt and debt issuance costs of $
Conversion of Convertible notes
In April 2021, the Company offered an incentive program to the holders of the Convertible Notes, pursuant to which,
Mortgages
In December 2021, the Company entered into a term loan and security agreement with a bank. The agreement provides for $
In June 2022, the Company entered into a term loan and security agreement with a bank. The agreement provides for $
Term debt
On March 31, 2020 and April 23, 2020, the Company completed the first and second tranches of a private placement of notes (“Private Notes”) for an aggregate principal amount of $
10
on September 30, 2020. The Private Notes were due in full on March 30, 2024. In connection with the first and second tranche offerings of the Private Notes, the Company issued
On May 14, 2020, the Company completed a private placement of an aggregate of
On July 2, 2020, the Company completed a second private placement of an aggregate of
On October 29, 2020, November 10, 2020 and November 27, 2020, the Company completed private placements of an aggregate of
On November 30, 2020, the Company completed another private placement of an aggregate of
At the option of the holder, each Warrant can be exchanged for one Common Share. The Warrants expire on May 14, 2023.
The Notes require interest-only payments through May 14, 2023, at a rate of
Upon initial recognition, the Company recorded $
Total interest and amortization expense on the Company’s debt obligations during the three months ended March 31, 2023 and 2022 are as follows:
|
|
Three months ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Interest expense on debt |
|
$ |
|
|
$ |
|
||
Amortization of debt discount |
|
|
|
|
|
|
||
Amortization of debt premium |
|
|
( |
) |
|
|
( |
) |
Amortization of debt issuance costs |
|
|
|
|
|
|
||
Other interest (expense) income, net |
|
|
( |
) |
|
|
( |
) |
Total interest expense, net |
|
$ |
|
|
$ |
|
||
The weighted average interest rate on the Company’s indebtedness was
On June 11, 2021, the Company acquired (the “Green Leaf Transaction”) a
Green Leaf was formed in April 2014 for the purpose of selling medicinal and recreational cannabis products in the states of Maryland, Pennsylvania, Ohio, and Virginia. Green Leaf owns and operates vertically integrated cultivation facilities,
11
manufacturing facilities and retail dispensaries in the states of Maryland, Pennsylvania, Ohio, and Virginia. The Company executed the Green Leaf Transaction in order to continue to grow revenues; expand its cultivation facilities, manufacturing facilities and dispensaries; and enter, or expand in the Maryland, Pennsylvania, Ohio, and Virginia markets.
On November 1, 2021, the Company acquired (the “Medicine Man Transaction”) a
Medicine Man was formed in 2010 for the purpose of selling medicinal and recreational cannabis products in the state of Colorado. Medicine Man owns and operates vertically integrated cultivation facilities, manufacturing facilities and retail dispensaries in the state of Colorado. The Company executed the Medicine Man Transaction in order to continue to grow revenues; expand its cultivation facilities, manufacturing facilities and dispensaries; and enter, or expand in the Colorado market.
On January 6, 2021, the Company acquired a
THCSD was formed in 2016 for the purpose of selling recreational and related cannabis products in San Diego, California, where it owns and operates a dispensary. The Company executed the THCSD Transaction in order to continue to grow revenues; expand its dispensaries; and penetrate the San Diego market.
On December 1, 2020, the Company acquired (the “Project Cannabis Transaction”) a
Project Cannabis was formed in August 2014 for the purpose of selling medicinal and recreational cannabis products in the state of California, on both a wholesale and retail basis. Project Cannabis owns and operates vertically integrated cultivation facilities, manufacturing facilities and retail dispensaries in the state of California. The Company executed the Project Cannabis Transaction in order to continue to grow revenues; expand its cultivation facilities, manufacturing facilities and dispensaries; and penetrate the California market.
On May 4, 2021, the Company acquired Corsa Verde, LLC (“Corsa Verde”). Corsa Verde is an Ohio-based limited liability company formed in October 2017 that operates a medical marijuana processing facility.
f) CannAscend
On October 25, 2018, the Company, CannAscend Alternative, LLC (“CAA), and CannAscend Alternative Logan, LLC (“CAA Logan”) entered into a Membership Interest Purchase Option Agreement. CAA and CAA Logan are both Ohio-based limited liability companies formed in November 2017 that operate four dispensaries. The Company closed the acquisition on July 1, 2021.
12
Details of the Company’s property and equipment and related depreciation expense are summarized in the tables below:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Land and buildings |
|
$ |
|
|
$ |
|
||
Furniture and fixtures |
|
|
|
|
|
|
||
Equipment |
|
|
|
|
|
|
||
Computers and software |
|
|
|
|
|
|
||
Leasehold improvements |
|
|
|
|
|
|
||
Construction in process |
|
|
|
|
|
|
||
Total property and equipment, gross |
|
|
|
|
|
|
||
Less: Accumulated depreciation |
|
|
( |
) |
|
|
( |
) |
Total property and equipment, net |
|
$ |
|
|
$ |
|
||
|
|
|
Three months ended |
|
|||||
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
Total depreciation expense for year ended |
|
$ |
|
|
$ |
|
||
|
Included in: |
|
|
|
|
|
|
||
|
Costs of sales related to inventory production |
|
$ |
|
|
$ |
|
||
|
Selling, general and administrative expenses |
|
$ |
|
|
$ |
|
||
Details of the Company’s prepaid expenses and other current assets are summarized in the table below:
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Prepaid expenses |
|
$ |
|
|
|
|
||
|
Short term deposits |
|
|
|
|
|
|
||
|
Other current assets |
|
|
|
|
|
|
||
|
Excise and sales tax receivable |
|
|
|
|
|
|
||
|
Prepaid expenses and other current assets |
|
$ |
|
|
$ |
|
||
Details of the Company’s other non-current assets are summarized in the table below:
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Long term deposits |
|
$ |
|
|
$ |
|
||
|
Indemnification receivable |
|
|
|
|
|
|
||
|
Investment in affiliates |
|
|
|
|
|
|
||
|
Restricted cash |
|
|
|
|
|
|
||
|
Notes receivable |
|
|
|
|
|
|
||
|
Other non-current assets |
|
$ |
|
|
$ |
|
||
Details of the Company’s accrued expenses and other current liabilities are summarized in the table below:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Accrued acquisition and settlement of pre-existing |
|
$ |
|
|
$ |
|
||
Taxes - property and other |
|
|
|
|
|
|
||
Other accrued expenses |
|
|
|
|
|
|
||
Payroll liabilities |
|
|
|
|
|
|
||
Other current liabilities |
|
|
|
|
|
|
||
Construction in progress |
|
|
|
|
|
|
||
Accrued expenses and other current liabilities |
|
$ |
|
|
$ |
|
||
As of March 31, 2023, other accrued expenses include approximately $
13
matters cannot yet be determined with any certainty and the Company will continue to rigorously defend any claims made against it.
The Company had the following activity during the three months ended March 31, 2023:
As of March 31, 2023 and December 31, 2022, outstanding equity-classified warrants to purchase Common Shares consisted of the following:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||||||||||
Expiration |
|
Number of Shares |
|
|
Exercise Price |
|
|
Number of Shares |
|
|
Exercise Price |
|
||||
May 8, 2021 |
|
— |
|
|
|
|
|
— |
|
|
|
|||||
October 1, 2025 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
April 26, 2024 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|||||
May 14, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
May 14, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|||||
May 14, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
|
|
|
|
|
$ |
|
|
|
|
|
$ |
|
||||
Warrant activity for the three months ended March 31, 2023 and 2022 are summarized in the table below:
|
|
|
|
|
Weighted average |
|
||
|
|
Number of |
|
|
exercise price |
|
||
|
|
Warrants |
|
|
(Canadian Dollars) |
|
||
Balance as of December 31, 2021 |
|
|
|
|
$ |
|
||
Exercised |
|
|
( |
) |
|
|
|
|
Balance as of March 31, 2022 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Balance as of December 31, 2022 |
|
|
|
|
|
|
||
Exercised |
|
|
|
|
|
|
||
Expired |
|
|
( |
) |
|
|
|
|
Balance as of March 31, 2023 |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
||
Basic and diluted net loss per share attributable to the Company was calculated as follows:
|
|
Three months ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Numerator: |
|
|
|
|
|
|
||
Net loss |
|
$ |
( |
) |
|
$ |
( |
) |
Less: Net loss attributable to non-controlling interests |
|
|
|
|
|
( |
) |
|
Net loss attributable to shareholders |
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
||
Denominator: |
|
|
|
|
|
|
||
Weighted average shares outstanding - basic and diluted |
|
|
|
|
|
|
||
Loss per share - basic and diluted |
|
$ |
( |
) |
|
$ |
( |
) |
Certain share-based equity awards were excluded from the computation of dilutive loss per share because inclusion of these awards would have had an anti-dilutive effect.
In the ordinary course of business, the Company may provide indemnification of varying scope and terms to vendors, lessors, business partners, and other parties with respect to certain matters including, but not limited to, losses arising out of breach of such
14
agreements or from intellectual property infringement claims made by third parties. In addition, the Company has entered into indemnification agreements with members of its board of directors and senior management that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The maximum potential amount of future payments the Company could be required to make under these indemnification agreements is, in many cases, unlimited.
The Green Leaf Transaction closed on June 11, 2021. By letters dated April 22, 2022, June 1, 2022 and March 14, 2023, the Company notified the shareholder representative (“SRS”) for the former Green Leaf shareholders, including a director of the Company, that the Company was seeking indemnification of approximately $
Additionally, the Company may be contingently liable with respect to other claims incidental to the ordinary course of its operations. In the opinion of management, and based on management’s consultation with legal counsel, the ultimate outcome of such other matters will not have a materially adverse effect on the Company. Accordingly, no provision has been made in these consolidated financial statements for losses, if any, which might result from the ultimate disposition of these matters should they arise.
Fair Value Measurements
The following table presents the Company’s financial instruments that are measured at fair value on a recurring basis:
|
|
Level 1 |
|
|
Level 2 |
|
|
Level 3 |
|
|
Total |
|
||||
March 31, 2023 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
||||
December 31, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
||||
Derivative liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
( |
) |
|
$ |
( |
) |
During the period included in these financial statements, there were
The following table summarizes the valuation techniques and key inputs used in the fair value measurement of Level 3 financial instruments:
Financial asset/financial |
Valuation techniques |
Significant unobservable |
Relationship of unobservable |
Derivative liability |
Market approach |
Conversion Period |
Increase or decrease in conversion period will result in an increase or decrease in fair value |
The carrying amounts of cash and restricted cash, accounts receivable, and other current assets, accounts payable, accrued expenses, and other current liabilities, current portion of long-term debt and lease liability as of March 31, 2023 and December 31, 2022 approximate their fair values because of the short-term nature of these items and are not included in the table above. The Company’s other long-term payables, long-term debt and lease liabilities approximate fair value due to the market rate of interest used on initial recognition.
15
In addition to the disclosures for assets and liabilities required to be measured at fair value at the balance sheet date, companies are required to disclose the estimated fair values of all financial instruments, even if they are not presented at their fair value on the consolidated balance sheet. The fair values of financial instruments are estimates based upon market conditions and perceived risks as of March 31, 2023 and December 31, 2022. These estimates require management's judgement and may not be indicative of the future fair values of the assets and liabilities.
Goodwill and intangible assets consist of the following:
|
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
|
Goodwill |
|
$ |
|
|
$ |
|
||
|
Less: Accumulated impairment on goodwill |
|
|
( |
) |
|
|
( |
) |
|
Total goodwill, net |
|
|
|
|
|
|
||
|
|
|
|
|
|
|
|
||
|
Licenses |
|
|
|
|
|
|
||
|
Trademarks |
|
|
|
|
|
|
||
|
Customer Relationships |
|
|
|
|
|
|
||
|
Total intangible assets |
|
|
|
|
|
|
||
|
Less: Accumulated amortization |
|
|
( |
) |
|
|
( |
) |
|
Total intangible assets, net |
|
$ |
|
|
$ |
|
||
The amortization expense for the three months ended March 31, 2023 and 2022 are as follows:
|
|
Three months ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Amortization expenses |
|
|
|
|
|
|
||
Selling, general and administrative expenses are summarized in the table below:
|
|
|
Three months ended |
|
|||||
|
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
|
Salaries and benefits |
|
$ |
|
|
$ |
|
||
|
Professional fees |
|
|
|
|
|
|
||
|
Depreciation and amortization |
|
|
|
|
|
|
||
|
Operating facilities costs |
|
|
|
|
|
|
||
|
Operating office and general expenses |
|
|
|
|
|
|
||
|
Advertising and promotion |
|
|
|
|
|
|
||
|
Other fees and expenses |
|
|
|
|
|
|
||
|
Total selling, general and administrative expenses |
|
$ |
|
|
$ |
|
||
Other expense, net is summarized in the table below:
|
|
Three months ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Change in fair value of the derivative liability |
|
$ |
|
|
|
|
||
Loss on deconsolidation |
|
|
|
|
|
|
||
Restructuring expense |
|
|
|
|
|
|
||
Other (income) expense, net |
|
|
( |
) |
|
|
|
|
Gain on disposal of group |
|
|
( |
) |
|
|
|
|
Rental income |
|
|
( |
) |
|
|
( |
) |
Total other expense, net |
|
$ |
|
|
$ |
( |
) |
|
16
The Company has booked an amount of $
18. DIVESTITURE
Columbia Care MO, LLC is licensed to sell medical and adult-use marijuana at its dispensary, as well as produce medical and adult-use marijuana products at its processing facility. The Company supported Columbia Care MO, LLC through management services agreements. In 2022, the Company began considering strategic options for Columbia Care MO, LLC, including the potential for the sale of its associated assets and liabilities (the “Missouri Business”). On March 13, 2023, a definitive agreement was signed to sell the Missouri Business, which is considered non-core, and the Company no longer operated the Missouri Business as of that date. The assets of the Missouri Business are comprised of one dispensary and one processing facility and are being divested for gross proceeds of approximately $
As of March 31, 2023, no assets or liabilities of the disposed-of business remained on our consolidated balance sheets.
|
Three months ended |
|
|
March 31, 2023 |
March 31, 2022 |
Revenue |
$ |
$ |
Expenses |
$ |
$ |
19
As disclosed in Note 11, Warrants, outstanding equity-classified warrants to purchase
17
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of Columbia Care Inc. (“Columbia Care”, the “Company”, “us”, “our” or “we”) is supplemental to, and should be read in conjunction with, Columbia Care’s unaudited condensed interim consolidated financial statements and the accompanying notes for the three months ended March 31, 2023 and 2022. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in “Disclosure Regarding Forward-Looking Statements,” “Item 1A-Risk Factors” and elsewhere in the Company’s 2022 Form 10-K filed with the SEC on March 29, 2023 and subsequent securities filings.
Columbia Care’s financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). Financial information presented in this MD&A is presented in thousands of United States dollars (“$” or “US$”), unless otherwise indicated.
OVERVIEW OF COLUMBIA CARE
Our principal business activity is the production and sale of cannabis. We strive to be the premier provider of cannabis-related products in each of the markets in which we operate. Our mission is to improve lives by providing cannabis-based health and wellness solutions through community partnerships, research, education and the responsible use of our products as a natural means to improve the quality of life of our patients and customers.
COLUMBIA CARE OBJECTIVES AND FACTORS AFFECTING OUR PERFORMANCE
As one of the largest fully integrated operators in the global medical cannabis industry, our strategy to grow our business is comprised of the following key components:
Our performance and future success are dependent on several factors. These factors are also subject to inherent risks and challenges, some of which are discussed below.
Branding
We have established a national branding strategy across each of the jurisdictions in which we operate. Maintaining and growing our brand appeal is critical to our continued success.
Regulation
We are subject to the local and federal laws in the jurisdictions in which we operate. We hold all required licenses for the production and distribution of our products in the jurisdictions in which we operate and continuously monitor changes in laws, regulations, treaties and agreements.
Product Innovation and Consumer Trends
Our business is subject to changing consumer trends and preferences, which is dependent, in part, on continued consumer interest in new products. The success of new product offerings, depends upon a number of factors, including our ability to (i) accurately anticipate customer needs; (ii) develop new products that meet these needs; (iii) successfully commercialize new products; (iv) price products competitively; (v) produce and deliver products in sufficient volumes and on a timely basis; and (vi) differentiate product offerings from those of competitors.
Growth Strategies
We have a successful history of growing revenue and we believe we have a strong strategy aimed at continuing our history of expansion in both current and new markets. Our future depends, in part, on our ability to implement our growth strategy including (i) product innovations; (ii) penetration of new markets; (iii) growth of wholesale revenue through third party retailers and distributors; (iv) future development of e-commerce and home delivery distribution capabilities; and (v) expansion of our cultivation and manufacturing capacity. Our ability to implement this growth strategy depends, among other things, on our ability to develop new products that appeal to consumers, maintain and expand brand loyalty, maintain and improve product quality and brand recognition, maintain and improve
18
competitive position in our current markets, and identify and successfully enter and market products in new geographic areas and segments.
SELECTED FINANCIAL INFORMATION
The following tables set forth selected consolidated financial information derived from our unaudited condensed interim consolidated financial statements and the respective accompanying notes prepared in accordance with U.S. GAAP.
During the periods discussed herein, our accounting policies have remained consistent. The selected and summarized consolidated financial information below may not be indicative of our future performance.
Statement of Operations:
|
|
Three months ended |
|
|||||||||||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
$ Change |
|
|
% Change |
|
||||
Revenues |
|
$ |
124,535 |
|
|
$ |
123,087 |
|
|
$ |
1,448 |
|
|
|
1 |
% |
Cost of sales related to inventory production |
|
|
(77,454 |
) |
|
|
(66,460 |
) |
|
|
(10,994 |
) |
|
|
17 |
% |
Gross profit |
|
|
47,081 |
|
|
|
56,627 |
|
|
|
(9,546 |
) |
|
|
(17 |
)% |
Selling, general and administrative expenses |
|
|
(55,350 |
) |
|
|
(71,292 |
) |
|
|
15,942 |
|
|
|
(22 |
)% |
Operating expenses |
|
|
(55,350 |
) |
|
|
(71,292 |
) |
|
|
15,942 |
|
|
|
(22 |
)% |
Other (expense) income, net |
|
|
(17,614 |
) |
|
|
(12,609 |
) |
|
|
(5,005 |
) |
|
|
40 |
% |
Income tax expense |
|
|
(10,689 |
) |
|
|
(632 |
) |
|
|
(10,057 |
) |
|
|
1591 |
% |
Net loss |
|
|
(36,572 |
) |
|
|
(27,906 |
) |
|
|
(8,666 |
) |
|
|
31 |
% |
Net loss attributable to non-controlling interest |
|
|
768 |
|
|
|
(1,270 |
) |
|
|
2,038 |
|
|
|
(160 |
)% |
Net loss attributable to Columbia Care Inc. |
|
$ |
(37,340 |
) |
|
$ |
(26,636 |
) |
|
$ |
(10,704 |
) |
|
|
40 |
% |
Loss per share attributable to Columbia Care Inc.—based and diluted |
|
$ |
(0.09 |
) |
|
$ |
(0.07 |
) |
|
$ |
(0.02 |
) |
|
|
31 |
% |
Weighted average number of shares outstanding—basic and diluted |
|
|
401,438,546 |
|
|
|
376,397,260 |
|
|
|
|
|
|
|
||
Summary of Balance Sheet items:
|
|
March 31, 2023 |
|
|
December 31, 2022 |
|
||
Total Assets |
|
$ |
973,021 |
|
|
$ |
994,726 |
|
Total Liabilities |
|
$ |
791,696 |
|
|
$ |
787,823 |
|
Total Long-Term Liabilities |
|
$ |
619,333 |
|
|
$ |
584,705 |
|
Total Equity |
|
$ |
181,325 |
|
|
$ |
206,903 |
|
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2023 and 2022
The following tables summarizes our results of operations for the three months ended March 31, 2023 and 2022:
|
|
For three months ended |
|
|||||||||||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
|
$ |
|
|
% |
|
||||
Revenues |
|
$ |
124,535 |
|
|
$ |
123,087 |
|
|
$ |
1,448 |
|
|
|
1 |
% |
Cost of sales related to inventory production |
|
|
(77,454 |
) |
|
|
(66,460 |
) |
|
|
(10,994 |
) |
|
|
17 |
% |
Gross profit |
|
|
47,081 |
|
|
|
56,627 |
|
|
|
(9,546 |
) |
|
|
(17 |
)% |
Selling, general and administrative expenses |
|
|
(55,350 |
) |
|
|
(71,292 |
) |
|
|
15,942 |
|
|
|
(22 |
)% |
Operating expenses |
|
|
(55,350 |
) |
|
|
(71,292 |
) |
|
|
15,942 |
|
|
|
(22 |
)% |
Loss from operations |
|
|
(8,269 |
) |
|
|
(14,665 |
) |
|
|
6,396 |
|
|
|
(44 |
)% |
Other (expense) income, net |
|
|
(17,614 |
) |
|
|
(12,609 |
) |
|
|
(5,005 |
) |
|
|
40 |
% |
Loss before provision for income taxes |
|
|
(25,883 |
) |
|
|
(27,274 |
) |
|
|
1,391 |
|
|
|
(5 |
)% |
Income tax expense |
|
|
(10,689 |
) |
|
|
(632 |
) |
|
|
(10,057 |
) |
|
|
1591 |
% |
Net loss |
|
|
(36,572 |
) |
|
|
(27,906 |
) |
|
|
(8,666 |
) |
|
|
31 |
% |
Net loss attributable to non-controlling |
|
|
768 |
|
|
|
(1,270 |
) |
|
|
2,038 |
|
|
|
(160 |
)% |
Net loss attributable to Columbia Care Inc. |
|
$ |
(37,340 |
) |
|
$ |
(26,636 |
) |
|
$ |
(10,704 |
) |
|
|
40 |
% |
19
Revenues
The increase in revenue of $1,448 for the three months ended March 31, 2023, as compared to the prior year period, was driven by the expansion of new wholesale and retail facilities which contributed to a revenue growth of $4,914 as compared to the prior period and our acquisition of Medicine Man Longmont which contributed an additional $1,772 of revenue during the three months ended March 31, 2023, as compared to the prior period. This was offset by a net decline in revenue of $5,238 in our Legacy Columbia Care network, our 2020 acquisitions of The Green Solution and Project Cannabis, and our 2021 acquisitions of The Healing Center, Corsa Verde, Cannascend, Medicine Man (excluding Longmont), and Green Leaf.
Cost of Sales
The increase in cost of sales of $10,994 for the three months ended March 31, 2023, as compared to the prior year period, was driven by a cost of sales increase of $5,992 in our Legacy Columbia Care network, our 2020 acquisitions of The Green Solution and Project Cannabis, and our 2021 acquisitions of The Healing Center, Corsa Verde, Cannascend, Medicine Man (excluding Longmont), and Green Leaf. The expansion of new wholesale and retail facilities contributed to a cost of sales growth of $3,911 as compared to the prior period and our acquisition of Medicine Man Longmont contributed to an additional $1,091 of cost of sales during the three months ended March 31, 2023, as compared to the prior period.
Gross Profit
The decrease in gross profit of $9,546 for the three months ended March 31, 2023, as compared to the prior year period, was primarily driven by a gross profit decrease of $11,230 in our Legacy Columbia Care network, our 2020 acquisitions of The Green Solution and Project Cannabis, and our 2021 acquisitions of The Healing Center, Corsa Verde, Cannascend Medicine Man (excluding Longmont), and Green Leaf. This was offset by an expansion of new wholesale and retail facilities contributing gross profit growth of $1,003 as compared to the prior period and our acquisition of Medicine Man Longmont that contributed an additional $681 of gross profit during the three months ended March 31, 2023, as compared to the prior period.
Operating Expenses
The decrease of $15,942 in operating expenses for the three months ended March 31, 2023, as compared to the prior year period, was primarily attributable to a decrease in salary and benefits expenses of $1,805, depreciation and amortization of $7,121, professional fees of $3,956, advertisement and promotion expenses of $2,318, operating office and general expenses of $564, and other fees and expenses of $425. This was offset by an increase in operating facility cost of $247.
Other Expense, Net
The increase in other expense, net of $5,005 for the three months ended March 31, 2023, as compared to the prior year period, was primarily due to a increase in interest expense on debt of $969, amortization of debt issuance costs of $252, loss on deconsolidation of $2,473, and restructuring expense of $3,178. This was partially offset by a gain on disposal of group of $600, a decrease in change in fair valuation of the derivative liability of $653, other expenses of $314, and interest expense on leases of $328.
Provisions for Income Taxes
The Company recorded income tax expense of $10,689 for the three months ended March 31, 2023, as compared to an income tax expense of $632 for the three months ended March 31, 2022.
For the period ended March 31, 2023 the company has a Deferred Tax Asset of approximately $16,900 related to its acquisition of VentureForth LLC, which occurred during 2022. The consideration paid to acquire 100% of the VentureForth Holdings LLC partnership interests was expensed for book purposes. For tax purposes, such consideration is capitalized as the transaction is treated as a deemed asset purchase for tax purposes. Such treatment results in a Deferred Tax Asset. However, because of the limitations of Section 280E of the Internal Revenue Code, the company does not expect to recognize the full tax benefit for this specific deferred tax asset.
Non-GAAP Measures
We use certain non-GAAP measures, referenced in this MD&A. These measures are not recognized measures under GAAP and do not have a standardized meaning prescribed by GAAP and therefore may not be comparable to similar measures presented by other companies. Accordingly, these measures should not be considered in isolation from nor as a substitute for our financial information reported under GAAP. We use non-GAAP measures including EBITDA, Adjusted EBITDA and Adjusted EBITDA margin which may be calculated differently by other companies. These non-GAAP measures and metrics are used to provide investors with supplemental measures of our operating performance and liquidity and thus highlight trends in our business that may not otherwise be apparent when relying solely on GAAP measures. These supplemental non-GAAP financial measures should not be considered superior to, as a substitute for, or as an alternative to, and should be considered in conjunction with, the GAAP financial measures presented. We also
20
recognize that securities analysts, investors and other interested parties frequently use non-GAAP measures in the evaluation of companies within our industry. Finally, we use non-GAAP measures and metrics in order to facilitate evaluation of operating performance comparisons from period to period, to prepare annual operating budgets and forecasts and to determine components of executive compensation.
The following table provides a reconciliation of net loss for the period to EBITDA and Adjusted EBITDA for the three months ended March 31, 2023, and 2022:
|
|
Three months ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Net loss |
|
$ |
(36,572 |
) |
|
$ |
(27,906 |
) |
Income tax |
|
|
10,689 |
|
|
|
632 |
|
Depreciation and amortization |
|
|
15,063 |
|
|
|
21,210 |
|
Interest expense, net and debt amortization |
|
|
13,671 |
|
|
|
12,670 |
|
EBITDA (Non-GAAP measure) |
|
$ |
2,851 |
|
|
$ |
6,606 |
|
Adjustments: |
|
|
|
|
|
|
||
Share-based compensation |
|
|
6,515 |
|
|
|
6,374 |
|
Transaction and other non-core costs, including costs associated with the Cresco transaction, litigation expenses and other costs related to restructuring |
|
|
1,317 |
|
|
|
3,169 |
|
Fair-value changes on derivative liabilities |
|
|
30 |
|
|
|
683 |
|
Restructuring expense |
|
|
3,178 |
|
|
|
— |
|
Loss on deconsolidation |
|
|
2,473 |
|
|
|
— |
|
Adjusted EBITDA (Non-GAAP measure) |
|
$ |
16,364 |
|
|
$ |
16,832 |
|
Revenue |
|
$ |
124,535 |
|
|
$ |
123,087 |
|
Adjusted EBITDA (Non-GAAP measure) |
|
|
16,364 |
|
|
|
16,832 |
|
Adjusted EBITDA margin (Non-GAAP measure) |
|
|
13.1 |
% |
|
|
13.7 |
% |
Revenue |
|
$ |
124,535 |
|
|
$ |
123,087 |
|
Gross profit |
|
|
47,081 |
|
|
|
56,627 |
|
Gross margin |
|
|
37.8 |
% |
|
|
46.0 |
% |
Adjusted EBITDA
The decrease in Adjusted EBITDA for the quarter ended March 31, 2023, as compared to the prior year period, was primarily driven by margin pressures across the portfolio offset by improved leverage of revenues across selling, general, and administrative expenses such as facility costs, salary costs, and benefit costs.
Our future financial results are subject to significant potential fluctuations caused by, among other things, growth of sales volume in new and existing markets and our ability to control operating expenses. In addition, our financial results may be impacted significantly by changes to the regulatory environment in which we operate, both on a local, state and federal level.
Liquidity and Capital Resources
Our primary need for liquidity is to fund working capital requirements of our business, capital expenditures and for general corporate purposes. Historically, we have relied on external financing as our primary source of liquidity. Our ability to fund our operations and to make capital expenditures depends on our ability to successfully secure financing through issuance of debt or equity, as well as our ability to improve our future operating performance and cash flows, which are subject to prevailing economic conditions and financial, business and other factors, some of which are beyond our control.
We are currently meeting our obligations and are earning revenues from our operations. However, we have sustained losses since inception and may require additional capital in the future. We estimate that based on our current business operations and working capital, we will continue to meet our obligations in the short term. As we continue to seek growth through expansion or acquisition, our cash flow requirements and obligations could materially change. As of March 31, 2023, we did not have any significant external capital requirements.
Recent Financing Transactions
Private Placement
On February 3, 2022, Columbia Care closed a private placement of $185,000 aggregate principal amount of 9.50% senior-secured first-lien notes due 2026 (the “2026 Notes”) and received aggregate gross proceeds of $153,250. The 2026 Notes are senior secured obligations of the Company and were issued at 100.0% of face value. The 2026 Notes accrue interest in arrears which is payable
21
semi-annually and mature on February 3, 2026, unless earlier redeemed or repurchased. The Company may redeem the 2026 Notes at par, in whole or in part, on or after February 3, 2024, as more particularly described in the fourth supplemental trust indenture governing the 2026 Notes. In connection with the offering of the 2026 Notes, the Company exchanged $31,750 of the Company’s existing 13.0% Term Debt, pursuant to private agreements in accordance with the trust indenture, for an equivalent amount of 2026 Notes plus accrued but unpaid interest and any negotiated premium thereon.
The premium and paid interest were paid out of funds raised from the February 2022 Private Placement. The total unamortized debt and debt issuance costs of $2,153, related to the modified portion of the Term Debt, will be amortized over the term of the 2026 Notes using the effective interest method. The Company incurred $7,189 in creditor fees in connection with the modified Term Debt and 2026 Notes and $301 in third-party legal fees related to 2026 Notes which were capitalized and will be amortized over the term of the 2026 Notes using the effective interest rate method.
Cash Flows
The following table summarizes the sources and uses of cash for each of the periods presented:
|
|
Three months ended |
|
|||||
|
|
March 31, 2023 |
|
|
March 31, 2022 |
|
||
Net cash used in operating activities |
|
$ |
(3,405 |
) |
|
$ |
(27,822 |
) |
Net cash used in investing activities |
|
|
(2,552 |
) |
|
|
(29,555 |
) |
Net (used in)/cash provided by financing activities |
|
|
(2,037 |
) |
|
|
144,253 |
|
Net (decrease)/increase in cash and cash equivalents |
|
$ |
(7,994 |
) |
|
$ |
86,876 |
|
Operating Activities
During the three months ended March 31, 2023, operating activities used $3,405 of cash, primarily resulting from a net loss of $36,572, and net changes in operating assets and liabilities of $5,280; this was partially offset by depreciation and amortization of $15,063, equity-based compensation expense of $6,515, loss on deconsolidation of subsidiary of $2,473, and debt amortization expense of $2,291. The net change in operating assets and liabilities was primarily due to an decrease in other assets of $6,126, an increase in accounts payable of $8,134, and an increase in income tax payable of $9,194, which is offset by an increase in inventory of $6,315, an increase in accounts receivable of $2,322, an increase in prepaid expenses, an increase in other current assets of $2,442, a decrease in accrued expenses of $4,874, and a decrease other long term liabilities of $2,221.
During the three months ended March 31, 2022, operating activities used $27,822 of cash, primarily resulting from a net loss of $27,906, and net changes in operating assets and liabilities of $25,932, partially offset by depreciation and amortization of $21,210, equity-based compensation expense of $6,374, debt amortization expense of $1,936, change in fair value of derivative liability of $683 partially offset by change in deferred taxes of $4,560.
Investing Activities
During the three months ended March 31, 2023, investing activities used $2,552 of cash pursuant to purchases of property and equipment of $5,724. This was partially offset by proceeds from the deconsolidation of the Company's Missouri entity of $3,040 and cash received from deposits of $132.
During the three months ended March 31, 2022, investing activities used $29,555 of cash, purchases of property and equipment of $29,511 partially offset by proceeds from sale of property and equipment of $179.
Financing Activities
During the three months ended March 31, 2023, financing activities used $2,037 of cash, mainly due to the payment of lease liabilities of $1,588 and repayment of a seller's note of $375.
During the three months ended March 31, 2022, financing activities provided $144,253 of cash, $145,984 in net proceeds received from issuance of debt partially offset by lease liability payments of $1,642.
22
Contractual Obligations and Commitments
The following table summarizes contractual obligations as of March 31, 2023 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:
|
|
Payments Due by Period |
|
|||||||||||||||||||||||||
|
|
Total |
|
|
Year 1 |
|
|
Year 2 |
|
|
Year 3 |
|
|
Year 4 |
|
|
Year 5 |
|
|
Year 6 |
|
|||||||
Lease commitments |
|
$ |
378,118 |
|
|
$ |
21,878 |
|
|
$ |
32,267 |
|
|
$ |
28,721 |
|
|
$ |
26,322 |
|
|
$ |
25,825 |
|
|
$ |
243,105 |
|
Sale-Leaseback commitments |
|
$ |
205,308 |
|
|
$ |
9,844 |
|
|
$ |
10,162 |
|
|
$ |
10,490 |
|
|
$ |
10,829 |
|
|
$ |
11,179 |
|
|
$ |
152,804 |
|
2026 Notes |
|
$ |
185,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
185,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Term debt (principal) |
|
$ |
38,215 |
|
|
$ |
— |
|
|
$ |
38,215 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Acquisition related term debt |
|
$ |
3,188 |
|
|
$ |
106 |
|
|
$ |
110 |
|
|
$ |
114 |
|
|
$ |
119 |
|
|
$ |
124 |
|
|
$ |
2,615 |
|
Interest on term debt |
|
$ |
61,322 |
|
|
$ |
22,669 |
|
|
$ |
18,281 |
|
|
$ |
17,692 |
|
|
$ |
1,701 |
|
|
$ |
107 |
|
|
$ |
872 |
|
Convertible debt (principal) |
|
$ |
80,100 |
|
|
$ |
5,600 |
|
|
$ |
— |
|
|
$ |
74,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Interest on convertible debt |
|
$ |
11,334 |
|
|
$ |
4,672 |
|
|
$ |
4,470 |
|
|
$ |
2,192 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Mortgage notes (principal) |
|
$ |
35,820 |
|
|
$ |
513 |
|
|
$ |
577 |
|
|
$ |
639 |
|
|
$ |
18,465 |
|
|
$ |
15,626 |
|
|
$ |
— |
|
Mortgage notes (interest) |
|
$ |
14,504 |
|
|
$ |
3,659 |
|
|
$ |
3,596 |
|
|
$ |
3,534 |
|
|
$ |
3,173 |
|
|
$ |
542 |
|
|
$ |
— |
|
Closing promissory note (principal) |
|
$ |
2,625 |
|
|
$ |
1,125 |
|
|
$ |
1,500 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Closing promissory note (interest) |
|
$ |
210 |
|
|
$ |
135 |
|
|
$ |
75 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Acquisition related real estate notes (principal) |
|
$ |
7,000 |
|
|
$ |
2,000 |
|
|
$ |
5,000 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Acquisition related real estate notes (interest) |
|
$ |
435 |
|
|
$ |
375 |
|
|
$ |
60 |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
— |
|
Total contractual obligations |
|
$ |
1,023,179 |
|
|
$ |
72,576 |
|
|
$ |
114,313 |
|
|
$ |
322,882 |
|
|
$ |
60,609 |
|
|
$ |
53,403 |
|
|
$ |
399,396 |
|
The above table excludes purchase orders for inventory in the normal course of business.
Effects of Inflation
Rising inflation rates have had a substantial impact on our financial performance to date and may have an impact on our financial performance in the future as our ability to pass on an increase in costs is not entirely within our control.
Critical Accounting Estimates
We make judgements, estimates and assumptions about the future that affect assets and liabilities, and revenues and expenses. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised if the revision affects only that period or in the period of the revision and future periods if the review affects both current and future periods.
Judgements estimates and assumptions with the most significant effect on the amounts recognized in the consolidated financial statements are described below.
FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT
Our financial instruments consist of cash and cash equivalents, accounts receivable, notes receivable, deposits and other current assets, accounts payable, accrued expenses, current taxes payable and other current liabilities like interest payable and payroll liabilities, derivative liability, debt and lease liabilities. The fair values of cash and restricted cash, accounts and notes receivable, deposits, accounts payable and accrued expenses and other current liabilities like interest payable and payroll liabilities, short-term debt and lease liabilities approximate their carrying values due to the relatively short-term to maturity or because of the market rate of interest used on initial recognition. Columbia Care classifies its derivative liability as fair value through profit and loss (FVTPL).
Financial instruments recorded at fair value are classified using a fair value hierarchy that reflects the significance of the inputs to fair value measurements. The three levels of fair value contained within the hierarchy are:
Level 1 – Unadjusted quoted prices in active markets for identical assets or liabilities;
Level 2 – Inputs other than quoted prices that are observable for the asset or liability, either directly or indirectly; and
Level 3 – Inputs for the asset or liability that are not based on observable market data.
23
Our assets measured at fair value on a nonrecurring basis include investments, assets and liabilities held for sale, long-lived assets and indefinite-lived intangible assets. We review the carrying amounts of such assets whenever events or changes in circumstances indicate that the carrying amounts may not be recoverable or at least annually, for indefinite-lived intangible assets. Any resulting asset impairment would require that the asset be recorded at its fair value. The resulting fair value measurements of the assets are considered Level 3 measurements.
Financial Risk Management
We are exposed in varying degrees to a variety of financial instrument related risks. Our risk exposures and the impact on our financial instruments is summarized below:
Credit Risk
Credit risk is the risk of a potential loss to us if a customer or third party to a financial instrument fails to meet its contractual obligations. The maximum credit exposure at March 31, 2023 and December 31, 2022, is the carrying amount of cash and cash equivalents, subscription receivable, accounts receivable and notes receivable. We do not have significant credit risk with respect to our customers. All cash deposits are with regulated U.S. financial institutions.
We provide credit to our customers in the normal course of business and have established credit evaluation and monitoring processes to mitigate credit risk but have limited risk as the majority of our sales are transacted with cash. Through our Columbia Care National Credit program, we provide credit to customers in certain markets in which we operate.
Liquidity Risk
Liquidity risk is the risk that we will not be able to meet our financial obligations associated with financial liabilities. We manage liquidity risk through the management of our capital structure. Our approach to managing liquidity is to estimate cash requirements from operations, capital expenditures and investments and ensure that we have sufficient liquidity to fund our ongoing operations and to settle obligations and liabilities when due.
To date, we have incurred significant cumulative net losses and we have not generated positive cash flows from our operations. We have therefore depended on financing from sale of our equity and from debt financing to fund our operations. Overall, we do not expect the net cash contribution from our operations and investments to be positive in the near term, and we therefore expect to rely on financing from equity or debt.
Market Risk
In addition to business opportunities and challenges applicable to any business operating in a fast-growing environment, our business operates in a highly regulated and multi-jurisdictional industry, which is subject to potentially significant changes outside of our control as individual states as well as the U.S. federal government may impose restrictions on our ability to grow our business profitably or enact new laws and regulations that open up new markets.
Interest Rate Risk
Interest rate risk is the risk that the fair value or future cash flows of our financial instrument will fluctuate because of changes in market interest rates. Our cash deposits bear interest at market rates.
Currency Risk
Our operating results and financial position are reported in thousands of U.S. dollars. We may enter into financial transactions denominated in other currencies, which would result in Columbia Care’s operations and financial position to be subject to currency transaction and translation risks.
As of March 31, 2023, and December 31, 2022, we had no hedging agreements in place with respect to foreign exchange rates. We have not entered into any agreements or purchased any instruments to hedge possible currency risks at this time.
24
Price Risk
Price risk is the risk of variability in fair value due to movements in equity or market prices. We are subject to the risk of price variability pursuant to our products due to competitive or regulatory pressures.
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
There have been no significant material changes to the market risks as disclosed in the Company’s 2022 Form 10-K. See also Financial Risk Management in Part I, Item 2 of this Form 10-Q.
Item 4. Controls and Procedures.
Disclosure Controls and Procedures
The Company’s management, with the participation of the Company’s Chief Executive Officer and Chief Financial Officer, evaluated the effectiveness of the Company’s disclosure controls and procedures as of the end of the period covered by this report. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer concluded that the Company’s disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended) as of the end of the period covered by this report were effective to provide reasonable assurance that the information required to be disclosed by the Company in reports filed under the Securities Exchange Act of 1934, as amended, is recorded, processed, summarized, and reported within the time periods specified in the SEC’s rules and forms and that it is accumulated and communicated to management, including the Chief Executive Officer and Chief Financial Officer, as appropriate to allow timely decisions regarding required disclosure.
Changes in Internal Control
There were no changes in the Company’s internal control over financial reporting (as defined in Rules 13a-15(f) under the Securities Exchange Act of 1934, as amended) during the quarter ended March 31, 2023 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
25
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
A discussion of our litigation matters occurring in the period covered by this report is found in Reference to Part I, Item 1, Note 13, Commitments and Contingencies in the Notes to Unaudited Interim Consolidated Financial Statements of this Form 10-Q.
Item 1A. Risk Factors
As of the date of this filing, except as noted below, there have been no material changes in our risk factors from those disclosed in Part I, Item 1A, of the Company’s 2022 Form 10-K, which is incorporated by reference herein.
Item 2. Unregistered Sales of Securities and Use of Proceeds
None.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Not applicable.
Item 5. Other Information.
Not applicable.
Item 6. Exhibit Index
Exhibit Number |
|
Description |
2.1 |
|
|
3.1 |
|
|
4.1 |
|
|
4.2 |
|
|
4.3 |
|
|
4.4 |
|
|
4.5 |
|
|
4.6 |
|
|
4.7 |
|
|
4.8 |
|
26
4.9 |
|
|
4.10 |
|
|
4.11 |
|
|
4.12 |
|
|
4.13 |
|
|
4.14 |
|
|
10.1# |
|
|
31.1* |
|
|
31.2* |
|
|
32.1‡ |
|
|
32.2‡ |
|
|
101.INS* |
|
Inline XBRL Instance Document – the instance document does not appear in the Interactive Data File because XBRL tags are embedded within the Inline XBRL document. |
101.SCH* |
|
Inline XBRL Taxonomy Extension Schema Document |
101.CAL* |
|
Inline XBRL Taxonomy Extension Calculation Linkbase Document |
101.DEF* |
|
Inline XBRL Taxonomy Extension Definition Linkbase Document |
101.LAB* |
|
Inline XBRL Taxonomy Extension Label Linkbase Document |
101.PRE* |
|
Inline XBRL Taxonomy Extension Presentation Linkbase Document |
104* |
|
Cover Page Interactive Data File (embedded within the Inline XBRL document) |
* Filed herewith.
‡ Document has been furnished, is not deemed filed and is not to be incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or the Securities Exchange Act of 1934, as amended, irrespective of any general incorporation language contained in any such filing.
# Management contract, compensatory plan or arrangement required to be filed pursuant to Item 601(b)(10)(iii)(A) of Regulation S-K.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
COLUMBIA CARE INC |
|
|
|
|
|
Date: May 15, 2023 |
|
By: |
/s/ Nicholas Vita |
|
|
|
Nicholas Vita |
|
|
|
Chief Executive Officer and Director |
|
|
|
|
Date: May 15, 2023 |
|
By: |
/s/ Derek Watson |
|
|
|
Derek Watson |
|
|
|
Chief Financial Officer |
28
Exhibit 31.1
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Nicholas Vita, certify that:
Date: May 15, 2023 |
|
By: |
/s/ Nicholas Vita |
|
|
|
Name: Nicholas Vita |
|
|
|
Chief Executive Officer |
Exhibit 31.2
CERTIFICATION PURSUANT TO
RULES 13a-14(a) AND 15d-14(a) UNDER THE SECURITIES EXCHANGE ACT OF 1934,
AS ADOPTED PURSUANT TO SECTION 302 OF THE SARBANES-OXLEY ACT OF 2002
I, Derek Watson, certify that:
Date: May 15, 2023 |
|
By: |
/s/ Derek Watson |
|
|
|
Derek Watson |
|
|
|
Chief Financial Officer |
Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Columbia Care Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 15, 2023 |
|
By: |
/s/ Nicholas Vita |
|
|
|
Nicholas Vita |
|
|
|
Chief Executive Officer |
Exhibit 32.2
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350, AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Columbia Care Inc. (the “Company”) on Form 10-Q for the period ending March 31, 2023 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), I certify, pursuant to 18 U.S.C. § 1350, as adopted pursuant to § 906 of the Sarbanes-Oxley Act of 2002, that:
Date: May 15, 2023 |
|
By: |
/s/ Derek Watson |
|
|
|
Derek Watson |
|
|
|
Chief Financial Officer |