Time to take our first run through Columbia Care financial statements.  With only one previous Q spread, usually I would wait for one more Q to try and take a stab at this.  But given the interest in the company I thought I would jump in a Q early.

Others might have more knowledge than I… so give me a Q or two to get up to speed.

Their earnings release.

Their MDA is not very helpful in the least, and they do not segment retail and wholesale.  Tough to do analysis without data points.

Their earnings release has a numerous regional data points, and gives sequential growth and YoY growth, problem is … they offer no starting point to run a calculation.  Frustrating.

Let’s orient:

Columbia Care is a roll-up that is in acquisition mode in the past Q.

Company is licensed to operate in 15 U.S. States, with active operations in 13, which includes 72 active dispensaries (target of 99), twenty-eight (2 in development) manufacturing or processing facilities and approximately 2 million square feet. Operating under Cannabist store banner.

In this Q, they closed in gLeaf transaction and signed an agreement to acquire Medicine Man.

In Q, they added

• June 11, 2021 acquired Green Leaf and July 7, 2021 Green Leaf Ohio. Purchase Price $280 million with Goodwill/Intangibles aggregating $294 million or 105% of PP. Contingent Consideration of $125 million.
• Corsa Verde May 4, 2021. PP $2.7 million
• Medicine Man… not closed.  PP $42 million

Guidance for F2021:

• Revenue $500-530 million. Tracking at 38% at halfway point, but added gLeaf late in Q.
• Adjusted GM % 47%
• Combined Adjusted EBITDA $95-105 million. Tracking at 25% at halfway point.

Open the fins and MDA and let’s dive in.

Income Statement Drivers & Breakeven Sales: Trend

CCHW operates in 13 states with 2 more on deck, with 72 retail dispensaries (+5 QoQ), and 28 processing facilities.

Stores:  CA 6, CO 22 (4 to be acquired via Medicine Man), FL 14, AZ 2, IL 2, UT 1 (+1 QoQ), PA 3, MD 3 (+2 QoQ), DE 3, OH 5 (+1 QoQ), VA 2 (+1 QoQ with 10 more on deck), NJ 1, DC 1, NY 4, MA 3.

Manufacturing: CA 2, CO 5, FL 4, AZ 2, IL 1, OH 1, UT 1, PA 1, MD, 1, DE 1, VA 2, NJ 2, DC 2, NY 2, MA 1.

Sales increased sequentially by 19%, an increase of $16 million. No retail or wholesale segmentation is provided.

From Investment deck:

• THIS Q: Top 5 Markets by Combined Revenue: California, Colorado, Massachusetts, Ohio, Pennsylvania
• Last Q: Top 5 Markets by Combined Revenue: California, Colorado, Massachusetts, Ohio, Pennsylvania

Cali is top in revenue but not so in GM or EBITDA. Appears to be listed alphabetically. They do indicate in Investor presentation that they are generating positive EBITDA in 12 markets and 11 market generated positive cash flow… You will have to take their word for it.

From the tea leaves of presser: revenue increases QoQ. Bold are their top 5 this Q.

• CA +4%
• CO +7.5%… GM 42%
• AZ +23%
• FL +46%… first harvest from Alachua greenhouse
• IL +15%
• MA +6%
• NJ +20% … with + GM
• NY +11%
• OH +18% (new dispo)
• PA +28%… gLeaf will add to this next Q.
• VA +227% (new dispo)

These number are meaningless without the starting point and the weighting by state.

Retail Sales: Peer and Trend

N/A until segmentation.

Wholesale: Peer and Trend

N/A until segmentation.

Annualized Sales $ per (PPE + ROU + Goodwill/Intangibles)

What I have done above is annualize the last Q’s sales and divided it by the aggregate of PPE +ROU + G/I (UPDATED to include ROU) to see how much sales are being generated and what the trend is. I added PPE + ROU + G/I to try to normalize the companies that have gone an organic path (TRUL and CWEB until their new acquisition) versus the more acquisitive (VRNO, Cura and GTII)

Given they added a good chunk to the denominator in the Q (+$497 million for aggregate $1,052 million) in the Q, while revenue, GM and EBITDA were added late in Q, this will take a Q to normalize.

The $0.39 is the third lowest in peer.

Income Statement Drivers & Breakeven Sales: Peer

CCHW is 6^th in sales.

Gross Margin: Trend & Peer

GM% improved from 41% to 42%, but without inventory step up from acquisitions would have been 44%.  GM was $43 million +$8 million (or +$9 million without step up).

Expect the step up to continue next Q as they bough $41 million in inventory that they will need to sell through.

From Investment deck:

• This Q: Top 5 markets by Adj GM: AZ, DE, IL, MA, NY

• Last Q: Top 5 markets by Adj GM: AZ, CO, DE, MA, NY

I don’t know if the above is absolute $ or %.  Appears alphabetical. IL supplants CO QoQ.

We have seen Retail GM% disclosed by ACRG, HARC and CL via Non-Controlling Interests.  This has straddled 50% with a narrow range. I am wondering if the 22-store fleet in CO brings down the GM%? It is 31% of total store fleet.

Realized Fair Value on inventory sold is a $26 million versus $29 million last Q. Unrealized Fair Value of Bio Assets decreased to $37 million from $39 million QoQ, yet bio assets increased $21 million to $48 million.  Wondering if some of the Bio Assets were acquired and written up under IFRS and land via acquisition versus via Income Statement.

The aggregate of the IFRS voodoo is a +$10 million flat to the previous Q.

Annualized Gross Margin $ per (PPE + ROU + Goodwill/Intangibles)

This is our attempt to normalize the companies growing organically from the roll ups.  We have annualized the gross margin and divided that by aggregate of PPE + ROU + G&I.

Given they added a good chunk to the denominator in the Q (+$497 million for aggregate $1,052 million) in the Q, while revenue, GM and EBITDA were added late in Q, this will take a Q to normalize.

The $0.16 is the third lowest in peer.

Gross Margin: USA Peer

CCHW is tied for 10th highest in this peer group with MMEN.  

Gross Margin: North American Peer

CCHW is 10th highest on a North American basis.

One thing I want to point out… Village Farms, a Canadian LP, pulled down a 40% GM on their cannabis business this past Q (their negative margin Tomato business pulls down their overall GM%).  This is in Canada, where we have national pricing, competition is fierce and there is no verticality. 

A concern we share is that the margins of US MSO’s should be much better than Canadian LP’s given their lack of competition, no national pricing and verticality.  The MSOs are certainly better, but it will be interesting to see if they can continue this level if/when competition and national pricing is in the mix.

We get the argument that costs will also come down with interstate, but in order to generate the same level of GM$’s (to pay your bills) with say a 50% cut in retail prices (which we have seen and more in Canada), the company will need to work that much harder to maintain that GM$ level. Production costs might go down, but SGA will likely need to increase.

SGA & SBC as % of Sales: Trend

Aargh… no split of selling and G&A and no schedule. MDA is completely useless for any idea as to what went up or didn’t QoQ.

Combined SGA was $46 million an increase QoQ of $6 million (expect this to increase next Q with full Q of gLeaf) to 45% of sales from 46% last Q. This is very much above peer group which has a pretty tight range at 28-29% with GTII leader at 23%.

SBC is $5.2 million versus $7.7 million last Q.  SP has come down this Q.

Depreciation they do not even break out.  I have to go to Cash Flow Statement which does not break down the CGS and Opex elements.  This was $13 million this Q versus $12 million last Q.

Opex increased by $4 million to $51.5 million and decreased to 50% of sales from 55% last Q.  

SGA & SBC as % of Sales: Peer

Agg SGA of 50% is well above most peers with only MMEN and CWEB worse.  Keep in mind they have a big fleet of dispensaries that leads to more SGA.  But even TRUL and CURA, with more stores, are well below this level.

+Net Operating Profit Sales Breakeven divided by Current Q Sales: USA Peer

Net Operating Profit before IFRS voodoo was -$8.2 million versus -$12.5 million last Q.  The increase in absolute GM by $8 million was offset by $4 million in increased Opex expenses.

Other Income (Expenses) and Taxes:

Other Expenses for the Q was negative $8 million versus negative $6 million last Q, which was largely comprised of

• Interest expense -$8.6 million versus -$7.6 million last Q.
• Income of $2.1 million in Fair Value of derivative liability versus nil last Q
• Loss of $1.6 million on conversion of debt versus nil last Q

Taxes were $5.1 million versus $5.0 million last Q.   

Net Income after Non-Controlling Interest and before IFRS Voodoo was – $21 million versus negative $25 million last Q.   With IFRS voodoo the reported Net Income was -$11 million versus -$15 million last Q.

+Net Operating Profit Sales Breakeven divided by Current Q Sales: North American Peer

In the North American Peer group CCHW ranks 8th best.

+EBITDA: Trend & Peer

My Adjusted EBITDA is $14 million.  Theirs is $15 million, as they add back acquisition costs non-core costs and covid costs which I did not add back.

Their EBITDA increased $7 million, as GM (less the step up) overpowered the cash Opex increase.

From investment deck:

• This Q: Top 5 markets by Adjusted EBITDA: AZ, DE, IL, MA, PA
• Last Q: Top 5 markets by Adjusted EBITDA: AZ, DE, IL, MA, PA

Not sure if this is absolute $ or %. Appears alphabetical. No change QoQ.

CashFlow:

• From operations Use $13.5 million of which $0.2 million is Opex Burn
• From investing Use $74 million… on acquisition
• From financing Source $60 million… largely new funds from debt refinance.
• Net -$27 million

Annualized Adjusted EBITDA to (PPE + ROU + Goodwill and Intangibles

We have added this new metric to now look at who is being the most efficient with PPE + ROU + G/I based on Annualized EBITDA.

Given they added a good chunk to the denominator in the Q (+$497 million for aggregate $1,052 million) in the Q, while revenue, GM and EBITDA were added late in Q, this will take a Q to normalize.

The $0.05 is the third lowest in peer.

+EBITDA Sales Breakeven divided by Current Q Sales: USA Peer

CCHW at 68% sales required to be +EBITDA. They are 9^th in this peer group.

+EBITDA Sales Breakeven divided by Current Q Sales: North American Peer

Net Operating Profit + Non-Cash Expense – Interest – Taxes: $ Thousands of Dollars

Here is our metric introduced last Q.  It is meant to show how much cash went into the bank account from operations after Interest and Taxes are serviced.  Essentially EBITDA without the I + T added back. 

CCHW is a tad positive in this metric, improving from -$6 million last Q.  Interest this Q was $8.6 million versus last Q $7.6 million, while taxes were stable at $5 million.

Net Operating Profit + Non-Cash Expense – Interest – Taxes: % of Sales

CCHW is at 0% an improvement QoQ from -7%.

Balance Sheet Items of Note:

Cash position $149 million a decrease of $28 million QoQ.  This despite the $75 million private placement of convertible debentures (senior secured) closed on June 29, 2021. They have $126 million in A/P and accrued liabilities, $125 million in contingent consideration on gLeaf purchase, and $26 million in Current Portion of leases and loans.  They will need a raise. Likely to be equity given the convertible debenture got the security.  They have time as the $125 million is due by June 2022, but they are not flush by any means.

“Waterfall” Trend

Inventory increased by $46 million to $165 million.  Acquisitions was $41 million.  Quarterly Inventory to Sales ratio is 1.62:1.

Finished Goods Delta was $15 million, a nice increase.

“Waterfall” Peer

Keep in mind Cura, TER, CCHW & VRNO still are using IFRS and includes Gain on Biologicals in inventory.

Bio assets increased $21 million QoQ to $48 million. They acquired $14 million in bio assets.

• PPE increase $61 million to $181 million (they had $40 million in construction in process +$24 million QoQ) and ROU increases $142 million to $331 million.  gLeaf came with $ 20 million in PPE and $110 in ROU.
• G/I increase $294 million to $540 million.

On Liability and Equity side:

• A/P and accrued liabilities increased $53 million to $126 million.  This is pretty high.
• Long term debt increased to $138 million +$61 million QoQ.
• Non-current leases increased +$138 million to $341 million.
• Share capital increases $208 million as shares went out for the acquisition.

This Q:

Interesting company in that they have a big presence in CO retail, unlike most peers.  This could be pressing down on gross margins while pushing up on SGA.

Next Q there will be a full Q of gLeaf on the books and potentially Medicine Man. I will be interested to see what they paid $280 million for.

I am not sure why they have a +1 million square foot green house in NY given canopy limitations are presently 150,000 sq ft.  Maybe they know something. Maybe that is what was available.

Their debt and leases of $495 million trails (against PPE and ROU of $512 million or 97%, which is very high and they have pledged security which gives them less wiggle room) only Cura’s $650 million in our peer group, and is followed by CL $414 million. Keep an eye on this if you are invested.  It generally means they will need equity for any major purchases.

The lack of segmentation of revenue and the lack of SGA separation really makes this tough to compare to peers. I actually think the segmentation might make the story more palatable, as presently they are downstream from peers on most metrics.

Until they segment revenue, I do not think I will include in MSO Snapshot (sorry, Bob).

The preceding is the opinion of the author and is in no way intended to be a recommendation to buy or sell any security or derivative. The author does not have a position in CCHW and will not start one in the next five days.