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, our Annual Report on Form 10-K for the year ended December 31, 2021, and our Form 10, dated May 9, 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.
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
(1) The amounts shown are net of any shares withheld by the Company to satisfy certain tax withholdings in connection with vesting of equity-based awards.
The accompanying notes are an integral part of these condensed interim consolidated financial statements.
COLUMBIA CARE INC.
NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS
FOR THE three AND SIX months ended jUNE 30, 2022 and 2021
(Expressed in thousands of U.S. dollars, except for share and per share amounts)
(Unaudited)
1. |
OPERATIONS OF THE COMPANY |
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 customary closing conditions and necessary regulatory approvals, the Cresco Transaction is expected to close around the end of 2022. Under the terms of the Arrangement Agreement, shareholders of the Company (the “Company Shareholders”) will receive 0.5579 of a subordinate voting share of Cresco Labs (each whole share, a “Cresco Labs Share”) for each Company common share (or equivalent) held, subject to adjustment, representing total consideration enterprise value of approximately US$2.0 billion based on the closing price of Cresco Labs Shares on the CSE as of March 22, 2022. After giving effect to the Cresco Transaction, Company Shareholders will hold approximately 35% of the pro forma Cresco Labs Shares (on a fully diluted in-the-money, treasury method basis).
2. |
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES |
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 and six months ended June 30, 2022, are not necessarily indicative of the results that may be expected for the current year ending December 31, 2022. 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, 2021, and 2020 included in the Annual Report on Form 10-K for the year ended December 31, 2021 (the “2021 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 2021 Form 10-K, filed with the Securities and Exchange Commission, or SEC, on March 31, 2022. There have been no material changes to the Company’s significant accounting policies.
8
Revenue
The Company’s revenues are disaggregated as follows:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Dispensary |
|
$ |
109,457 |
|
|
$ |
85,942 |
|
|
$ |
212,799 |
|
|
$ |
159,899 |
|
|
Cultivation and wholesale |
|
|
20,093 |
|
|
|
16,417 |
|
|
|
39,815 |
|
|
|
28,496 |
|
|
Other |
|
|
21 |
|
|
|
28 |
|
|
|
44 |
|
|
|
87 |
|
|
|
|
$ |
129,571 |
|
|
$ |
102,387 |
|
|
|
252,658 |
|
|
$ |
188,482 |
|
During the three and six months ended June 30, 2022, the Company netted discounts of $48,618 and $22,712, against the revenues, respectively. During the three and six months ended June 30, 2021, the Company netted discounts of $25,542 and $13,337, against the revenues, respectively. Discounts are provided by the Company during promotional days or weekends. Discounts are also provided to employees, seniors and other categories of customers and may include price reductions and coupons.
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 the high degree of uncertainty in estimating annual pre-tax income due to the growth stage of the business, the correlation of 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 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:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Accessories |
|
$ |
778 |
|
|
$ |
815 |
|
|
Work-in-process - cannabis in cures and final vault |
|
|
50,993 |
|
|
|
52,519 |
|
|
Finished goods - dried cannabis, concentrate and edible products |
|
|
69,743 |
|
|
|
41,233 |
|
|
Total inventory |
|
$ |
121,514 |
|
|
$ |
94,567 |
|
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 local market conditions in Colorado, there was a $2,400 write-down during the three and six months ended June 30, 2022.
9
4. |
CURRENT AND LONG-TERM DEBT |
Current and long-term obligations, net, are shown in the table below:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
2026 Notes |
|
$ |
185,000 |
|
|
$ |
— |
|
|
Term debt |
|
|
38,215 |
|
|
|
69,965 |
|
|
2025 Convertible Notes |
|
|
74,500 |
|
|
|
74,500 |
|
|
Mortgage Notes |
|
|
36,271 |
|
|
|
20,000 |
|
|
2023 Convertible Notes |
|
|
5,600 |
|
|
|
5,600 |
|
|
Acquisition related real estate notes |
|
|
7,000 |
|
|
|
7,000 |
|
|
Acquisition related promissory notes |
|
|
3,750 |
|
|
|
4,875 |
|
|
Acquisition related term debt |
|
|
3,314 |
|
|
|
3,314 |
|
|
|
|
|
353,650 |
|
|
|
185,254 |
|
|
Unamortized debt discount |
|
|
(15,206 |
) |
|
|
(19,301 |
) |
|
Unamortized deferred financing costs |
|
|
(12,880 |
) |
|
|
(5,379 |
) |
|
Unamortized debt premium |
|
|
102 |
|
|
|
327 |
|
|
Total debt, net |
|
|
325,666 |
|
|
|
160,901 |
|
|
Less current portion, net* |
|
|
(4,509 |
) |
|
|
(1,884 |
) |
|
Long-term portion |
|
$ |
321,157 |
|
|
$ |
159,017 |
|
*The current portion of the debt includes scheduled payments on the mortgage note, acquisition related promissory notes and acquisition related notes payable, net of corresponding portion 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 June 30, 2022.
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 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 Company accounted for the exchange of $31,750 aggregate principal amount of the existing Term Debt as a debt modification in accordance with ASC 470-50. The total unamortized debt and debt issuance costs of $2,153, related to 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.
Total interest and amortization expense on the Company’s debt obligations during the three and six months ended June 30, 2022 and 2021 are as follows:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Interest expense |
|
$ |
9,426 |
|
|
$ |
2,910 |
|
|
$ |
18,852 |
|
|
$ |
5,897 |
|
|
Amortization of debt discount |
|
|
1,301 |
|
|
|
959 |
|
|
|
2,597 |
|
|
|
2,022 |
|
|
Amortization of debt premium |
|
|
(38 |
) |
|
|
(70 |
) |
|
|
(87 |
) |
|
|
(140 |
) |
|
Amortization of debt issuance costs |
|
|
875 |
|
|
|
298 |
|
|
|
1,564 |
|
|
|
546 |
|
|
Other interest (expense) income, net |
|
|
(80 |
) |
|
|
(88 |
) |
|
|
(198 |
) |
|
|
(460 |
) |
|
Total interest expense |
|
$ |
11,484 |
|
|
$ |
4,009 |
|
|
$ |
22,728 |
|
|
$ |
7,865 |
|
10
The weighted average interest rate on the Company’s indebtedness was 8.6%.
Futurevision Holdings, Inc., Futurevision 2020, LLC and Medicine Man Longmont, LLC
On November 1, 2021, the Company acquired (the “Medicine Man Transaction”) a 100% ownership interest in Futurevision Holdings, Inc. and Futurevision 2020, LLC (collectively, “Medicine Man”), through the Agreement and Plan of Merger (the “Merger Agreement”). Concurrently with the Merger Agreement, the Company was granted an option (the “Option”) to purchase Medicine Man Longmont, LLC (“Medicine Man Longmont”). The Option was exercised by the Company on August 12, 2022 following the sale of the Company’s former TGS Longmont location in July 2022. The Company has recorded the Option as an intangible asset as of the November 1, 2021, closing date, at its estimated fair value of $5,899, which represents the ultimate purchase price associated with the underlying property, since the time period to exercise the Option is short and given the certainty expressed by management to exercise the Option. As of June 30, 2022 TGS Longmont is reflected within assets held for sale on the Company’s consolidated balance sheet. 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 expand in the Colorado market.
The following table summarizes the preliminary fair value of total consideration transferred and the fair value of each major class of consideration for Medicine Man:
|
Consideration transferred |
|
|
|
|
|
Cash consideration |
|
$ |
7,240 |
|
|
Closing shares |
|
|
23,955 |
|
|
Contingent consideration |
|
|
3,664 |
|
|
Purchase option obligation |
|
|
5,899 |
|
|
Total unadjusted purchase price |
|
|
40,758 |
|
|
Working capital adjustment |
|
|
127 |
|
|
Total adjusted purchase price |
|
|
40,885 |
|
|
Less: Cash and cash equivalents acquired |
|
|
(1,250 |
) |
|
Total purchase price, net of cash and cash equivalents acquired |
|
$ |
39,635 |
|
Equity purchase consideration comprised 5,840,229 Common Shares of which 4,857,184 were issued during the year 2021. As per the terms of the Merger Agreement, the Company paid $836 in cash and issued 1,099,549 milestone shares in settlement of contingent consideration during April 2022.
Recognized amounts of identifiable assets acquired, and liabilities assumed, less cash and cash equivalents acquired:
|
Purchase price allocation |
|
|
|
|
|
Assets acquired: |
|
|
|
|
|
Inventory |
|
$ |
3,611 |
|
|
Prepaid expenses and other current assets |
|
|
397 |
|
|
Option deposit |
|
|
5,899 |
|
|
Property and equipment |
|
|
1,498 |
|
|
Right of use assets |
|
|
10,613 |
|
|
Goodwill |
|
|
9,908 |
|
|
Intangible assets |
|
|
30,370 |
|
|
Accounts payable |
|
|
(696 |
) |
|
Accrued expenses and other current liabilities |
|
|
(1,910 |
) |
|
Lease liabilities |
|
|
(11,233 |
) |
|
Deferred tax liabilities |
|
|
(8,822 |
) |
|
Consideration transferred |
|
$ |
39,635 |
|
The purchase price has been allocated on the basis of the preliminary estimates of fair values of assets and liabilities assumed, resulting in a goodwill of $9,908. The goodwill consists of expected synergies from combining operations of the Company and Medicine Man, and intangible assets not qualifying for separate recognition such as formulations, proprietary technologies and acquired know-how. None of the goodwill is deductible for tax purposes. No adjustments to the preliminary
11
allocation of purchase price impacted goodwill during the three and six months ended June 30, 2022. As additional information becomes available, the Company may revise the allocation to certain assets and liabilities and finalize the acquisition accounting within the required measurement period of one year.
Medicine Man’s state licenses and trademarks represented identifiable intangible assets acquired in the amounts of $26,900 and $3,470 respectively, which were determined to have definite useful lives of 10 and 5 years respectively.
The fair value of the acquired assets and liabilities are provisional pending receipt of the final valuations for those assets and liabilities.
In conjunction with the Medicine Man Transaction, the Company expensed $1,099 of acquisition-related costs, which have been included in selling, general and administrative expenses on the Company’s consolidated statement of operations and comprehensive loss for the year ended December 31, 2021.
Accounting for the August 12, 2022 acquisition of the Medicine Man Longmont transaction will be captured in the Company's Q3 financial statements.
Agreement and Plan of Merger with Green Leaf Medical LLC
Effective June 11, 2021, the Company and certain subsidiaries entered into an agreement and plan of merger (the “gLeaf Agreement”) with Green Leaf Medical LLC (“gLeaf”). Under the gLeaf Agreement, the Company may be obligated to provide contingent consideration, payable in common shares of the Company (the “Milestone Shares”), to the shareholders of gLeaf if gLeaf achieves certain performance-based milestones. The Company has retained a third-party expert to independently assess whether Milestone Shares have been earned for the time period of July 1, 2021 to June 30, 2022.
Accordingly, there has been no change to the value of the related contingent liability reported on the Company’s balance sheet as of June 30, 2022.
6. |
PROPERTY AND EQUIPMENT |
Details of the Company’s property and equipment and related depreciation expense are summarized in the tables below:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Land and buildings |
|
$ |
128,751 |
|
|
$ |
113,736 |
|
|
Furniture and fixtures |
|
|
10,456 |
|
|
|
8,564 |
|
|
Equipment |
|
|
41,612 |
|
|
|
36,052 |
|
|
Computers and software |
|
|
3,507 |
|
|
|
2,914 |
|
|
Leasehold improvements |
|
|
200,892 |
|
|
|
145,259 |
|
|
Construction in process |
|
|
56,829 |
|
|
|
86,326 |
|
|
Total property and equipment, gross |
|
|
442,047 |
|
|
|
392,851 |
|
|
Less: Accumulated depreciation |
|
|
(68,170 |
) |
|
|
(53,159 |
) |
|
Total property and equipment, net |
|
$ |
373,877 |
|
|
$ |
339,692 |
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Total depreciation expense for three months ended |
|
$ |
7,804 |
|
|
$ |
4,978 |
|
|
$ |
15,132 |
|
|
$ |
9,681 |
|
|
Included in: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Costs of sales related to inventory production |
|
$ |
4,361 |
|
|
$ |
2,946 |
|
|
|
8,488 |
|
|
|
5,684 |
|
|
Selling, general and administrative expenses |
|
$ |
3,443 |
|
|
$ |
2,032 |
|
|
|
6,644 |
|
|
|
3,997 |
|
12
7. |
PREPAID EXPENSES AND OTHER CURRENT ASSETS |
Details of the Company’s prepaid expenses and other current assets are summarized in the table below:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Prepaid expenses |
|
$ |
17,303 |
|
|
$ |
15,362 |
|
|
Short term deposits |
|
|
5,621 |
|
|
|
6,960 |
|
|
Other current assets |
|
|
4,197 |
|
|
|
5,822 |
|
|
Excise and sales tax receivable |
|
|
1,212 |
|
|
|
1,108 |
|
|
Prepaid expenses and other current assets |
|
$ |
28,333 |
|
|
$ |
29,252 |
|
8. |
OTHER NON-CURRENT ASSETS |
Details of the Company’s other non-current assets are summarized in the table below:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Long term deposits |
|
$ |
5,413 |
|
|
$ |
5,602 |
|
|
Indemnification receivable |
|
|
2,180 |
|
|
|
4,111 |
|
|
Investment in affiliates |
|
|
775 |
|
|
|
776 |
|
|
Restricted cash |
|
|
1,335 |
|
|
|
335 |
|
|
Notes receivable |
|
|
4,110 |
|
|
|
2,211 |
|
|
Other non-current assets |
|
$ |
13,813 |
|
|
$ |
13,035 |
|
9. |
ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES |
Details of the Company’s accrued expenses and other current liabilities are summarized in the table below:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Accrued acquisition and settlement of pre-existing relationships |
|
$ |
200 |
|
|
$ |
86,596 |
|
|
Taxes - property and other |
|
|
9,962 |
|
|
|
14,062 |
|
|
Other accrued expenses |
|
|
27,605 |
|
|
|
6,035 |
|
|
Payroll liabilities |
|
|
11,569 |
|
|
|
12,799 |
|
|
Other current liabilities |
|
|
7,875 |
|
|
|
4,673 |
|
|
Construction in progress |
|
|
- |
|
|
|
2,789 |
|
|
Accrued expenses and other current liabilities |
|
$ |
57,211 |
|
|
$ |
126,954 |
|
As of June 30, 2022 the Company has recorded a net $7,000 relating to cross-indemnification claims relating to a prior acquisition.
The Company had the following activity during the six months ended June 30, 2022:
|
• |
Granted 9,561,144 time-based restricted stock units and 1,473,261 performance-based restricted stock units during the six months ended June 30, 2022. |
|
• |
Issued 2,395,792 Common Shares upon vesting of RSU’s. An additional 888,683 shares were sold to cover for taxes on the share-based compensation units that were issued during the six months ended June 30, 2022. |
13
As of June 30, 2022 and December 31, 2021, outstanding equity-classified warrants to purchase Common Shares consisted of the following:
|
|
|
December 31, 2021 |
|
|
|
|
|
Expiration |
|
Number of Shares Issued and Exercisable |
|
|
Exercise Price
(Canadian Dollars) |
|
|
Number of Shares Issued and Exercisable |
|
|
Exercise Price
(Canadian Dollars) |
|
|
October 1, 2025 |
|
|
648,783 |
|
|
|
8.12 |
|
|
|
648,783 |
|
|
|
8.12 |
|
|
April 26, 2024 |
|
|
5,394,945 |
|
|
|
10.35 |
|
|
|
5,394,945 |
|
|
|
10.35 |
|
|
May 14, 2023 |
|
|
1,723,250 |
|
|
|
3.10 |
|
|
|
1,723,250 |
|
|
|
3.10 |
|
|
May 14, 2023 |
|
|
1,818,788 |
|
|
|
2.95 |
|
|
|
1,998,788 |
|
|
|
2.95 |
|
|
May 14, 2023 |
|
|
1,897,000 |
|
|
|
5.84 |
|
|
|
1,897,000 |
|
|
|
5.84 |
|
|
|
|
|
11,482,766 |
|
|
$ |
7.22 |
|
|
|
11,662,766 |
|
|
$ |
7.15 |
|
Warrant activity for the six months ended June 30, 2022 and 2021 are summarized in the table below:
|
|
|
Number of
Warrants |
|
|
Weighted average exercise price (Canadian Dollars) |
|
|
Balance at December 31, 2020 |
|
|
13,147,919 |
|
|
$ |
6.91 |
|
|
Exercised |
|
|
(1,485,153 |
) |
|
|
5.01 |
|
|
Balance at June 30, 2021 |
|
|
11,662,766 |
|
|
$ |
7.15 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at December 31, 2021 |
|
|
11,662,766 |
|
|
$ |
7.15 |
|
|
Exercised |
|
|
(180,000 |
) |
|
|
2.95 |
|
|
Balance at June 30, 2022 |
|
|
11,482,766 |
|
|
$ |
7.22 |
|
Basic and diluted net loss per share attributable to the Company was calculated as follows:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Numerator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net loss |
|
$ |
(54,255 |
) |
|
$ |
(18,657 |
) |
|
$ |
(82,161 |
) |
|
$ |
(47,820 |
) |
|
Less: Net gain/(loss) attributable to non-controlling interests |
|
|
(427 |
) |
|
|
(513 |
) |
|
|
(1,697 |
) |
|
|
(894 |
) |
|
Net loss attributable to shareholders |
|
$ |
(53,828 |
) |
|
$ |
(18,144 |
) |
|
$ |
(80,464 |
) |
|
$ |
(46,926 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Denominator: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average shares outstanding - basic and diluted |
|
|
394,023,144 |
|
|
|
313,771,867 |
|
|
|
385,258,892 |
|
|
|
304,346,270 |
|
|
Loss per share - basic and diluted |
|
$ |
(0.14 |
) |
|
$ |
(0.06 |
) |
|
$ |
(0.21 |
) |
|
$ |
(0.15 |
) |
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.
13. |
COMMITMENTS AND CONTINGENCIES |
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 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. Other than the accruals mentioned in this Note, the Company
14
has not accrued any liabilities related to any pending claims potentially subject to indemnification arrangements in its condensed interim consolidated financial statements.
For the quarter ended September 30, 2021, the Company had anticipatorily accrued $68,000 for potential share issuances and cash payments for purposes of acquisition and settlement of pre-existing relationships, inclusive of prospective acquisition costs relating to third-party entities and other litigation costs. On April 18, 2022, in connection with the accrual, the Company issued 18,755,082 common shares and on April 18, 2022 and April 24, 2022 paid approximately $26,000 to acquire, by merger, VentureForth Holdings, LLC, which is the owner of VentureForth. VentureForth holds two licenses from the Washington D.C. Alcoholic Beverage Regulation Administration (“ABRA”), specifically, one license to cultivate and manufacture medical cannabis and one license to dispense medical cannabis. The merger was approved by ABRA. The Company previously had a management services agreement with VentureForth. In further connection with the accrual, the shares issued, and amounts paid also amicably resolved, with no admissions of liability and in exchange for releases, certain direct, indirect, derivative and indemnification claims relating to a confidential arbitration to which VentureForth, a separate subsidiary of the Company and certain members of the Company’s management team were respondent parties.
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, other than as noted in Footnote 9 above, no provisions has been made in these condensed interim consolidated financial statements for losses, if any, which might result from the ultimate disposition of these matters should they arise.
14. |
FINANCIAL INSTRUMENTS AND FAIR VALUE MEASUREMENTS |
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 |
|
|
June 30, 2022 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(1,098 |
) |
|
$ |
(1,098 |
) |
|
Contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
(37,360 |
) |
|
|
(37,360 |
) |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(38,458 |
) |
|
$ |
(38,458 |
) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2021 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liability |
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(6,795 |
) |
|
$ |
(6,795 |
) |
|
Contingent consideration |
|
|
— |
|
|
|
— |
|
|
|
(40,941 |
) |
|
|
(40,941 |
) |
|
|
|
$ |
— |
|
|
$ |
— |
|
|
$ |
(47,736 |
) |
|
$ |
(47,736 |
) |
During the period included in these financial statements, there were no transfers of amounts between levels.
The following table summarizes the valuation techniques and key inputs used in the fair value measurement of Level 3 financial instruments:
|
Financial asset/financial
liability |
Valuation techniques |
Significant unobservable
inputs |
Relationship of unobservable
inputs to fair value |
|
Derivative liability |
Market approach |
Conversion Period |
Increase or decrease in conversion period will result in an increase or decrease in fair value |
|
Contingent Consideration |
Discounted cash flow approach |
Risk adjusted discount rate and forecasted EBITDA |
Increase or decrease in risk adjusted discount rate and forecasted EBITDA will result in an increase or decrease in fair value |
The carrying amounts of cash and restricted cash, accounts receivable, deposits and other current assets, accounts payable, accrued expenses, and other current liabilities, current portion of long-term debt and lease liability as of June 30, 2022 and December 31, 2021 approximate their fair values because of the short-term nature of these items and are not included in the table above. The Company’s notes receivable, 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 June 30, 2022 and December 31, 2021. These estimates require management's judgment and may not be indicative of the future fair values of the assets and liabilities.
15. |
GOODWILL AND INTANGIBLE ASSETS |
Goodwill and intangible assets consist of the following:
|
|
|
June 30, 2022 |
|
|
December 31, 2021 |
|
|
Goodwill |
|
$ |
256,346 |
|
|
$ |
256,346 |
|
|
Less: Accumulated impairment on goodwill |
|
|
(72,328 |
) |
|
|
(72,328 |
) |
|
Total goodwill, net |
|
|
184,018 |
|
|
|
184,018 |
|
|
|
|
|
|
|
|
|
|
|
|
Licenses |
|
|
278,479 |
|
|
|
285,854 |
|
|
Trademarks |
|
|
59,694 |
|
|
|
59,694 |
|
|
Customer Relationships |
|
|
52,500 |
|
|
|
52,500 |
|
|
Total intangible assets |
|
|
390,673 |
|
|
|
398,048 |
|
|
Less: Accumulated amortization |
|
|
(52,875 |
) |
|
|
(30,261 |
) |
|
Total intangible assets, net |
|
$ |
337,798 |
|
|
$ |
367,787 |
|
The amortization expense for the three and six months ended June 30, 2022 and 2021 are as follows:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Amortization for the period included in selling, general and administrative expenses |
|
$ |
10,454 |
|
|
$ |
2,906 |
|
|
$ |
22,658 |
|
|
$ |
5,812 |
|
16. |
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES |
Selling, general and administrative expenses are summarized in the table below:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Salaries and benefits |
|
$ |
34,449 |
|
|
$ |
24,366 |
|
|
$ |
64,820 |
|
|
$ |
48,646 |
|
|
Professional fees |
|
|
4,865 |
|
|
|
5,740 |
|
|
|
11,674 |
|
|
|
11,065 |
|
|
Depreciation and amortization |
|
|
14,218 |
|
|
|
5,349 |
|
|
|
29,928 |
|
|
|
10,486 |
|
|
Operating facilities costs |
|
|
11,058 |
|
|
|
7,062 |
|
|
|
21,095 |
|
|
|
13,650 |
|
|
Operating office and general expenses |
|
|
2,856 |
|
|
|
3,959 |
|
|
|
5,633 |
|
|
|
7,418 |
|
|
Advertising and promotion |
|
|
4,105 |
|
|
|
3,672 |
|
|
|
8,362 |
|
|
|
6,252 |
|
|
Other fees and expenses |
|
|
1,405 |
|
|
|
2,355 |
|
|
|
2,736 |
|
|
|
3,020 |
|
|
Total selling, general and administrative expenses |
|
$ |
72,956 |
|
|
$ |
52,503 |
|
|
$ |
144,248 |
|
|
$ |
100,537 |
|
Other expense, net is summarized in the table below:
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
June 30, 2022 |
|
|
June 30, 2021 |
|
|
Change in fair value of the derivative liability |
|
|
(6,380 |
) |
|
|
(2,092 |
) |
|
|
(5,697 |
) |
|
|
(1,913 |
) |
|
Loss on extinguishment of debt |
|
|
— |
|
|
|
1,580 |
|
|
|
— |
|
|
|
1,580 |
|
|
Earnout adjustment |
|
|
476 |
|
|
|
— |
|
|
|
476 |
|
|
|
— |
|
|
Other expense |
|
|
7,388 |
|
|
|
(60 |
) |
|
|
7,406 |
|
|
|
14 |
|
|
Rental income |
|
|
(893 |
) |
|
|
— |
|
|
|
(1,655 |
) |
|
|
— |
|
|
Total other expense, net |
|
$ |
591 |
|
|
$ |
(572 |
) |
|
$ |
530 |
|
|
$ |
(319 |
) |
16
|
• |
On March 23, 2022, the Company and Cresco Labs, announced the execution of the Arrangement Agreement, by and between the Company and Cresco Labs. On July 8, 2022, the Company held a special meeting of the shareholders of the Company at which the shareholders approved the Cresco Transaction. On July 15, 2022, the Company also obtained the final order from the Supreme Court of British Columbia approving the Arrangement Agreement with Cresco Labs. |
|
• |
On November 1, 2021, the Company acquired a 100% ownership interest in Medicine Man, through the Merger Agreement. Concurrently with the Merger Agreement, the Company was granted the Option to purchase Medicine Man Longmont. The Option was exercised by the Company on August 12, 2022 following the sale of the Company’s former TGS Longmont location in July 2022. The Company executed the Medicine Man Transaction in order to continue to grow revenues, expand its cultivation facilities, manufacturing facilities and dispensaries, and expand in the State of Colorado. |
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 condensed interim consolidated financial statements and the accompanying notes for the three and six months ended June 30, 2022 and 2021. 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 2021 Form 10-K filed with the SEC on March 31, 2022 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 cannabis industry, our strategy to grow our business is comprised of the following key components:
|
• |
Expansion and development within and outside our current markets |
|
• |
Patient-centric, provider-based model to leverage health and wellness focus |
|
• |
Consistency of proprietary product portfolio comprised of branded consumer and patient products |
|
• |
Intellectual property and data-driven innovation |
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. Outside of the United States, our products may be subject to tariffs, treaties and various trade agreements as well as laws affecting the importation of consumer goods. 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. In recent years, a temporary federal legislative enactment that prohibits the Department of Justice from expending appropriated funds to enforce federal laws that interfere with a state's implementation of its own medical marijuana laws has been included in multiple Appropriations laws that have passed Congress. This so-called budget rider is known as the Rohrbacher-Farr Amendment. The Rohrbacher-Farr Amendment has been included in successive appropriations legislation or resolutions since 2015. The Rohrabacher-Farr Amendment was extended most recently through September 30, 2022. Notably, the Rohrbacher-Farr Amendment has applied only to medical marijuana programs and has not provided the same protections to enforcement related to adult-use activities.
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.
18
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 and expansion 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 competitive position in our current markets, and identify and successfully enter and market products in new geographic areas and segments.
Recent Announcements
|
• |
On March 23, 2022, the Company and Cresco Labs announced the execution of the Arrangement Agreement, whereby, among other things, Cresco Labs will acquire 100% issued and outstanding shares of the Company. On July 8, 2022, the Company held a special meeting of the shareholders of the Company at which the shareholders approved the Cresco Transaction. On July 15, 2022, the Company also obtained the final order from the Supreme Court of British Columbia approving the Arrangement Agreement with Cresco Labs. |
|
• |
On November 1, 2021, the Company acquired a 100% ownership interest in Medicine Man, through the Merger Agreement. Concurrently with the Merger Agreement, the Company was granted the Option to purchase Medicine Man Medicine Man Longmont. The Option was exercised by the Company on August 12, 2022 following the sale of the Company’s former TGS Longmont location in July 2022. The Company executed the Medicine Man Transaction in order to continue to grow revenues; expand its cultivation facilities, manufacturing facilities and dispensaries; and expand in the State of Colorado. |