UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
FORM 10-Q
(Mark One)
☒
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2024
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: 000-56294
THE CANNABIST COMPANY HOLDINGS INC.
(Exact Name of Registrant as Specified in its Charter)
British Columbia
98-1488978
(State or other jurisdiction of
incorporation or organization)
(I.R.S. EmployerIdentification No.)
680 Fifth Ave., 24th Floor
New York, New York
10019
(Address of principal executive offices)
(Zip Code)
Registrant’s telephone number, including area code: (212) 634-7100
Securities registered pursuant to Section 12(b) of the Act: None
Title of each class
Trading
Symbol(s)
Name of each exchange on which registered
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. Yes ☒ No ☐
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). Yes ☒ No ☐
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.
Large accelerated filer
Accelerated filer
Non-accelerated filer
Smaller reporting company
Emerging growth company
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 ☐ No ☒
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 7, 2024, there were 448,544,488 shares of common stock, no par value per share (the “Common Shares”), outstanding.
Table of Contents
Page
FORWARD-LOOKING STATEMENTS
2
PART I.
FINANCIAL INFORMATION
Item 1.
Financial Statements (Unaudited)
Condensed Consolidated Interim Balance Sheets
3
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss
4
Condensed Consolidated Interim Statements of Changes in Equity
5
Condensed Consolidated Interim Statements of Cash Flows
6
Notes to Condensed Consolidated Interim Financial Statements
7
Item 2.
Management’s Discussion and Analysis of Financial Condition and Results of Operations
16
Item 3.
Quantitative and Qualitative Disclosures About Market Risk
24
Item 4.
Controls and Procedures
PART II.
OTHER INFORMATION
25
Legal Proceedings
Item 1A.
Risk Factors
Unregistered Sales of Equity Securities and Use of Proceeds
Defaults Upon Senior Securities
Mine Safety Disclosures
Item 5.
Other Information
Item 6.
Exhibits
Signatures
28
i
This Quarterly Report on Form 10-Q contains “forward-looking statements” regarding The Cannabist Company Holdings Inc. and its subsidiaries (collectively referred to as “The Cannabist Company,” “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, 2023. 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.
CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS
(Unaudited)
(Expressed in thousands of U.S. dollars, except share data)
March 31, 2024
December 31, 2023
Assets
Current assets:
Cash
$
44,473
35,764
Accounts receivable, net of allowances of $6,993 and, $6,512, respectively
10,217
15,601
Inventory
111,498
111,633
Prepaid expenses and other current assets
23,599
22,777
Assets held for sale
100
1,752
Total current assets
189,887
187,527
Property and equipment, net
291,125
298,498
Right of use assets - operating leases, net
179,581
181,823
Right of use assets - finance leases, net
34,087
36,450
Intangible assets, net
73,177
76,767
Deferred taxes
23,804
22,970
Notes Receivable
6,071
3,960
Other non-current assets
15,099
15,116
Total assets
812,831
823,111
Liabilities and Equity
Current liabilities:
Accounts payable
36,575
29,797
Accrued expenses and other current liabilities
51,289
58,659
Income tax payable
56,255
47,358
Current portion of lease liability - operating leases
9,616
9,711
Current portion of lease liability - finance leases
7,362
7,339
Current portion of long-term debt, net
4,882
5,905
Liabilities held for sale
—
1,275
Total current liabilities
165,979
160,044
Long-term debt, net
304,637
297,478
Long-term lease liability - operating leases
180,351
182,001
Long-term lease liability - finance leases
42,105
43,890
Derivative liability
2,466
119
Other long-term liabilities
74,385
74,227
Total liabilities
769,923
757,759
Stockholders' Equity:
Common Stock, no par value, unlimited shares authorized as of March 31, 2024 and December 31, 2023, respectively, 448,216,620 and 420,265,306 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
Preferred Stock, no par value, unlimited shares authorized as of March 31, 2024 and December 31, 2023, respectively, none issued and outstanding as of March 31, 2024 and December 31, 2023
Proportionate voting shares, no par value, unlimited shares authorized as of March 31, 2024 and December 31, 2023, respectively; 7,701,826 and 9,807,881 shares issued and outstanding as of March 31, 2024 and December 31, 2023, respectively
Additional paid-in-capital
1,159,336
1,146,154
Accumulated deficit
(1,115,413
)
(1,079,282
Equity attributable to The Cannabist Company Holdings Inc.
43,923
66,872
Non-controlling interest
(1,015
(1,520
Total equity
42,908
65,352
Total liabilities and equity
The accompanying notes are an integral part of these Condensed Consolidated Interim Financial Statements.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS
(Expressed in thousands of U.S. dollars, except for number of shares and per share amounts)
Three months ended
March 31, 2023
Revenues, net of discounts
122,611
124,535
Cost of sales related to inventory production
(80,074
(77,454
Gross Margin
42,537
47,081
Selling, general and administrative expenses
(53,273
(55,350
Loss from operations
(10,736
(8,269
Other expense:
Interest expense on leases
(940
(1,098
Interest expense
(9,034
(12,573
Other (income), net
(4,990
(3,943
Total other expense
(14,964
(17,614
Loss before provision for income taxes
(25,700
(25,883
Income tax expense
(8,868
(10,689
Net loss and comprehensive loss
(34,568
(36,572
Net loss attributable to non-controlling interests
505
768
Net loss attributable to shareholders
(35,073
(37,340
Weighted-average number of shares used in earnings per share - basic and diluted
445,633,865
401,438,546
Loss attributable to shares (basic and diluted)
(0.08
(0.09
The accompanying notes are an integral part of these unaudited Condensed Consolidated Interim Financial Statements.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN EQUITY
(Expressed in thousands of U.S. dollars, except for number of shares)
CommonShares
ProportionateVoting Shares
AdditionalPaid-in Capital
AccumulatedDeficit
Total The Cannabist Company Holdings Inc.Shareholders' Equity
Non-ControllingInterest
TotalEquity
Balance as of December 31, 2022
391,238,484
10,009,819
1,117,287
(904,003
213,284
(6,381
206,903
Equity-based compensation (1)
2,116,944
6,611
Conversion between classes of shares
54,158
(54,158
Deconsolidation of subsidiary
4,383
Net loss
Balance as of March 31, 2023
393,409,586
9,955,661
1,123,898
(941,343
182,555
(1,230
181,325
Balance as of December 31, 2023
420,265,306
9,807,881
3,182
Conversion of convertible notes
25,845,259
10,000
2,106,055
(2,106,055
(1,058
Balance as of March 31, 2024
448,216,620
7,701,826
(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.
CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS
(expressed in thousands of U.S. dollars)
Cash flows from operating activities:
Adjustments to reconcile net loss to net cash (used in) operating activities:
Depreciation and amortization
13,964
15,063
Equity-based compensation
6,515
Debt amortization expense
1,857
2,291
Loss on deconsolidation of subsidiary
211
2,473
Provision for obsolete inventory and other assets
5,430
615
Change in fair value of derivative liability
2,347
30
(834
766
Other
(92
134
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable
1,012
(2,322
(5,297
(6,315
(823
(2,442
Other assets
129
6,126
7,351
8,134
(7,391
(4,874
Income taxes payable
8,898
9,194
(1,587
(2,221
Net cash used in operating activities
(6,211
(3,405
Cash flows from investing activities:
Purchases of property and equipment
(965
(5,724
Proceeds from sale of license
329
Proceeds from deconsolidation of MO entity
3,040
Net proceeds from sale of UT business
2,999
Cash paid on deposits, net
40
132
Net cash provided by (used in) investing activities
2,403
(2,552
Cash flows from financing activities:
Proceeds from issuance of convertible debt
15,600
Payment of debt issuance costs
(802
Payment of lease liabilities
(1,762
(1,588
Repayment of sellers note
(375
Repayment of debt
(170
Repayment of mortgage notes
(144
Taxes paid on equity based compensation
96
Net cash provided by (used in) financing activities
12,517
(2,037
Net increase (decrease) in cash
8,709
(7,994
Cash and restricted cash at beginning of the period
39,337
49,488
Cash and restricted cash at end of period
48,046
41,494
Reconciliation of cash and cash equivalents and restricted cash:
40,159
Restricted cash
3,573
1,335
Cash and restricted cash, end of period
Supplemental disclosure of cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases
6,776
5,716
Operating cash flows from finance leases
940
1,081
Financing cash flows from finance leases
1,762
1,588
Cash paid for interest on other obligations
13,414
12,607
Cash paid for income taxes
50
729
Lease liabilities arising from the recognition of finance right-of-use assets
Lease liabilities arising from the recognition of operating right-of-use assets
1,678
3,264
Supplemental disclosure of non-cash investing and financing activities:
Non-cash fixed asset additions within accounts payable and accrued expenses
572
478
Discount on issuance of convertible debt
(5,150
Reduction in debt from debt to equity conversion
(10,000
Increase in equity from debt to equity conversion
(1,652
1,274
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS
FOR THE three months ended MARCH 31, 2024, and 2023
(Expressed in thousands of U.S. dollars, except for share and per share amounts)
The Cannabist Company Holdings Inc. (“the Company”, “the Parent”, or "The Cannabist Company"), formerly known as Columbia Care Inc., 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 Cboe Canada (formerly known as the NEO Exchange), trading under the symbol “CCHW”. Effective September 19, 2023, the Company changed its name from “Columbia Care Inc.” to “The Cannabist Company Holdings Inc.” (the “Name Change”). In connection with the Name Change, on September 21, 2023, the Company’s Common Shares and warrants began trading under the ticker symbols “CBST” and “CBST.WT”, respectively, on Cboe Canada. On September 26, 2023, the Company’s Common Shares began trading on the OTCQX Best Market under the ticker symbol “CBSTF”. The Company’s Common Shares are also listed on the Frankfurt Stock Exchange under the symbol “3LP”.
Basis of preparation
The accompanying unaudited condensed consolidated interim 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 consolidated interim 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, 2024 are not necessarily indicative of the results that may be expected for the current year ending December 31, 2024. 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, 2023, and 2022 included in the Annual Report on Form 10-K for the year ended December 31, 2023 (the “2023 Form 10-K”).
The preparation of these unaudited condensed consolidated interim 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.
The unaudited condensed consolidated interim financial statements are presented in United States dollars except as otherwise indicated. All references to C$, CAD$ and CDN$ are to Canadian dollars.
Significant Accounting Judgments, Estimates and Assumptions
The Company’s significant accounting policies are described in Note 2 to the Company’s 2023 Form 10-K, filed with the SEC, on March 13, 2024. There have been no material changes to the Company’s significant accounting policies.
Revenue
The Company’s revenues are disaggregated as follows:
Dispensary
107,238
109,156
Cultivation and wholesale
15,373
15,362
17
During the three months ended March 31, 2024, and March 31, 2023 the Company netted discounts of $36,379 and $33,225 respectively, against the revenues. 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.
Details of the Company’s inventory are shown in the table below:
Accessories and supplies
1,429
1,158
Work-in-process - cannabis in cures and final vault
89,177
86,396
Finished goods - dried cannabis, concentrate and edible products
20,892
24,079
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 $5,430 and $601 write-down during the three months ended March 31, 2024 and March 31, 2023 respectively.
Current and long-term obligations, net, are shown in the table below:
2026 Notes
185,000
2024 Notes
13,228
2027 Convertible Notes
25,750
2025 Convertible Notes
59,500
74,500
Mortgage Note
43,356
43,500
Acquisition related promissory notes
1,125
1,500
327,959
317,728
Unamortized debt discount
(10,743
(6,598
Unamortized deferred financing costs
(7,697
(7,747
Total debt, net
309,519
303,383
Less current portion, net*
(4,882
(5,905
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, 2024.
On February 3, 2022, the Company closed a private placement (the “February 2022 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
8
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% senior secured first-lien notes (the “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 13.0% 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 13.0% 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.
As further described in Note 4 under the sub-heading “Term debt” of the Financial Statements incorporated by reference in the Company’s Form 10-K for the year ended December 31, 2023, on October 23, 2023, the Company retired $25 million of its 13% Notes due May 2024 (the “2024 Notes”) through a proportional redemption process.
The 2024 Notes require interest-only payments through May 14, 2024, at a rate of 13.0% per annum, payable semi-annually on May 31 and November 30, which commenced on November 30, 2020. The 2024 Notes are due in full on May 14, 2024. The Company incurred financing costs of $3,373 in connection with the issuance of these 2024 Notes. The 2024 Notes contain customary terms and conditions, representations and warranties, and events of default.
On March 19, 2024, the Company closed a private placement (the “March 2024 Private Placement”) of $25,750 aggregate principal amount of 9.0% senior-secured first-lien notes due 2027 (the “2027 Notes”) and received aggregate gross proceeds of $15,600. The 2027 Notes are senior secured obligations of the Company and were issued at 80.0% of face value. The 2027 Notes accrue interest in arrears which is payable semi-annually and mature on March 19, 2027. In connection with the offering of the 2027 Notes, the Company exchanged $5,000 of the Company’s existing 6.0% 2025 Convertible Notes.
The principal amount of the 2027 Convertible Notes and the conversion price are denominated in U.S. dollars. As the functional currency of the Company is Canadian dollars, the amount of the liability to be settled depends on the applicable foreign exchange rate on the date of settlement. The 2027 Convertible Notes therefore represent an obligation to issue a fixed number of shares for a variable amount of liability. Due to this conversion feature within the 2027 Convertible Notes, the Company is unable to obtain an exception from derivative accounting. Accordingly, this conversion feature was accounted for as an embedded derivative liability and measured at fair value of $2,632 on the date of issuance of debt with a corresponding debt discount and debt issuance costs of $5,952, reflected as a reduction to the carrying value of the 2027 Notes. The Company fair values the derivative liability at each balance sheet date. Changes in fair value of the embedded derivative are recognized in the condensed consolidated statements of operations and comprehensive loss. The debt premium and debt issuance costs is amortized over the term of the 2027 Notes.
On June 29, 2021, the Company completed an offering of 6.0% Secured Convertible Notes Due 2025 (“2025 Convertible Notes”) for an aggregate principal amount of $74,500. The 2025 Convertible Notes are senior secured obligations of the Company and will accrue interest payable semiannually in arrears and mature on June 29, 2025, unless earlier converted, redeemed or repurchased. The 2025 Convertible Notes shall be convertible, at the option of the holder, from the date of issuance until the date that is 10 days prior to their maturity date into Common Shares of the Company at a conversion price equal to $6.49 payable on the business day prior to the date of conversion, adjusted downwards for any cash dividends paid to holders of Common Shares and other customary adjustments. The Company may redeem the 2025 Convertible Notes at par, in whole or in part, on or after June 29, 2023, if the volume weighted average price of the Common Shares trading on the Canadian Stock Exchange or Cboe Canada for 15 of the 30 trading days immediately preceding the day on which the Company exercises its redemption right, exceeds 120.0% of the conversion price of the 2025 Convertible Notes at a Redemption Price equal to 100.0% of the principal amount of the 2025 Convertible Notes redeemed, plus accrued but unpaid interest, if any, up to but excluding the Redemption Date.
The 2025 Convertible Notes require interest-only payments until June 29, 2025, at a rate of 6.0% per annum, payable semi-annually in June and December and commencing in December 2021. The 2025 Convertible Notes are due in full on June 29, 2025. The Company incurred financing costs of $3,190 in connection with the 2025 Convertible Notes. The principal amount of the 2025 Convertible Notes and the conversion price are denominated in U.S. dollars. As the functional currency of the Company is Canadian dollars, the amount of the liability to be settled depends on the applicable foreign exchange rate on the date of settlement. The 2025 Convertible Notes therefore represent an obligation to issue a fixed number of shares for a variable amount of liability. Due to this
9
conversion feature within the 2025 Convertible Notes, the Company is unable to obtain an exception from derivative accounting. Accordingly, this conversion feature was accounted for as an embedded derivative liability and measured at fair value of $15,099 on the date of issuance of debt with a corresponding debt discount, reflected as a reduction to the carrying value of the 2025 Convertible Notes. The Company fair values the derivative liability at each balance sheet date. Changes in fair value of the embedded derivative are recognized in the consolidated statements of operations and comprehensive loss. The debt discount is amortized over the term of the 2025 Convertible Notes.
January 2024 Debt Exchange
On January 22, 2024, the Company entered into the Exchange Agreement with certain Holders of the Company’s 6.0% senior secured 2025 Convertible Notes, pursuant to which the Company agreed to the Repurchase of up to $25 million principal amount of the 2025 Convertible Notes in exchange for Common Shares (the “January 2024 Debt Exchange”).
Pursuant to the terms of the Exchange Agreement, the Holders shall:
In the event the conditions are fulfilled and the Holders fail to Transfer their 2025 Convertible Notes in accordance with the terms of the Exchange Agreement, the Company has the right, but not the obligation, to require the Holders to Transfer some or all of the portion of the $25 million principal amount of 2025 Convertible Notes still held by the Holders. Assuming all of the conditions are fulfilled, and the entire $25 million principal amount of 2025 Convertible Notes are Transferred for Common Shares issued at the minimum prices set out in the Exchange Agreement, a maximum of 68,564,698 Common Shares would be issued in connection with the Repurchase. Through March 31, 2024, $10 million of the potential $25 million exchange has been completed.
Mortgages
In December 2021, the Company entered into a term loan and security agreement with a bank. The agreement provides for $20,000 mortgage on real property in New York and carries interest at a variable rate per annum equal to the Wall Street Prime Rate (“Index”) plus 2.25%. The debt is repayable in 59 monthly installments and a final balloon payment due on January 1, 2027, which is estimated at $18,133 as of September 30, 2023. In connection with this mortgage, the Company incurred financing costs of $655.
In June 2022, the Company entered into a term loan and security agreement with a bank. The agreement provides for $16,500 mortgage on real property in New Jersey and carries interest at a variable rate per annum equal to the Index plus 2.25%. The debt is repayable in 59 monthly installments and a final balloon payment due on July 15, 2027, which is estimated at $15,734 as of September 30, 2023. In connection with this mortgage, the Company incurred financing costs of $209.
On August 10, 2023, the Company entered into two term loans and security agreements with a bank as follows:
10
Total interest and amortization expense on the Company’s debt obligations during the three months ended March 31, 2024 and 2023 are as follows:
Interest expense on debt
7,315
10,395
Amortization of debt discount
1,214
1,376
Amortization of debt premium
(26
Amortization of debt issuance costs
643
941
Other interest (expense) income, net
(138
(113
Total interest expense, net
9,034
12,573
The weighted average interest rate on the Company’s indebtedness was 9.06%.
5. PROPERTY AND EQUIPMENT
Details of the Company’s property and equipment and related depreciation expense are summarized in the tables below:
Land and buildings
115,277
Furniture and fixtures
10,981
Equipment
43,429
43,123
Computers and software
3,985
4,033
Leasehold improvements
236,976
207,846
Construction in process
5,006
33,429
Total property and equipment, gross
415,654
414,689
Less: Accumulated depreciation
(124,529
(116,191
Total property and equipment, net
Total depreciation expense for three months ended
8,338
7,853
Included in:
Costs of sales related to inventory production
5,201
4,726
3,137
3,127
6. PREPAID EXPENSES AND OTHER CURRENT ASSETS
Details of the Company’s prepaid expenses and other current assets are summarized in the table below:
Prepaid expenses
9,899
8,486
Short term deposits
1,438
1,148
Other current assets
11,937
12,023
Excise and sales tax receivable
325
367
Prepaid taxes
753
11
7. OTHER NON-CURRENT ASSETS
Details of the Company’s other non-current assets are summarized in the table below:
Long term deposits
8,686
Investment in affiliates
775
Notes receivable
2,065
2,082
8. ACCRUED EXPENSES AND OTHER CURRENT LIABILITIES
Details of the Company’s accrued expenses and other current liabilities are summarized in the table below:
Taxes - property and other
9,359
12,067
Other accrued expenses
22,587
26,323
Payroll liabilities
10,994
13,260
Other current liabilities
8,349
7,009
As of March 31, 2024, other accrued expenses include approximately $14,529 relating to a combination of indemnification claims, notices and demand letters received by the Company, including, without limitation, potential disputes arising out of the Green Leaf Transaction, together with a general accrual for estimated fees anticipated to close these matters. The outcome of any of these matters cannot yet be determined with any certainty and the Company will continue to rigorously defend any claims made against it.
9. SHAREHOLDERS’ EQUITY
The Company had the following activity during the three months ended March 31, 2024:
10. WARRANTS
As of March 31, 2024 and December 31, 2023, outstanding equity-classified warrants to purchase Common Shares consisted of the following:
Expiration
Number of SharesIssued and Exercisable
Exercise Price(Canadian Dollars)
September 21,2026
11,122,105
1.96
October 1, 2025
648,783
8.12
April 26, 2024
5,394,945
10.35
17,165,833
4.83
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Warrant activity for the three months ended March 31, 2024 and 2023 are summarized in the table below:
Weighted average
Number of
exercise price
Warrants
(Canadian Dollars)
11,482,766
7.22
Exercised
Expired
(1,723,250
3.10
9,759,516
7.95
11. LOSS PER SHARE
Basic and diluted net loss per share attributable to the Company was calculated as follows:
Numerator:
Less: Net loss attributable to non-controlling interests
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.
12. 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.
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.
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13. 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
(2,466
(119
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/financialliability
Valuation techniques
Significant unobservableinputs
Relationship of unobservableinputs to fair value
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, 2024 and December 31, 2023 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 liabilities and long-term debt approximate fair value due to the market rate of interest used on initial recognition.
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, 2024 and December 31, 2023. These estimates require management's judgment and may not be indicative of the future fair values of the assets and liabilities.
14. GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets consist of the following:
Goodwill
19,274
Less: Accumulated impairment on goodwill
(19,274
Total goodwill, net
Licenses
108,371
108,700
Trademarks
45,936
Customer Relationships
15,263
Total intangible assets
169,570
169,899
Less: Accumulated amortization
(96,393
(93,132
Total intangible assets, net
The amortization expense for the three months ended March 31, 2024 and 2023 are as follows:
Amortization expenses
3,261
4,803
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15. SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expenses are summarized in the table below:
Salaries and benefits
25,774
28,566
Professional fees
2,556
2,853
7,080
8,589
Operating facilities costs
11,080
10,284
Operating office and general expenses
5,372
2,213
Advertising and promotion
1,005
1,939
Other fees and expenses
406
906
Total selling, general and administrative expenses
53,273
55,350
16. OTHER (INCOME) EXPENSE, NET
Other expense, net is summarized in the table below:
Change in fair value of the derivative liability
Loss on deconsolidation
Restructuring expense
2,576
3,178
Other income, net
(87
(296
Loss on disposal of group
(600
Rental income
(57
(842
Total other (income) expense, net
4,990
3,943
During 2022, the Company implemented three separate rounds of restructuring initiatives. The first round of restructuring initiatives, Round 1, began in May 2022, with the decision to close the Company’s Europe-based operations. The third and final round of 2022, Round 3, began in early November 2022 and involved headcount and canopy reduction.
During the three months ended March 31, 2024 and 2023 the Company recorded $2,576 and $3,178 in restructuring expense. As of March 31, 2024. the balance outstanding on the Company’s restructuring reserve was $4,922.
17. DIVESTITURE
Utah Business Divestiture
On October 6, 2023, the Company entered into a definitive agreement, subject to closing conditions, to dispose of its Utah operations (the “Utah Business”) which are considered non-core and comprised of one dispensary and one cultivation facility. The Utah Business was divested for gross proceeds of approximately $6.5 million, with approximately $3.9 million due on closing of the transaction, and a $2.6 million Seller note payable to the Company not later than July 2025. The sale of the Utah assets was completed on March 7, 2024.
As of March 31, 2024, no assets or liabilities of the disposed-of business remained on our consolidated balance sheets. The table below summarizes the operating results of Columbia Care UT, LLC for the three months ended March 31, 2024, and 2023:
943
1,199
Expenses
822
1,202
18. SUBSEQUENT EVENTS
On May 6, 2024, the Company resolved a previously disclosed lawsuit relating to the Green Leaf Transaction, as further described in relevant detail in Part II – Other Information, Item 1. Legal Proceedings below.
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Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
This management’s discussion and analysis (“MD&A”) of the financial condition and results of operations of The Cannabist Company Holdings Inc. (“The Cannabist Company”, the “Company”, “us”, “our” or “we”) is supplemental to, and should be read in conjunction with, The Cannabist Company's unaudited condensed consolidated interim financial statements and the accompanying notes for the three months ended March 31, 2024 and 2023. Except for historical information, the discussion in this section contains forward-looking statements that involve risks and uncertainties. Future results could differ materially from those discussed below for many reasons, including the risks described in “Disclosure Regarding Forward-Looking Statements,” “Item 1A-Risk Factors” and elsewhere in the Company’s 2023 Form 10-K filed with the SEC on March 13, 2024 and subsequent securities filings.
The Cannabist Company's financial statements are prepared in accordance with generally accepted accounting principles in the United States of America (“US GAAP”). Financial information presented in this MD&A is presented in thousands of United States dollars (“$” or “US$”), unless otherwise indicated.
OVERVIEW OF THE CANNABIST COMPANY
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.
THE CANNABIST COMPANY 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:
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. Effective September 2023, the Company changed its name from “Columbia Care Inc.” to “The Cannabist Company Holdings Inc.” reflecting the Company's "Cannabist" national retail brand that was established in 2021.
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 and Profitability Strategies
We have a successful history of growing revenue and we believe we have a strong strategy aimed at increasing profitability. Our future depends, in part, on our ability to implement our strategy including (i) product innovations; (ii) penetration of current and new markets; (iii) growth of wholesale revenue through third party retailers and distributors; (iv) future development of e-commerce and home delivery distribution capabilities; (v) expansion of our cultivation and manufacturing capacity; and (vi) controlling costs. Our ability to implement this 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.
SELECTED FINANCIAL INFORMATION
The following tables set forth selected consolidated financial information derived from our unaudited condensed consolidated interim 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:
$ Change
% Change
Revenues
$122,611
$124,535
$(1,924)
(2)%
(80,074)
(77,454)
(2,620)
3%
Gross profit
$42,537
$47,081
$(4,544)
(10)%
(53,273)
(55,350)
2,077
(4)%
(10,736)
(8,269)
(2,467)
30%
Other expense, net
(14,964)
(17,614)
2,650
(15)%
(8,868)
(10,689)
1,821
(17)%
(34,568)
(36,572)
2,004
(5)%
(263)
(34)%
Net loss attributable to The Cannabist Company Holdings Inc.
$(35,073)
$(37,340)
$2,267
(6)%
Loss per share attributable to The Cannabist Company Holdings Inc.—based and diluted
$(0.08)
$(0.09)
$0.01
Weighted average number of shares outstanding—basic and diluted
Summary of Balance Sheet items:
Total Assets
Total Liabilities
Total Long-Term Liabilities
603,944
597,715
Total Equity
RESULTS OF OPERATIONS
Comparison of the three months ended March 31, 2024 and 2023
The following table summarizes our results of operations for the three months ended March 31, 2024 and 2023:
For the three months ended
$Change
%Change
(1,924
(2
)%
(2,620
%
(4,544
(10
(4
(2,467
(15
183
(1
(17
(5
Net income (loss) attributable to non-controlling interests
(263
(34
2,267
(6
The decrease in revenue of $1,924 for the three months ended March 31, 2024, as compared to the prior year period, was driven by the net decline in revenue of $3,217 in our existing retail and wholesale operations and a decline of $476 from the sale or closure of certain operations. This was partly offset by the expansion of new retail facilities which contributed to a revenue growth of $1,769 during the three months ended March 31, 2024, as compared to the prior period.
Cost of Sales
The increase in cost of sales of $2,620 for the three months ended March 31, 2024, as compared to the prior year period, was driven by a cost of sales increase of $2,616 in our existing retail and wholesale operations, including from inventory impairment, and by $601 from the expansion of new retail facilities. This was partly offset by a decline of $598 from the sale or closure of certain operations during the three months ended March 31, 2024, as compared to the prior period.
Gross Profit
The decrease in gross profit of $4,544 for the three months ended March 31, 2024, as compared to the prior year period, was directly attributable to the decline in revenues and increased cost of sales as described above. The decline in gross margin (percent) was primarily driven by production facilities poised for future economies of scale and price compression.
Operating Expenses
The decrease of $2,077 in operating expenses for the three months ended March 31, 2024, as compared to the prior year period, was primarily attributable to a decrease in salary and benefits expenses of $2,792, depreciation and amortization of $1,509, professional fees of $297, advertisement and promotion expenses of $934, and operating office and general expenses of $500. This was partially offset by an increase in operating office and general expenses of $3,159 and operating facilities costs of $796.
Other Expense, Net
The decrease in other expense, net of $2,650 for the three months ended March 31, 2024, as compared to the prior year period, was primarily due to a decrease in interest expense on debt of $3,080, loss on deconsolidation from the sale or closure of certain operations of $2,473, restructuring expense of $602, amortization of debt discount of $162, amortization of debt issuance costs of $298, and interest expense on leases of $158. This was partially offset by an increase in the change in fair value of the derivative liability of $2,317, a loss on disposal of group of $811, a decrease in rental income earned of $785, and a decrease in other income of $209.
Provisions for Income Taxes
The Company recorded income tax expense of $8,868 for the three months ended March 31, 2024, as compared to an income tax expense of $10,689 for the three months ended March 31, 2023.
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 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.
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The following table provides a reconciliation of net loss for the period to EBITDA and Adjusted EBITDA for the three months ended March 31, 2024, and 2023:
Income tax
8,868
10,689
Interest expense, net and debt amortization
12,480
13,671
EBITDA (Non-GAAP measure)
744
2,851
Adjustments:
Share-based compensation
Transaction and other non-core costs, including costs associated with the Cresco Labs Inc. transaction, litigation expenses and other costs related to restructuring
1,317
Fair-value changes on derivative liabilities
2,346
Adjustments for acquisition and other non-core costs
6,245
Adjusted EBITDA (Non-GAAP measure)
15,304
16,364
Adjusted EBITDA margin (Non-GAAP measure)
12.5
13.1
Gross margin
34.7
37.8
Adjusted EBITDA
The decrease in Adjusted EBITDA for the three months ended March 31, 2024, as compared to the prior year period, was primarily driven by declines in gross profit in the ongoing wholesale and retail operations and through restructuring and disposal activity, partially 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, 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 focus on profitability, we endeavor to remain opportunistic on growth through expansion or acquisition, therefore our cash flow requirements and obligations could materially change. As of March 31, 2024, we did not have any significant external capital requirements.
Recent Financing Transactions
September 2023 Offering
On September 18, 2023, the Company entered into subscription agreements with the September 2023 Investors for the purchase and sale of 22,244,210 September 2023 Units at a price of C$1.52 per September 2023 Unit pursuant to a private placement, for aggregate gross proceeds of approximately C$33.8 million or approximately $25 million. Each September 2023 Unit consists of one Common Share (or Common Share equivalent) and one half of one September 2023 Warrant that entitles the holder to acquire one Common Share at a price of C$1.96 per Common Share, a 29% premium to issue, for a period of three years following the closing of the Initial Tranche.
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The Initial Tranche consisted of an aggregate of 21,887,240 Common Shares, 11,122,105 September 2023 Warrants and 356,970 September 2023 Pre-Funded Warrants that provide the holder the right to purchase one Common Share at an exercise price of C$0.0001 per Common Share. The September 2023 Offering closed on September 21, 2023.
The Company used the proceeds from the September 2023 Offering to reduce its outstanding indebtedness.
The September 2023 Investors had the option to purchase $25 million in additional September 2023 Units at a price equal to the Issue Price, upon written notice to the Company at any time up to November 2, 2023, which was not exercised. In connection with the September 2023 Offering, the Company and the September 2023 Investors entered into a customary registration rights agreement, pursuant to which the Company filed a registration statement on Form S-1 on October 17, 2023 to register the resale of the Common Shares underlying the September 2023 Units. The September 2023 Units were subject to limited lock-up requirements.
On January 22, 2024, the Company entered into an exchange agreement (the “Exchange Agreement”) with certain holders (the “Holders”) of the Company’s 6.0% senior secured 2025 Convertible Notes, pursuant to which the Company agreed to repurchase (the “Repurchase”) of up to $25 million principal amount of the 2025 Convertible Notes in exchange for Common Shares.
The Company determined that the 2027 Notes represent an obligation to issue a fixed number of shares for a fixed amount of liability. In accordance with ASC 480 – Distinguishing Liabilities from Equity, a conversion feature within a financial instrument to issue a variable number of equity units fails to meet the definition of equity. Accordingly, such a conversion feature must be accounted for as an embedded derivative liability and measured at fair value with changes in fair value recognized in the consolidated statements of operations. Upon initial recognition, the Company recorded a derivative liability of $2,362 within other long-term liabilities in the consolidated balance sheets and a corresponding debt premium and debt issuance costs of $5,952, reflected as a reduction to the carrying
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value of the 2027 Notes. The Company fair values the derivative liability at each balance sheet date. Changes in fair value of the embedded derivative are recognized in the condensed consolidated statements of operations and comprehensive loss. The debt premium and debt issuance costs is amortized over the term of the 2027 Notes.
Cash Flows
The following table summarizes the sources and uses of cash for each of the periods presented:
Operating Activities
During the three months ended March 31, 2024, operating activities used $6,211 of cash, primarily resulting from a net loss of $34,568, deferred taxes of $834, and other expenses of $92; this was partially offset by depreciation and amortization of $13,964, equity-based compensation expense of $3,182, loss on deconsolidation of subsidiary of $211, debt amortization expense of $1,857, provision for obsolete inventory and other assets of $5,430, change in fair value of derivative liability of $2,347, and net changes in operating assets and liabilities of $2,292. The net change in operating assets and liabilities was primarily due to a decrease in accounts receivable of $1,012, other assets of $129, increase in accounts payable of $7,351, and income tax payable of $8,898; this was offset by an increase in inventory of $5,297, prepaid and other expenses of $823, a decrease in accrued expenses and other current liabilities of $7,391, and other long-term liabilities of $1,587.
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.
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Investing Activities
During the three months ended March 31, 2024, investing activities provided $2,403 of cash mainly due to the proceeds from the sale of the UT business of $2,999 and proceeds from sale of license of $329. This was partially offset by purchases of property and equipment of $965.
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.
Financing Activities
During the three months ended March 31, 2024, financing activities provided $12,517 of cash, mainly due to proceeds from issuance of convertible debt of $15,600. This was partially offset by payment of lease liabilities of $1,762, payment of debt issuance costs of $802, repayment of sellers note of $375, and repayment of mortgage notes of $144.
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.
Contractual Obligations and Commitments
The following table summarizes contractual obligations as of March 31, 2024 and the effects that such obligations are expected to have on our liquidity and cash flows in future periods:
Payments Due by Period
Less than 1 year
Year 1
Year 2
Year 3
Year 4
Year 5 and beyond
Lease commitments
383,400
27,753
33,042
30,414
29,984
27,813
234,394
Sale-Leaseback commitments
218,805
7,588
10,407
10,743
11,090
11,449
167,528
Interest on 2024 Notes and 2026 Notes
39,689
13,325
17,576
8,788
Convertible debt (principal)
85,250
Interest on convertible debt
11,415
4,416
4,102
2,318
579
Mortgage notes (principal)
430
653
16,459
18,100
7,714
Mortgage notes (interest)
15,384
3,545
4,640
4,564
2,005
630
Closing promissory note (principal)
Closing promissory note (interest)
45
Total contractual obligations
996,697
71,455
129,920
258,286
87,508
47,606
401,922
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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. The Cannabist Company 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.
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, 2024 and December 31, 2023, 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 Cannabist Company 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
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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 your operations and financial position becoming subject to currency transaction and translation risks.
As of March 31, 2024, and December 31, 2023, 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.
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 2023 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, 2024 that have materially affected, or are reasonably likely to materially affect, the Company’s internal control over financial reporting.
PART II—OTHER INFORMATION
Item 1. Legal Proceedings.
On May 6, 2024, the Company resolved a lawsuit in Maryland state court, as previously disclosed in the Company’s Form 10-K for the year ended December 31, 2023 relating to the Company’s acquisition of Green Leaf Medical (the “Green Leaf Transaction”), a privately held, multi-state operator. As a part of that resolution, and in conjunction with the exchange of mutual releases of all claims relating to the Green Leaf Transaction, the Company will issue 4,848,019 common shares to the former Green Leaf shareholders. The common shares will be issued pursuant to Rule 506(b) of the Securities Act of 1933, as amended. The Company will be relying on Rule 506(b) because the issuances are not being made by general solicitation or advertising and the issuances are only being made to accredited investors.
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 2023 Form 10-K, which is incorporated by reference herein.
Item 2. Unregistered Sales of Securities and Use of Proceeds
See “Item 1. Legal Proceedings” above.
Item 3. Defaults Upon Senior Securities.
Not applicable.
Item 4. Mine Safety Disclosures.
Item 5. Other Information.
During the three ended March 31, 2024, none of our directors or executive officers adopted or terminated any contract, instruction, or written plan for the purchase or sale of the Company’s securities that was intended to satisfy the affirmative defense conditions of Rule 10b5-1(c) or any “non-Rule 10b5-1 trading arrangement” as defined in Item 408(c) of Regulation S-K.
Item 6. Exhibit Index
Exhibit
Number
Description
2.1
Arrangement Agreement, dated March 23, 2022, between Cresco Labs Inc. and Columbia Care Inc. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K, filed with the SEC on March 29, 2022)
2.2
Amending Agreement, dated February 27, 2023, between Cresco Labs Inc. and Columbia Care Inc. (incorporated by reference to Exhibit 2.1 of the Registrant’s Current Report on Form 8-K, filed with the SEC on February 28, 2023)
3.1
Articles, dated April 26, 2019 (incorporated by reference to Exhibit 3.1 of the Registrant’s Form 8-K, filed with the SEC on September 22, 2023)
3.2
Certificate of Change of Name, dated September 19, 2023 (incorporated by reference to Exhibit 3.2 of the Registrant’s Form 8-K, filed with the SEC on September 22, 2023)
4.1
Warrant Agency Agreement dated September 20, 2018 between Canaccord Genuity Growth Corp. and Odyssey Trust Company (incorporated by reference to Exhibit 4.1 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.2
Warrant Agreement dated April 26, 2019 between Columbia Care Inc. and Canaccord Genuity Corp. (incorporated by reference to Exhibit 4.2 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.3
Trust Indenture made as of March 31, 2020 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.3 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.4
Warrant Indenture dated March 31, 2020 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.4 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.5
Trust Indenture made as of May 14, 2020 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.5 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.6
Warrant Indenture dated May 14, 2020 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.6 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.7
First Supplemental Indentures dated as of June 19, 2020 between Columbia Care Inc and Odyssey Trust Company (incorporated by reference to Exhibit 4.7 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.8
Warrant Indenture dated July 2, 2020 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.8 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.9
Warrant Indenture dated October 29, 2020 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.9 of the Registrant’s Registration Statement on Form 10, filed with the SEC on December 14, 2021)
4.10
Second Supplemental Indenture dated June 29, 2021 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.10 of the Registrant’s amended Registration Statement on Form 10, filed with the SEC on January 28, 2022)
4.11
Third Supplemental Indenture dated February 2, 2022 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.11 of the Registrant’s amended Registration Statement on Form 10, filed with the SEC on February 15, 2022)
4.12
Fourth Supplemental Indenture dated February 3, 2022 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.12 of the Registrant’s amended Registration Statement on Form 10, filed with the SEC on February 15, 2022)
4.13
Fifth Supplemental Indenture dated May 5, 2022 between Columbia Care Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.13 of the Registrant’s Form 8-K, filed with the SEC on May 11, 2022)
4.14
Extension Notice dated March 28, 2023 to Odyssey Trust Company (incorporated by reference to Exhibit 4.14 of the Registrant’s Annual Report on Form 10-K for the fiscal year ended December 31, 2022, filed with the SEC on March 29, 2023)
4.15
Sixth Supplemental Indenture dated September 20, 2023 between The Cannabist Company Holdings Inc. and Odyssey Trust Company
4.16
Seventh Supplemental Indenture dated March 19, 2024 between The Cannabist Company Holdings Inc. and Odyssey Trust Company (incorporated by reference to Exhibit 4.16 of the Registrant’s Form 8-K, filed with the SEC on March 20, 2024)
31.1*
Certification of Principal Executive Officer 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.
31.2*
Certification of Principal Financial Officer 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.
32.1‡
Certification of Principal Executive Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2‡
Certification of Principal Financial Officer Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
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.
26
‡ 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.
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.
Date: May 9, 2024
By:
/s/ David Hart
David Hart
Chief Executive Officer
/s/ Derek Watson
Derek Watson
Chief Financial Officer