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 months ended March 31, 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 included in Company's Annual Report on
Form 10-K for the year ended December 31, 2021, filed with the SEC on March 31,
2022 and subsequent securities filing.
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 alleviate symptoms and improve the quality of life of our patients and
customers.
COLUMBIA CARE OBJECTIVES AND FACTORS AFFECTING OUR PERFORMANCE
As one of the largest fully integrated operators in the global medical cannabis
industry, our strategy to grow our business is comprised of the following key
components:
• 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 products and pharmaceutical quality proprietary 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
renewed most recently in the Omnibus Appropriations Act of 2021, which funds the
agencies of the federal government through September 30, 2021. On September 30,
2021, the Amendment was extended through the signing of a continuing resolution,
effective through February 18, 2021, and has since been extended again until
September 30, 2022. Notably, the Rohrbacher-Farr Amendment has applied only to
medical marijuana programs and has not provided the same protections to
enforcement against 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
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anticipate customer needs; (ii) develop new products that meet these needs;
(iii) successfully commercialize new products; (iv) price products
competitively; (v) produce and deliver products in sufficient volumes and on a
timely basis; and (vi) differentiate product offerings from those of
competitors.
Growth Strategies
We have a successful history of growing revenue and we believe we have a strong
strategy aimed at continuing our history of expansion in both current and new
markets. Our future depends, in part, on our ability to implement our growth
strategy including (i) product innovations; (ii) penetration of new markets;
(iii) growth of wholesale revenue through third party retailers and
distributors; (iv) future development of e-commerce and home delivery
distribution capabilities; and (v) expansion of our cultivation and
manufacturing capacity. Our ability to implement this growth strategy depends,
among other things, on our ability to develop new products that appeal to
consumers, maintain and expand brand loyalty, maintain and improve product
quality and brand recognition, maintain and improve competitive position in our
current markets, and identify and successfully enter and market products in new
geographic areas and segments.
Recent Announcement
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 in the fourth quarter 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)
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