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ck1776738-10q_20220331.htm

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, 2022

☐	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

COLUMBIA CARE 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. Employer Identification 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.

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 10, 2022, there were 384,943,683 , of common stock, no par value per share, outstanding.

Table of Contents

		Page
FORWARD-LOOKING STATEMENTS		2
PART I.	FINANCIAL INFORMATION
Item 1.	Financial Statements (Unaudited)
	Condensed Consolidated Balance Sheets	3
	Condensed Consolidated Statements of Operations	4
	Condensed Consolidated Statements of Comprehensive Loss	4
	Condensed Consolidated Statements of Cash Flows	6
	Notes to Unaudited Condensed Consolidated Financial Statements	7
Item 2.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	18
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	26
Item 4.	Controls and Procedures	26
PART II.	OTHER INFORMATION	27
Item 1.	Legal Proceedings	27
Item 1A.	Risk Factors	27
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	27
Item 3.	Defaults Upon Senior Securities	27
Item 4.	Mine Safety Disclosures	27
Item 5.	Other Information	27
Item 6.	Exhibits	28
Signatures		30

FORWARD-LOOKING STATEMENTS

This Quarterly Report on Form 10-Q contains “forward-looking statements” regarding Columbia Care Inc. and its subsidiaries (collectively referred to as “Columbia Care,” “we,” “us,” “our,” or the “Company”). We make forward-looking statements related to future expectations, estimates, and projections that are uncertain and often contain words such as, but not limited to, “may”, “would”, “could”, “should”, “will”, “intend”, “plan”, “anticipate”, “believe”, “estimate”, “expect” or other similar words or phrases. These statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties, and assumptions that are difficult to predict. Particular risks and uncertainties that could cause our actual results to be materially different from those expressed in our forward-looking statements include those listed below:

•	the satisfaction of the conditions precedent to the closing of the Cresco Transaction (as defined herein);

•	the receipt of any necessary regulatory approvals in connection with Cresco Transaction (as defined herein);

•	the impact of the Cresco Transaction (as defined herein) on the Company’s current and future operations, financial condition and prospects;

•	the value of the Cresco Labs Shares (as defined herein);

•	the costs of the Cresco Transaction (as defined herein) and potential payment of a termination fee in connection with the Cresco Transaction (as defined herein);

•	the ability to successfully integrate with the operations of Cresco Labs (as defined herein) and realize the expected benefits of the Cresco Transaction (as defined herein);

•	the fact that marijuana remains illegal under federal law;

•	the application of anti-money laundering laws and regulations to the Company;

•	legal, regulatory, or political change to the cannabis industry;

•	access to the services of banks;

•	access to public and private capital;

•	unfavorable publicity or consumer perception of the cannabis industry;

•	expansion to the adult-use market;

•	the impact of laws, regulations, and guidelines;

•	the impact of Section 280E of the Internal Revenue Code;

•	the impact of state laws pertaining to the cannabis industry;

•	the Company’s reliance on key inputs, suppliers and skilled labor;

•	the difficulty of forecasting the Company’s sales;

•	constraints on marketing products;

•	potential cyber-attacks and security breaches;

•	net operating loss and other tax attribute limitations;

•	the impact of changes in tax laws;

•	the volatility of the market price of the Common Shares;

•	reliance on management;

•	litigation;

•	future results and financial projections; and

•	the impact of global financial conditions

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.

COLUMBIA CARE INC.

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

(Expressed in thousands of U.S. dollars, except share data)

	March 31, 2022			December 31, 2021
Assets
Current assets:
Cash	$	168,424		$	82,198
Accounts receivable, net of allowances of $2,528 and, $2,542, respectively		16,550			18,302
Inventory		109,263			94,567
Prepaid expenses and other current assets		27,526			29,252
Assets held for sale		2,120			2,120
Total current assets		323,883			226,439

Property and equipment, net		355,968			339,692
Right of use assets - operating leases, net		184,218			179,099
Right of use assets - finance leases, net		66,195			66,442
Goodwill		184,018			184,018
Intangible assets, net		355,583			367,787
Other non-current assets		12,578			13,035
Total assets		1,482,443			1,376,512

Liabilities and Equity
Current liabilities:
Accounts payable		26,130			44,007
Accrued expenses and other current liabilities		118,315			126,954
Income tax payable		31,709			26,537
Contingent consideration		29,345			29,345
Current portion of lease liability - operating leases		9,008			9,056
Current portion of lease liability - finance leases		5,509			5,092
Current portion of long-term debt, net		1,697			1,884
Derivative liability		—			—
Liabilities held for sale		1,122			1,122
Total current liabilities		222,835			243,997

Long-term debt, net		306,387			159,017
Deferred taxes		74,917			79,477
Long-term lease liability - operating leases		181,718			176,004
Long-term lease liability - finance leases		69,801			70,268
Contingent consideration		11,680			11,596
Derivative liability		7,478			6,795
Other long-term liabilities		77,927			78,535
Total liabilities		952,743			825,689
Commitments and contingencies

Stockholders' Equity:
Common Stock, no par value, unlimited shares authorized as of March 31, 2022 and December 31, 2021, respectively, 361,840,756 and 361,423,270 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		—			—
Preferred Stock, no par value, unlimited shares authorized as of March 31, 2022 and December 31, 2021, respectively, none issued and outstanding as of March 31, 2022 and December 31, 2021		—			—
Proportionate voting shares, no par value, unlimited shares authorized as of March 31, 2022 and December 31, 2021, respectively; 14,729,636 and 14,729,636 shares issued and outstanding as of March 31, 2022 and December 31, 2021, respectively		—			—
Additional paid-in-capital		1,046,509			1,039,726
Accumulated deficit		(494,971	)		(468,335	)
Equity attributable to Columbia Care Inc.		551,538			571,391
Non-controlling interest		(21,838	)		(20,568	)
Total equity		529,700			550,823
Total liabilities and equity	$	1,482,443		$	1,376,512

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

COLUMBIA CARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(Unaudited)

(Expressed in thousands of U.S. dollars, except for number of shares and per share amounts)

	Three months ended
	March 31, 2022			March 31, 2021
Revenue	$	123,087		$	86,095
Cost of sales related to inventory production		(66,460	)		(52,307	)
Cost of sales related to business combination fair value adjustments to inventory		—			(140	)
Gross profit		56,627			33,648
Selling, general and administrative expenses		(71,292	)		(48,034	)
Loss from operations		(14,665	)		(14,386	)
Other expense:
Interest (expense) income on leases, net		(1,426	)		(1,150	)
Interest (expense) income, net		(11,244	)		(3,856	)
Other income (expense), net		61			(253	)
Total other expense		(12,609	)		(5,259	)

Loss before income taxes		(27,274	)		(19,645	)
Income tax expense		(632	)		(9,518	)
Net loss and comprehensive loss		(27,906	)		(29,163	)
Net loss attributable to non-controlling interests		(1,270	)		(381	)
Net loss attributable to shareholders	$	(26,636	)	$	(28,782	)

Weighted-average number of shares used in earnings per share - basic and diluted		376,397,260			294,815,943
Loss attributable to shares (basic and diluted)	$	(0.07	)	$	(0.10	)

The accompanying notes are an integral part of these condensed interim consolidated financial statements.

COLUMBIA CARE INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY

(Unaudited)

(Expressed in thousands of U.S. dollars, except for number of shares)

			Proportionate		Additional		Accumulated			Total Columbia Care Inc.			Non-Controlling			Total
	Shares		Voting Shares		Paid-in Capital		Deficit			Shareholders' Equity			Interest			Equity
Balance, December 31, 2021		361,423,270		14,729,636	$	1,039,726	$	(468,335	)	$	571,391		$	(20,568	)	$	550,823
Equity-based compensation ⁽¹⁾		237,486		—		6,358		—			6,358			—			6,358
Warrants exercised		180,000		—		425		—			425			—			425
Net loss		—		—		—		(26,636	)		(26,636	)		(1,270	)		(27,906	)
Balance, March 31, 2022		361,840,756		14,729,636	$	1,046,509	$	(494,971	)	$	551,538		$	(21,838	)	$	529,700

				Proportionate			Additional		Accumulated			Total Columbia Care Inc.			Non-Controlling			Total
	Shares			Voting Shares			Paid-in Capital		Deficit			Shareholders' Equity			Interest			Equity
Balance, December 31, 2020		250,003,917			26,507,914		$	632,062	$	(325,238	)	$	306,824		$	(19,875	)	$	286,949
Equity-based compensation (1)		190,925			—			7,792		—			7,792			—			7,792
Issuance of shares, net		21,792,500			—			133,151		—			133,151			—			133,151
Issuance of shares in connection with acquisitions		971,541			—			4,972		—			4,972			—			4,972
Conversion between classes of shares		9,236,733			(9,236,733	)		—		—			—			—			—
Cancellation of restricted stock awards		(13,770	)		(8,077	)		—		—			—			—			—
Warrants exercised		262,200			—			808		—			808			—			808
Net loss		—			—			—		(28,782	)		(28,782	)		(381	)		(29,163	)
Balance, March 31, 2021		282,444,046			17,263,104		$	778,785	$	(354,020	)	$	424,765		$	(20,256	)	$	404,509

(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.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

(expressed in thousands of U.S. dollars)

	Three Months Ended March 31,
	2022			2021
Cash flows from operating activities:
Net loss	$	(27,906	)	$	(29,163	)
Adjustments to reconcile net loss to net cash provided by (used in) operating activities:
Depreciation and amortization		21,210			8,523
Equity-based compensation		6,374			7,786
Debt amortization expense		1,936			1,241
Provision for obsolete inventory and other assets		156			—
Change in fair value of derivative liability		683			179
Deferred taxes		(4,560	)		5,319
Other		217			84
Changes in operating assets and liabilities, net of acquisitions
Accounts receivable		1,726			1,128
Inventory		(14,851	)		(4,843	)
Prepaid expenses and other current assets		1,942			657
Other assets		(6,111	)		5,636
Accounts payable		(12,072	)		2,650
Accrued expenses and other current liabilities		(8,037	)		(4,232	)
Income taxes payable		5,172			3,876
Other long-term liabilities		6,299			(2,329	)
Net cash used in operating activities		(27,822	)		(3,488	)

Cash flows from investing activities:
Cash paid for acquisitions, net of cash acquired		—			(2,727	)
Purchases of property and equipment		(29,511	)		(7,232	)
Proceeds from sale of plant, property and equipment		179			—
Cash (paid) received on deposits, net		(223	)		26
Cash for loan under Cannascend and Corsa Verde agreements		—			(208	)
Net cash used in investing activities		(29,555	)		(10,141	)

Cash flows from financing activities:
Proceeds from issuance of debt		153,250			133,559
Debt issuance costs		(7,266	)		(123	)
Repayment of debt		(122	)		—
Repayment of sellers note		(375	)		(3,877	)
Payment of lease liabilities		(1,642	)		(1,351	)
Exercise of warrants		424			808
Taxes paid on equity based compensation		(16	)		—
Net cash provided by financing activities		144,253			129,016
Net increase (decrease) in cash		86,876			115,387
Cash and restricted cash at beginning of the period		82,533			71,969
Cash and restricted cash at end of the period		169,409			187,356

Reconciliation of cash and cash equivalents and restricted cash:
Cash and cash equivalents		168,424			176,498
Restricted cash		985			10,858
Cash and cash equivalents and restricted cash, end of period		169,409			187,356

Supplemental disclosure of cash flow information:
Cash paid for amounts included in the measurement of lease liabilities:
Operating cash flows from operating leases	$	6,209		$	4,768
Operating cash flows from finance leases	$	1,457		$	1,156
Financing cash flows from finance leases	$	1,642		$	1,351
Cash paid for interest on other obligations	$	5,302		$	438
Cash paid for income taxes	$	70		$	135
Lease liabilities arising from the recognition of finance right-of-use assets	$	1,597		$	4,750
Lease liabilities arising from the recognition of operating right-of-use assets	$	551		$	3,037

Supplemental disclosure of non-cash investing and financing activities:
Non-cash fixed asset additions within accounts payable and accrued expenses	$	11,010		$	2,455
Non-cash equity issuance costs within accrued expenses and accounts payable	$	223		$	286
Shares issued in connection with business acquisitions	$	—		$	4,972

COLUMBIA CARE INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE three months ended March 31 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 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).

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 months ended March 31, 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 (“2021 audited consolidated financial statements”).

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 consolidated financial statements included in the Annual Report on Form 10-K for the fiscal year ended December 31, 2021, filed with this Securities and

COLUMBIA CARE INC.

NOTES TO THE CONDENSED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

FOR THE three months ended March 31 2022 and 2021

(Expressed in thousands of U.S. dollars, except for share and per share amounts)

(Unaudited)

Exchange Commission, or SEC, on March 31, 2022 (the "2021 Form 10-K"). There have been no material changes to the Company’s significant accounting policies.

Revenue

The Company’s revenues are disaggregated as follows:

	Three months ended
	March 31, 2022		March 31, 2021
Dispensary	$	105,816	$	73,957
Cultivation and wholesale		17,123		12,079
Other		148		59
	$	123,087	$	86,095

During the three months ended March 31, 2022 and 2021, the Company netted discounts of $20,520 and $9,358 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.

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.

INVENTORY

Details of the Company’s inventory are shown in the table below:

	March 31, 2022		December 31, 2021
Accessories	$	668	$	815
Work-in-process - cannabis in cures and final vault		61,132		52,519
Finished goods - dried cannabis, concentrate and edible products		47,463		41,233
Total inventory	$