Q1 2022 Columbia Care Inc Earnings Call
Good day and welcome to the first quarter 2022 earnings Conference call. At this time, all participants are listen only mode.
After the Speakers' presentation there'll be a question answer session to ask a question. During the session you will need to press Star then one you touched on telephone.
Anyway require assistance during the call. Please press Star then zero sweeten operator.
As a reminder, this call may be recorded.
I would now like to turn the call over to Lee Evans Senior Vice President of capital markets you may begin.
Thank you operator, good morning, and thank you for joining <unk> first quarter 2022 earnings Conference call with me today are Nicholas <unk>, Our Chief Executive Officer, David Hart, Our Chief operating Officer.
Watson, our Chief Financial Officer, and Jesse Shannon, our Chief growth Officer.
Earlier. This morning, we issued a press release reporting our first quarter 2022 results, which we also filed with applicable Canadian Securities regulatory authorities on SEDAR and the U S Securities and Exchange Commission on Edgar a copy of this release is available on the investors section of our corporate website, where you'll also be able to access a replay of this call for up to 30 days. Please note that the remarks, we make today regarding future expectations.
Plans and prospects for the company, including statements relating to the critical labs transaction constitute forward looking statements within the meaning of the applicable Canadian and U S Securities laws.
Actual results may differ materially from those indicated by such forward looking statements as a result of various important factors, which we disclose in more detail in the risk factors section of our annual Form 10-K dated March 31, 2022 as filed with the applicable regulatory authorities and then subsequent securities filings, we remind you that any forward looking statements represent our views as of today and should not be relied upon.
As representing our views as of any subsequent date, while we may update any such forward looking statements in the future. We specifically disclaim any obligation to do so except as otherwise required by applicable law also please note that on today's call. We will refer to certain non-GAAP financial measures such as adjusted EBITDA. These measures did not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented.
My other companies Columbia care consider certain non-GAAP measures to be meaningful indicators of the performance of its business. In addition to but not as a substitute for our GAAP results.
Reconciliation of such non-GAAP financial measures to their nearest comparable GAAP measure is included in our press release issued earlier today.
With that I will turn the call over to Nicholas Vida to get Us started Nick.
Thank you Lee and good morning, everyone.
Like to thank you all for joining us this morning to discuss our quarterly performance macroeconomic and state level dynamics in the operational opportunities strengths and headwinds we are encountering as we continue to execute against our strategic objectives before we jump into the results of the first quarter. Let me begin with a quick update on our planned combination with Chriscoe labs.
As you May have seen via press release. This morning, we did not receive a second request for more information under the Hart Scott Rodino review.
As notice period expired this past Friday night.
This is a significant milestone in our progress towards close and we're very pleased that we can now move forward knowing that this has been cleared.
We are currently working through the proxy circular clearance process with the SEC and once completed we will move forward with the shareholder approval process.
Additionally, I am pleased to report that we've officially initiated that.
The divestiture process and the markets, where we have regulatory overlap.
We're in the early stages of that process, but are happy with the inbound interest received thus far and look forward to getting this historic transaction that will create the definitive leader in the cannabis industry.
We will share any material updates from the divestiture process when appropriate to do so in the meantime, we continue to operate as a standalone company and are managing the business with prioritized emphasis on driving profitability, while we leverage the capital investments we've made to optimize the near term growth opportunities materializing throughout Colombia curious portfolio over the next 12 to 18 months.
Now turning to the results of the first quarter, along with updates on them on more recent developments at our mid term strategy.
We saw more than 43% growth in topline year over year, and although we declined sequentially due to factors ranging from market cyclicality to inflationary pressures impacting the consumer's wallet.
Performance was good on a year over year comparison.
As the largest operator in Colorado, consistent with Q1, 'twenty one the expected first quarter seasonal weakness, particularly in the wholesale market followed followed the relative strength of Q4 'twenty one.
Drove significant wholesale revenue and gross margin expansion for Colombia.
David will discuss in more detail, our wholesale revenue fell sequentially and underperformed in comparison.
To our internal expectations, driven mostly by the greater than expected magnitude of the market cyclicality during Q1 in Colorado and the decision to retain all inventory in New Jersey, and it became clear that adult use is being activated.
Towards the end of the towards basically in the second quarter.
There were other decisions that were made that we made in response to the ever increasing state level of complexity in the pricing environment, but we are up year over year in several key metrics as.
As we have been shifting our operational emphasis from revenue growth and profitability. We remain focused on driving margin improvement and are seeing the impact of our strategic plan.
Even in a declining top line environment, we saw gross margin improvement of 150 basis points sequentially and nearly 700 basis points over the prior year adjusted EBITDA margin improved more than 930 basis points over Q1 2021 as we've discussed previously we are laser focused on driving gross and EBITDA margins as well as moving the company towards generating free cash flow to <unk>.
And our growth.
Strategically using internally generated capital rather than external capital to capture the enormous opportunities ahead of us.
Derek will provide more detail on the financial results of the first quarter and our outlook. Shortly first though I would like to focus on our discussion on the milestones recently achieved which give us continued confidence in our growth plan and execution.
It's a complicated environment.
We are on our front foot and leaning into the markets that will that will propel growth.
As I have discussed in the past our first growth pillar is growing our retail network in key markets. Although we won't see a full quarter's impact of these openings until Q2 throughout Q1, we successfully executed five additional store openings, including four in West, Virginia, and one in Virginia, bringing all Virginia total to for us today.
The first quarter. We also converted two dispensaries due to the cannabis brand, bringing us to 31 total locations under the cannabis banner out of 84 reach active retail locations, David Hartley will share more detail on these openings as well as our other significant capital investment initiatives in just a few moments.
A significant component of our growth strategy is positioning Columbia care in key strategic markets ahead of adult use adoption.
As you know subsequent to the end of the first quarter in New Jersey transition to adult use on April 21.
Thrilled to be part of the game on adult use sales in New Jersey, with our Canada stores in both Finland, and desperate seeing exceptionally strong store traffic and perfect community support that continues today.
As of Q1, Virginia overtook, Ohio in spite of Ohio is strong performance and it's now at one of our top five markets for both revenue and adjusted EBITDA for the first time, we have eight additional locations in development in Virginia and are excited to see that market growth accelerate when new patient registration process takes effect in July Columbia care is exceptionally well positioned.
In New Jersey, and Virginia, as well as in New York that ahead of the significant market shift that is that as expected there.
Other notable achievements during the first quarter included <unk>.
<unk> improvement in both cultivation productivity in potency as well as continued brand strength our cause.
Kerr brands, such as classics, even strained triple seven achieved a record percentage of total sales and helped drive the sequential improvement in gross margin.
As you can see from these accomplishments we remain on a path to execute our strategies and today, we reiterated our guidance for the full fiscal year as Derek and David will share with you the market environment, driven by is being driven by unprecedented inflation impacting consumer labor cost and shortages and supply chain supply chain disruptions remains very very difficult.
In fact, even more difficult than at the end of last quarter.
Care team continues to execute we are confident in the catalysts and growth trajectory for the rest of 2022 and remain excited about the Crestwood transaction, which will position our companies to be the clear leader in cannabis with that let me turn the call over to Derek Derrick.
Thank you Nick and good morning, everyone.
I'll provide a summary of the key financial results for the first quarter and briefly address status of the proposed transaction with <unk>.
As a reminder, well results and now in U S GAAP and due to the close about Ohio transaction and think of July 2021.
In Q3 of 'twenty, one we no longer report quarterly combined metrics.
So to begin with our results revenue in the first quarter with $123 1 million a decrease of 11, 6% sequentially and an increase of 43% year over year, when compared with our results from Q1 of 'twenty one.
The sequential decline was driven primarily by a shortfall in wholesale revenue, which was down 36% quarter over quarter by far the key contributor being from our largest market in Colorado and some seasonal aspects that will get into further.
On the retail side retail revenue was down 6% quarter over quarter and mix of lower average transaction volumes and a slightly lower average basket size in a number of our markets.
We anticipated much of this retail softness in Q1, and we're encouraged by a number of positive signs in the quarter retail revenue that was up quarter over quarter in markets like New Jersey, and California benefits from outside new store openings towards the end of the quarter in Virginia, and West, Virginia, and an increase in average basket size in places like Florida and Colorado.
Adjusted gross profit for the first quarter decreased sequentially by approximately 5 million to $57 million.
Resulting in a gross margin of 46% up one five percentage points from the adjusted gross margin in the fourth quarter.
Despite the overall revenue decline increase in gross margin reflects execution on our profit improvement initiatives, including continued cultivation efficiency and increasing share of our high margin in house retail brands.
Reported operating expenses were 71 million in the first quarter essentially flat with the fourth quarter of 'twenty, one until year end impairment charges revenues.
non-GAAP adjusted EBITDA for the quarter was $17 million or 14% of revenue down just one percentage point from Q4, despite the revenue decline.
This was 10 percentage points higher when compared with Q1, 'twenty, one again, reflecting solid execution on loans longer term profit initiatives and continued leveraging of our investments and corporate overhead.
Okay.
As we've alluded to the main impact on revenue in Q1 with wholesale holds.
Wholesale represented approximately 14% of revenue in Q1 down from 19% of revenue in Q4, and largely due to a tough comparison in Colorado, when we benefited from a record harvest outdoor facility.
Our Q1 seasonal decline in Colorado with somewhat normal as the market works through extra supply generated from outdoor harvest in the fall and we didn't see quarter end profile transactions due to a rise in general.
Ladies and gentlemen, please standby.
Yeah.
Yeah.
Yeah.
Okay.
Good morning, again, sorry for the interruption.
So I'll continue where I left.
Left off with.
Colorado, So again, the Q1 seasonal decline in Colorado with somewhat normal as the market went through extra supply generated from outdoor harvest in the fall.
But we didn't see the usual quarter end wholesale transactions materialize as they normally would in Colorado or in some of the other markets.
This was the main driver of the 36% sequential drop in wholesale quarter over quarter.
At the end of March with the product prospect of adult use in New Jersey more imminent. We also withheld some wholesale product prior to the start of battle.
In terms of cash balances in February we completed a private placement of $185 million and nine 5% senior notes due 2026.
With another quarter of positive results in cash management, our quarter end cash balance reached a healthy $168 million.
We've shored up our capital structure prior to the recent market volatility and rising interest rate environment and also renegotiated the lower cost of capital for any of our capital lease transactions going forward.
We will continue to focus on our liquidity profile and efficient capital deployment as we work through the rest of the year.
Capital expenses in the first quarter with $29 5 million down compared to the $45 million of Capex in the fourth quarter of 2021.
We've already made early and significant investments in our growth markets, including New Jersey, West, Virginia, Virginia, and New York. In addition to the expansion of our cultivation sites, including Pennsylvania.
Although this continued uncertainty in the consumer discretionary segment and the economy more broadly we've been encouraged by revenue increases we're seeing in Q2 the impact of our five new stores opened in Q1 further store openings planned later in the year in Virginia, West, Virginia, and New Jersey, and increased retail sales and UGI.
After the commencement of adult use in late April .
The U S economic outlook for the second half of the year in particular remains uncertain given high inflation and federal monetary tightening.
We will continue to assess and incorporate market data as it becomes available but based on current trends, we're maintaining our guidance for the full year being $625 million to $675 million in revenue and $120 million to $175 million and adjusted EBITDA.
As a reminder, our full year outlook does not include any contribution or deduction from future acquisitions or divestitures, nor does it include any further changes in the regulatory environment.
Lastly, I'd like to quickly address the trustco transaction.
And as you've heard we're progressing through the anticipated regulatory steps.
We cleared the initial federal antitrust review process last week has kicked off a divestiture process in those states, where we have regulatory overlap and are now working towards a shareholder vote to approve the transaction.
There's obviously still a lot of what to do but based on the anticipated timing of close around the end of 2022, we'll be working with the <unk> team to develop a thoughtful approach to integration and how we execute against this post closing of the transaction.
With that let me turn the call over to David to cover our operational highlights David.
Thank you Derek and good morning, everyone I will focus on important operational developments during the first quarter, particularly in our top markets on a revenue basis, our top five markets, alphabetically, where California, Colorado, Massachusetts, Pennsylvania, and Virginia, with Virginia, replacing Ohio from Q4 on an adjusted EBITDA basis, the top five mark.
<unk>, alphabetically, Colorado, Maryland, Massachusetts, Pennsylvania, and Virginia, consistent with Q4.
Retail grew its contribution to revenue, reaching 86% in Q1 up from 81% in Q4. This is evidenced by our five new retail locations that opened in Q1, bringing our total store count to 84, we also completed cultivation capital projects in Ohio, and Virginia, as well as our manufacturing capital projects in Delaware, and Illinois to meet demand.
Further we are allocating resources to markets, where we expect to see adult use sales authorized soon so that we can hit the ground running.
In California, we added additional store hours to our retail locations to increase transaction volume, which led to top line growth year over year, and an increase in transaction volume quarter over quarter.
We also invested in upgrades in our cultivation facility, which resulted in an improvement in usable flowers that we realized in Q1 in Colorado, we had better than expected yields which led to improved cash flows from operations gross margin increased by single mid single digits and adjusted EBITDA margin increased by 15% sequentially transaction volume was up quarter.
Over quarter as was usual flower per square foot.
Average basket size grew 1% quarter over quarter as well, we completed upgrades at our steel facility in our first harvest since the upgrade have a significantly greater yield year over year.
Further we are realizing the benefits of the investments we made in automating, our manufacturing and packaging facilities throughout Colorado, evidenced by the outsized gains in margin.
As Nick and Derek mentioned wholesale revenue in Colorado was down sequentially. Following a record wholesale performance in the fourth quarter as a result of our outdoor harvest as another markets, Colorado did not experience. The typical wholesale push at the end of the quarter. As we look ahead in Colorado. We are excited about the recent launches of our in house brands Classics and seed and strained earlier this month.
In Massachusetts, we had a strong quarter, we're accelerating adoption of company best practices led to improved results, we achieved improvements in gross and EBITDA margins in the quarter transaction volume was down quarter over quarter, but up significantly year over year, we had a substantial increase in foot traffic at our Boston canvas location.
One one of our key focus areas in Q1 was institutionalizing the supply chain and to that end, we implemented automation across our cultivation facility, which led to the increase in usable flower on a per square foot basis year over year.
In Pennsylvania, we saw a slight rebound in Q1 from the overall market softness and reduced wholesale opportunities in Pennsylvania. During Q4 of last year gross profit and EBITDA were ahead of our expectations average basket size increase quarter over quarter, though transaction volume was down sequentially.
We are progressing with the Saxon cultivation location capital expenditure project, which was which is more than 250000 square feet of cultivation and manufacturing capacity, we expect phase one of that expansion to be operational later in Q2, increasing can't be by nearly 200%.
In Virginia, we had record gross margin free cash flow and EBITDA margin in Q1 transaction volume was also a record high in Virginia now among our top five markets in both revenue and EBITDA.
We further expanded our cultivation center to meet the demands of adult use sales, which we anticipate will begin in 2023, we opened a new dispensary in Virginia in Q1 with eight more currently in development, we focused on integrating Julien operations and we worked with all licensed operators in Virginia to continue to drive our wholesale business construction.
Construction of our Portsmouth grow facility is nearly complete and we expect to populate it with plants in Q2 of this year.
Now to turn to a market that is that is not currently but should be a top market in the future New Jersey.
We launched adult use sales on April 21, 2022 at our two existing cannabis dispensaries in the state we are still operating with limited adult use ours, but plan to expand to four hours in the next few weeks. We are nearing final approval of the second cultivation facility in violent which will add more than 250000 square feet of production capacity in the <unk>.
Term this will triple our canopy and provide packaged products for the wholesale market. We have signed a lease on a property for a third dispensaries in the state, which we are working to operationalize as soon as possible.
In sum, we are thrilled with the transition to adult use thus far and are poised to bring on additional much needed supply in the near term.
On Capex, our Q1 Capex spend was split nearly evenly between projects started in 2021 and projects started in Q1 of 2022.
Capex spend for Q1 was $29 $5 million down from $45 million in Q4, we increased canopy cultivation, both canopy and cultivation in Ohio, Virginia, and Florida, where we are doubling canopy in our existing cultivation facility.
Looking forward to next quarter and the rest of the year, we will continue to execute against our four north stars by improving margins expanding our brands strengthening our operational competitive advantages and using data to ensure customer loyalty I will now turn the call back to Nick for closing remarks before we take questions.
Thank you. Thank you David I want to reiterate that we are encouraged by the margin expansion, we were able to achieve in Q1, which was the result of broad based efficiency gains throughout the portfolio, we are still facing macro and market headwinds from inflation and supply chain constraints, but we continue to make operational improvements that will make our business more efficient.
We are focused on driving efficiency profitability cash flow and cash flow as we look ahead to the catalysts in the second half of the year. Furthermore, we are pleased with the progress to date and the Chriscoe transaction and look forward to updating the market with more details in the future with that we'll open it up for questions operator.
As a reminder to ask a question. Please press Star then one if your question has been answered and you'd like to remove yourself from the queue press the pound key.
First question comes from Aaron Grey with Alliance Global Partners. Your line is open.
Hi, good morning, and thank you for the questions.
So first question for me.
Just on the top line. So definitely appreciate some uncertainty in terms of market dynamics.
When you guys reported the third week of March and a flat to down.
Came in down the more material than that so I just wanted to in terms of the wholesale transactions I know it can come in late in the quarter whats that can build visibility do you have in terms of measuring the market dynamics to better anticipate.
How much demand demand there might be.
During the quarter and on our wholesale side just given the <unk> earnings came so late and then how does that can be confident in terms of the remainder of the year for 2020, we held guidance and that implies some pretty notable sequential gains.
Sure. Thanks, Eric So I'll give you a very high level overview, and then I'll turn it over to David and Derek to weigh in as well I think that the single biggest contributor to the wholesale sort of shortfall was really in the Colorado market and we always see some seasonality there. The seasonality was exact was exacerbated by the by frankly some of the macroeconomic headwinds.
You know, what when we see sort of let's call it.
Demand.
The demand is sort of or ASB in any of those sort of metrics on the retail side soften up in our in our network of retail it generally hits the entire market and so that there was a sort of an element of cyclicality that was exacerbated by the current market dynamics.
And I think that was something that had caught us by surprise candidly.
Do you know.
Another component of it was frankly decision, making right I mean, we wanted to stockpile inventory and in the quarter to be ready for adult use.
As David alluded to and as David stated, we're not operating full hours in New Jersey, yet because we want to make sure. We always have products on our shelves, but in order to do that we had to make some very sort of important last minute decisions on the wholesale side that definitively had an impact on our on both our topline and frankly in our wholesale.
EBITDA margin, because that's really driven by a large part by.
A large part bye bye.
By our our wholesale revenue and so there were things that we did intentionally slow down and they weren't.
I would say it caught us by surprise that were on order of magnitude more sort of impactful than we had expected.
The in terms of the second half of the year, we did a lot of soul searching to sort of think about what's happening for the rest of the year and there are things in markets that are you know everyone knows at this point with the lifestyle looks like in markets right. The newer markets generally have stronger margin profiles and they have higher growth profiles.
Happen to have a lot of exposure to those markets like Virginia, West, Virginia, and New Jersey, and so when you think about what we're what we're planning on seeing materialize, it's really a byproduct of the investments already made so for example, the expansion in our cultivation in Ohio.
It's a byproduct of legislation that has already passed for example, the patient access changes that are going to dramatically improve the virginia market in our opinion.
And then that's then and then frankly the capital investment that we've made and so we've got new new dispensaries coming online in Virginia, We've got new dispenser.
Oh, just came online in <unk> West Virginia.
And then you've got sort of market dynamics that we would expect to see continued to improve in.
In a range of other states. So the the the things that are driving our growth are sort of have already happened and have already been let's call. It validated, but theres always a ramp associated with it and that's why we feel we feel comfortable where we are.
From the standpoint of how we expected the quarter to materialize, we could have done more to sort of improve the topline into sort of close that gap, but that would've involved either remaining flat from a gross margin perspective or not preparing properly for four new Jersey, or frankly, you know sort of acting at a.
We think long term would've been more disruptive than productive. So we don't really I think that we continue to look at these macroeconomic headwinds we continue to look at different states, but the fact of the matter is that the things that are gonna be driving our growth and frankly should also benefit our margin profile because of the scale is already built out from a capital perspective.
And a capex perspective. These are things that are that are just happening that are really independent of the macroeconomic environment or the fourth or the sector, but David Let me, let me turn it over to used to give anything to add.
The only thing I would add here as we've continued to build out our wholesale capabilities.
Wholesale revenue.
Yes, cyclicality or seasonality.
Quarter over quarter, and intra quarter, it's certainly higher than our traditional legacy retail business and as a consequence I think to your point, we have improved our ability to understand the demand the supply demand.
Dynamics in each one of our markets throughout throughout the quarter.
As Nick mentioned, we could've, probably chase incremental wholesale and a number of markets, including Colorado.
Wanted to remain price disciplined in Q1.
All the reasons I think mentioned so I think on a go forward basis.
The reason that underscores the transaction and transaction with <unk> given their capabilities in wholesale market.
Continue to try to remain somewhat price disciplined relative to others quarter transaction volumes.
And until we have a better understanding of the.
The outlook on a quarter over quarter basis, whether it's an adult use pending change for the seasonality, particularly in Colorado.
We are the only NSO and it's got the exposure in Colorado on vertically integrated basis, and there is more seasonality in that market than any other market that we're in across the country and so there are there's a lot of dynamics going on in the Colorado market year over year, both on the retail and the wholesale side and we were trying to remain price disciplined in that market as we.
I think youll see over the next subsequent three quarters will start to really leverage the vertical integration that we've got in Colorado to really drive.
The incremental biomass that we now have coming off of <unk>.
In our steel indoor growth.
Okay Eric.
Just one point about the cyclicality of it kind of cuts both ways I think in the fourth quarter, we were sort of a standout from a topline growth perspective, and that was largely driven by what we saw in Colorado first quarter, we're probably a little light on the top line and we made the decision not to chase not to erode margin to chase revenue because we just didn't think it was in our own best interest.
We can put that in the interest of the brand building exercise and candidly when we look at the sort of the next three quarters, we actually see a number of things that they don't have.
A fairly significant impact.
On our on both our margin profile in our on our topline growth rate.
Alright, great. Thanks, a lot for that color and detail.
The second question from me just turning to New York, It's one of the markets you mentioned about leading into in the press release and prepared remarks. So could you just remind us about how youre thinking about investments in the state.
They will likely need to be some level of divestitures needed further crespo.
Merger, so how youre looking to operate in the state as a Standalone Columbia care company today, we're also potentially looking towards the future.
Brooklyn, Daycare, Chrysler combined company with macro some divestiture. So just a reminder of how youre looking at about the two would be great. Thank you.
Certainly it's so it's we can't really comment on the divestiture process, but what I can say is that both critical and Columbia care have had an ambition to be the market leader and in New York.
You know that Columbia care, we made investments in in New York State on cultivation of that are really beginning to sort of what's called show show benefit and we would expect some of the you know the first harvest of come out of the come out of Riverhead, we're expecting that to be a major part of the wholesale supply chain.
We've obviously been doing everything we can rollout products and form factors to really drive value from it from sort of a Columbia care perspective, but that is not dissimilar to what Chris Koh is tends to do I.
I think that what you what you would expect to see from us because we do have the benefit of a fairly long lead time to consolidate these businesses and to plan out the divestiture process is a very thoughtful approach, where we're going to wind up with.
A portfolio of dispensaries to that we're very happy with and we're going to end up with.
The the right cultivation and manufacturing facilities relative to the longer term strategy.
That means that that that sort of I think presumes that we're doing it.
A methodical way not in sort of a knee jerk reaction way, where we can manage the process both from a people and a continuity perspective, and really continue to position ourselves well.
I don't you know everything that I've seen is that the two companies are working very well together. The teams are working very well together. We're both very proud of everything we've built independent of one another and I think the question is how do we make sure that from a shareholder perspective.
Organizational perspective, we come out of the combination and come out of there was this sort of whats called limited restructuring.
To really drive value in the mid and long term. So I you know.
We're not at the point, where we're commenting on which specific assets are going to stay and which ones are going to go but what we can say is you know heads. We went tells me win so it's not really something that debt.
Just like we weren't we were we're quietly confident about HSR, we're quietly confident about the way the integration into the asset selection process will work not only to optimize the value through the assets.
Sales, but also to make sure that we've got the best business going forward.
Alright, thanks, very much for the color I'll jump back in the queue.
Yeah.
Our next question comes from Vivien <unk> with Cowen Your line is open.
Great. This is Eric on for Vivien. Thanks, so much for taking the questions.
Just first on Virginia, obviously solid performance here given it knocked out in Ohio in the top five so would just love some more color in terms of your mix in the state and in and if you could offer maybe more broadly just detail around the competitive dynamics within the wholesale.
In that state.
Sure why don't I turn it over to David to give some of those details I mean, I think what you would what.
What I can start us off with at a very high level is that we have a number of very high quality operators in Virginia, all of which are producing great products that they're able to compete effectively they have the balance sheets. So virginia is a market where gratefully. We haven't had to go through a lot of growing pains like some other markets have where you have the operators are sort of.
That are unable to really sort of jump right into the deep end headfirst and and I think that's very good because it allows us to focus on the things that we're that we're best at AR, but the G leaf in Colombia care combination continues to move forward very well both all of the assets on both sides of that equation or are performing well and <unk>.
We continue to sort of improve in terms of not only the brands and the diversity of products, but the quality of the products that are coming out and then obviously the rollout of the dispensaries is going to be I think a real game changer, but let me turn it over to David and he can provide some specifics yes, I think it remains a strong wholesale market and we've got good relationships across all the operators in that Mark.
Kit.
Clearly people were there was there was an anticipated adult use framework that was going to come sooner rather than later this year.
Obviously, that's not happening we think we anticipated happening in 2023.
But there is some regulatory relief coming in the middle of the year with respect to patient registrations and Theres a significant backlog.
Patients waiting to become fully registered and to get their cards and so that's probably the next regulatory milestone that we're looking at in Virginia.
Anticipated during the.
The potential implementation of adult use we would get additional clarity to perfect setback requirements for dispensaries. We don't have protection until we are we are being very thoughtful.
Doing a ton of diligence frankly for the outstanding eight locations that are under development.
We haven't disclosed, but we have we have signed a number of leases and we are in development. So we're.
We're trying to optimally position those dispensaries for both current the current medical program, but also.
Once adult use comes next year.
In addition, I do think that we've done a good job of increasing yields and potency in our in our gardens, which has been well received by both our wholesale partners and patients and state continued product innovation, where we can based on the regulations.
We continue to do so it's a strong market for us I think theres going to be a nice uptick in patient patient growth in the back half of the year and obviously everything everything outside of addressing the back half of the year Medical program is anticipation of preparing for adult use that we think is coming sometime next year.
Great Great I appreciate the color second one from me just I apologize for the baseball reference here, but what inning would you say you're in in terms of making operational improvements across your existing cultivation footprint.
Yeah.
So assuming we don't we don't.
I think we're probably in the third inning.
And I say that because we are learning more about the.
Way to do things better every day, and we're learning more about how to optimize every day.
I'm curious no one's ever asked this question before so I'm curious David if you know how do you feel you may think we're a little bit of a head I mean, I think that the the the one thing I would say as I say the third inning, but you know we've made such incredible strides over the past 18 months that I have an expectation that we will continue to make the same sort of level of performance improvement.
And so it's a little bit of a moving target right. So instead of saying that we have you know a normal a normal number of innings I actually think that you know that that number continues to change because of the way in which we can optimize not only in terms of strain selection. It starts everything from the sort of the genetics of the plants through the through the infrastructure that goes right into manufacturing. So I think that there are.
There are real improvements that can be made and particularly through the combination, but David maybe you have something to add.
Yes, I mean, we could maybe debate the top or the bottom of the third but I think that's not an unreasonable.
To start we've I think we've actually done a fair amount in terms of S&P adherence throughout the organization, where if you look across the Columbia care.
Cultivation facility portfolio. The majority of our indoor grows outside of Colorado look and feel the same and so that that allows us I think to continue to refine our not only recipes, but the adherence of S&P. So people are as much as or as important as the actual facility and the process and I think we've come a long ways.
With that regard I do think genetic optimization yields and potency are all important.
But I think where we probably not spent enough time frankly if.
If you think about the beginning of the cultivation process all the way through to manufacturing, we started 18 months ago or so focusing on cultivation from the beginning working our way through so I think on on the post harvest basis. We're now spending a lot of time, making sure. We can optimize the material post harvest full road for potency and yields because all you can do essentially after you harvested.
Deteriorate your product and so.
That's something that I know <unk> has actually done a pretty pretty fantastic job doing in terms of the quantification of post harvest. So I do think that's one of the opportunities post close for us to work together. So I think third innings, probably probably appropriate. It's also probably appropriate for this industry because I think theres continued.
Innovation, whether its nutrients, whether it's lighting, whether it's environmental controls broadly speaking I think theres going to be continued innovation. So that you get to a point, where you think you can maximize your grants per square foot and your post season. Then you have a facility like West Virginia that we just commercialized and we hit new highs. So we continue to try to improve.
Even on the infrastructure side so yes.
The third third third inning, I'd say, maybe the bottom in the third seems seems seems reasonable.
Great I appreciate the color I'll pass it on thanks.
Our next question comes from Owen Bennett with Jefferies. Your line is open.
Yeah.
And again, it's helpful well and first question is just on <unk>.
The cannabis rebounding so far.
Along with with the changes that have you seen any material change in trend and he's still seem cheap changed. The branding. Then also introduced for rich and then just linked to that how are you thinking now about continued rebranding given the pending crash go deal and obviously they call a very strong branding and Sony side as well. Thank you.
So what I'd like to do is I'll give a very high level overview, and then Jesse maybe I can turn it over to you and then David you can follow up.
I would say that you know.
Where we have made the cannabis branding change from Colombia care.
And you have to take this from the person who came up with the name Columbia care right. So I I have is the ability to sort of to tell it to sort of be very candid about it cannabis is a far better name. It is a far more recognizable name I mean, it's very very clear what it is and I think that that has had an impact.
On an anecdotal basis of increasing the aperture of from the population that we drop into the our facilities. So when people drive by they know exactly what they're looking for they know exactly what they're what they're driving by and they know when they want to come in and what they're looking for and so that has all been very powerful it's improved loyalty rates improved we believe it's high.
The impact on revenue growth, our revenue performance and therefore, you know obviously the.
Profitability coming out of the facilities, we're working to quantify exactly what that is because each market is so much noise. Both at the local and state level, it's very hard to kind of isolate the signal appropriately, but what I can say is that in you know in an environment like this where you have such significant economic headwinds.
It's interesting that we're seeing basket size of that increase but we're seeing foot traffic.
Basket sizes decrease, but it what foot tracking traffic increase, particularly in the facilities that have converted to canvas and so I would make the argument that the that there was a correlation there that we need to prove out.
A forge we continue to be amazed at the amount of data and information we get from it but let me rather than taking Jesse's Thunder, Let me, let me ask Jesse to weigh in.
Got it that's great. Thanks, so much Nick the one thing that I would add and I think they made the point.
It's very difficult sometimes to isolate the.
The individual sort of upticks that we see in the market, especially the location specific with regards to the rebrand due to so many of the other variables.
We're dealing with in sort of these individual markets, but one of the sort.
The increased performance that we've been very happy with.
The efficiency, we're deploying capital from an advertising point of view, so our conversion cost CPA Cpd's. All these numbers have been.
Moved in the right direction as we've continued to rebrand, which I think speaks to nicks point around what we're seeing with regards to the name.
The recall.
Sort of the <unk>.
Immediate reaction from the consumers to that brand.
With regards to forage in the data.
We were incredibly excited a couple of months ago to kick off a large scale project and starting to really dive into and digest a lot of those datasets that we've been aggregating since the launch of <unk> application. We continue to see an increase in number of sessions and user adoption.
As we continue to spread the infrastructure.
Our partnership with 916, the hardware provider after the in store experience.
It is continuing to provide us with a lot of that transparency into the top of funnel activities for consumers, especially newer consumers to the market and what it is that ultimately they're looking for and the process that they're going through with regards to discovery not only at the product level, but also how they are drawn to certain brands.
And we're willing to sort of add additional items when they're searching for sort of that first staples. So we're excited to continue to dive into that and start to really harness the power of that data and some of the merchandising and product assortment decisioning moving forward and we think it's going to give us a really interesting.
Vantage in some of these markets, especially a market like New Jersey as.
As we move through the back half of the year.
Dave do you have anything to add.
And just to cover that one.
Yeah.
Okay, and then just I mean, it seems as the pace of that rebound and it does not change potentially depending classico deal.
Yes, it's something we're looking at and you know I think whats.
One of the I think the best indicators of how things are going with with the chriscoe sort of conversation dialogue and integration thought process.
We've approached this as from a perspective of a whiteboard and so what <unk> is focused on and what Colombe curious focus on is really finding the best in class approach to every market to make sure we optimize.
What our retail footprint looks like we've been very impressed with what they have it's sunny side I think they've been very happy with what they've seen at.
Cannabis, but ultimately is going to be driven by the data.
And if it if we can prove what we think we're seeing isn't sort of a false positive.
And I think that that's that that probably pushes the scales in one way if we can't put it pushes the scaling and another way of one thing is for certain is that you know whether it's whether it's Colombia.
Or cannabis candidate is better than Columbia care and you know our goal for this year is to drive value as much as we possibly can.
Going into the combination and the closure of the of the Crestwood transaction and we want to make sure that that our retail channel is as strong as possible. So that everybody hits the ground running and we show up in 2023 with a with a definitive tailwind behind us, which I think will be you can unique in the marketplace and so it's we haven't made any decisions yet.
But I think it's going to be very thoughtful process. It wherever we went up and up.
Great. Thanks, guys and then just one quick follow up you mentioned.
Your cultivation comment on the line so it should be a contributor.
In the second half are you talking specifically just a pick up on the medical side or are you assuming the potential recreational contribution this year.
Well I think that the Oh.
I'll hand, it over to David but I think from my perspective, the way I thought about it is that we have new supply chain coming on with very high quality product, it's going to be.
It's going to be at a more attractive price than I think what people have seen in the New York market and I think that's going to be something that will be well received by the entire what's called a community of arrows on the medical side.
It's unclear how to measure when the opportunity sort of evolves into into our severe for the adult use conversion, but we will be ready to support the adult use rollout whenever that happens and so I think it's you know it's sort of obviously one is seismic in nature and the other one I think is.
More of a step change, but they're both very important sort of let's call. It measures of the evolution in New York State, but David maybe you have some.
Yeah, the only thing.
I would add is our canopy and in river had relative to our legacy cannot be up in Rochester is significantly larger and so we.
We now have that product on our shelves and available on the wholesale market, which which we think is higher quality.
Fresh flower solid potencies, and said, where we remain excited about what's coming out of Riverhead, we want it we're looking forward to going through a full four seasons in that facility to optimize the S&P's to get the best plant biomass out of that facility over the course of the year. So team is excited about what they have done thus far and the early day.
As of the harvest and we continue to expect to see the the medical program expand a bit as higher quality flower comes into the market into the market between now and the end of the end of the year and obviously as Nick mentioned shake.
The Crystal ball in terms of timing for adult use in New York, but.
Rest assured it's a mandate for our team in New York to be prepared for day, one adult use sales in New York whenever whenever we were given the opportunity.
Great. Thanks, guys very helpful.
Appreciate it.
Sure.
Okay.
Our next question comes from Kindred peak with HEB capital markets. Your line is open.
Thank you and good morning.
Nick I Wonder if you could remind us just on your the relative scale of your outdoor versus indoor in Colorado I. Just yeah. If memory serves last year, you did partially Tycho flying new indoor facility in this quarter. So if you can just frame that up for us and then separately, but just sticking with Colorado can you speak to medicine managed separately. This is your first full quarter contribution from Edison.
Recognizing there's some seasonality in that equation, it's still roughly a 9 million dollar and EBIT business or at least that's sort of what the math was on the multiple at the time of the acquisition and additional color that'd be great. Thank you.
So to put it in scale and David I'll, probably ask you to win with with some of the details.
Our steel facility, which is the most important indoor facility. We have in Colorado was about 75000 square feet on the ground, but it goes up I think five five stack facility. So you obviously have significant scale and leverage by just going going vertically.
That facility.
It has really begun to sort of I would say hit its stride towards the end of the fourth quarter and really in this quarter, we're seeing significant improvements in not only output, but the quality of that output.
And I think that that investment has really paid off and will continue to pay off.
By way of comparison.
The outdoor grow gosh, how many how many.
How many acres do we did we actually harvest at the end of the end of last year and in Trinidad.
We have up to 100 to 140, I think we disclosed how many yeah, we didn't disclose how many but it was it was considerable we have up to 140 acres to develop but suffice it to say it was the single largest harvest in the history of the company. It was it was substantial.
And it was obviously, a very cost effective and it was surprisingly high quality relative to relative to what people generally expect from a tech perspective from a testing perspective.
The.
What was what was kind of what was the second part of your question.
A medicine that inequity, the full quarter contribution just given sort of that implied run rate on acquisition of roughly $9 million EBITDA quarter.
Out of that Medicine man.
Yeah, The medicine man, we haven't really disclosed the breakout of Medicine man.
But what I can say is that Colorado.
When you see that cyclicality in Colorado, you see the cyclicality in it all assets in Colorado, So its not unique to any one particular, operator I think it's broad based.
But there is.
No Medicine man has always had a history of being more of a let's call. It a closed loop cycle, because they have their own grow and they have their own dispensing activities, but it was it was helpful. But the order of magnitude of the size of the business in Colorado.
I don't know how how.
How I would characterize the meaningfulness of EBITDA.
EBITDA contribution in <unk> are considering how many other things have been going on in that market and are in a very positive direction, but Dave maybe you want to give some yeah. The one data point I think we put in the materials is our indoor grow at steel year over year usable flower was up 50% to 52% year over year. So to Nick's point, we think we've increased the.
Not only the yields but the potency out of that facility on a year over year basis because of the investment we made and we did have to take it down for a period of time to to make sure. We got all the upgrades fully completed in a timely manner.
With respect to the outdoor grow it was a good season in aggregate for those that had an outdoor grow because of the weather that that's typically the number one issue for all outdoor grows in Colorado is when does the snow come in how quickly do you have to take material off.
Off the field and basically no snow came so most most outdoor grows were allowed to keep the material out longer which obviously is beneficial.
That's a once in a year once a year cycle for us and given where we see steel trending in terms of its output productivity and.
And where we see the wholesale market that is going to be the driver for us going forward and I think what youre going to see from us between now and the balance of this year I think I mentioned in my my.
Initial remarks is we're going to leverage the vertical integration nature of our business in Colorado to really drive really drive the business. The wholesale market is wildly volatile and cyclical throughout the year and seasonal and we wanted to put our head down for a period of time and through our doors and Colorado not only the TGF stores.
The medicine man stores so.
We're done.
We're basically at an inflection point operationally with what with the amount of biomass that we now have available for us to achieve we've done a lot on the on the on the retail side, which.
We'll speak more to in the coming quarters about the SKU optimization and pricing strategy that we're deploying but <unk>.
Significant year over year productivity out of steel, which helped to drive margins in Colorado in Q1 on a year over year and sequential basis.
Great. Thanks, very much gentlemen, if I can just quickly cover two new Jersey could you provide some insight as to where Youll combination throughput was in court and in quarter versus your internal expectations or ahead of adult use and then separately comment on unlimited.
Limited hours in the second quarter.
Much of that is just simply a function of a number of your competitors also looking to go on to a better term reserves.
Cultivation or inventory for their own needs just trying to understand the puts and takes and sort of the.
I think when somebody is in that market.
In quarter four you had said your decision to hold back on wholesale but also looking to the Q Q2 and beyond.
Sure. This is David on the cultivation side, where we have the inspection for our.
Second location cultivation location in the next week and a half or so so we're we're we're in line with our expectations as of the most recent budgeting process for 2022.
We've done everything we can to optimize plant material.
And our final one facility to move it over upon approval. So we're really excited about that most importantly, right out of the gate, we expect to have when we get authorization in Vineland II is the post harvest automated equipment that is that is ready to go and so we've got we've got material to run through that so we can actually expand the retail hours.
In our stores and also hit the ground running on the wholesale side for adult use.
With your second your second point.
We've tried to be as.
Practical as possible with the adult use hours out of the gate to make sure that we were <unk>.
Giving up to the mandate from the regulator about servicing medical program responsibly and I think we've done that and so we're expanding hours essentially on a weekly basis to move towards full hours as quickly as we can being thoughtful and responsible partners in the program and there was leading up to the day, one sales declared vacation protesting requirements for material.
Required basically everybody to go out and get tested.
Tested which created a bit of a backlog from a testing perspective, so as we're getting incremental material back.
Test the product back, we're putting on ourselves and making it available in all submarkets. So we're aligned with where we expect it to be with respect to turning on our cultivation in 2022, and I think we've got a history of actually commercializing cultivation facility successfully now over the last two years and so we're excited about it and.
We continue to see strong demand in our doors, even with the limited hours that we have so we anticipate that to continue.
Got two terrific locations that are already open in the third that we've got securities is arguably the best of the three so where we.
We're really excited about new Jersey in the second half of the year.
Great. Thank you I'll get back in queue.
Our next question comes from Matt Bottomley with Canaccord Genuity. Your line is open.
Good morning, everyone Hope, you're all doing well just wanted to pivot back to.
The outlook for 2022, so really reiterated once again and I'm. Just curious if you could give any color I know, it's a bit intangible and theres a lot of moving parts, but if you kind of run rate, where you are today somewhere around 500 million understanding that from a seasonally low base and some of the headwinds that have been baked into it but.
That additional sort of $125 million to $175 million of run rate, that's going to be coming in over the over the next months.
Can you give any clarity as to what factors are out of your control with respect to potentially reaching that is a regulatory delays if new jersey for whatever reason doesn't really open up or approve more retail stores to increased wholesale contribution just things that although you are set up well with respect to your own infrastructure things that are maybe out of your control that could pose a risk to hitting those numbers.
Yes.
Yeah, let.
Let me, let me give you so I'll start off and then I'll turn it over to David I would say that.
Certainly the expansion in New Jersey.
That would be a point of pressure point for us or inability to execute on the the rollout of violent too which is a significant increase in cultivation capacity I think that would be that would be a concern.
The any supply the supply chain disruptions if they if they become exacerbated in Virginia as we've as we build out the remaining dispensaries that could be problematic, but I think the supply chain there at least from the coal division manufacturing position seems to be in pretty good order.
First Virginia, it's really a question of patient registration and adoption.
So if the program expands quickly as we hope it will.
We expect that to be a real driver of value.
In Ohio.
Obviously with the new with the new dispensaries coming online that will be a meaningful a meaningful sort of source of demand for hours to increase supply in that facility.
And then I would just say the.
You know that.
The single greatest thing that's out of our control.
We're seeing unprecedented inflation across the board right, it's not just labor shortages.
Pricing of labor. It's every single element of of expenditure that where you see prices going up and I think we've done a fairly good job of managing the business to control our costs in light of those accelerating sort of headwinds.
But it is it is real and that's one of the reasons why we have continued to sort of redirect our efforts towards profitability, because we have plenty of growth embedded in the portfolio, but we really need to do is drive cash flow.
We're going to see volatility in the market and we want to be able to deploy that capital.
In a number of very productive ways as we as we look forward over the next 12 months, but David maybe you want to weigh in here too.
Yes, I think the other thing I would add is in addition to the inflation. It's just the pricing dynamics in the marketplace, both at the wholesale and the retail level.
There are a number of markets that Nick mentioned, where we anticipate.
New operators opening doors, which will drive opportunity for our wholesale business.
Which is meaningful and part of our budget for the second half of 2022.
And then in Colorado, I think youre going to see some things from us that will drive that business again, using our using our doors and the biomass that we have to make an impact in that market that people will notice so to me.
Yes, there are some regulatory issues that we need to get through.
From a timeline perspective, I think Nick highlighted those but I do think there is a significant contribution coming from our wholesale business in the second half of the year.
The biomass the brand development yields and the potency that that's up to us, but the pricing discipline across each of these states with our competitors.
Something that we have to try to manage through it.
Yeah.
Think we understand what the outlook looks like but you've been getting.
Never know in any individual market health, how pricing is going to move up or down depending on what people are bringing to market.
Got it I appreciate all that and then just one other follow up for me just on.
The M&A side, so not really discussing anything specific to the deal with <unk> I know you guys can't but maybe just at a higher level than that what youre seeing in terms of the trends in the market or potential buyers really pegging everything to what's happening in the equity market, which I think many believe obviously isn't really fundamentally driven for the most part in terms of what we've seen in valuation declines.
Any sort of anecdotes to what's going on particularly on the private side with anticipated or expected M&A.
So I would like I think that the.
Obviously I'm limited in what I can say, but.
One of the things I have observed is the.
The breadth of interest, meaning it's a lot more than the usual suspects than that we see coming into this market and the sources of capital are much broader than anything I've seen historically.
And I, what I find to be incredibly interesting is the way that this let's call. It the the capital market's been particularly the private capital markets.
Think about creating long term value versus the way the public markets have really sort of applied valuations to the publicly traded companies. There is a there seems to be an appropriate disconnect meaning if you have the luxury of time, rather than marking your book day to day, you have the ability to look for incredibly valuable assets at Ferro.
The attractive prices and I, just don't see another opportunity where anybody can go in and actually capture functioning high quality turnkey assets and some of the most attractive markets and thankfully I'm not the only person who sees that sees the world through that lens. I mean this is this is a huge huge huge market.
The question is is it huge in 24 months or 36 months.
That's really a sort of an arbitrary assignment of timing and policy change that I don't know if anyone really has the answer too but one thing you can be sure of is that if you could build your footprint in advance of that you can really create enormous amount of shareholder value and earn outs.
Outside of the rates of return, especially in this environment and that's the philosophy and that's the sort of the approach that we're seeing a lot of people taking.
To build that critical mass. So you know I from what from an M&A perspective, I've I've been I've been surprised to the upside and you know obviously, we have miles to go before we sleep, but it's it's a.
It's a combination of things, but the you know the volatility is what it is the headwinds are what they are people have capital they want to deploy and they're interested in the sector and I think that you know this because you finally have a portfolio of assets that are not only very high quality book.
Positioned in the best markets Youre seeing people begin to transition away from that historical.
Sort of concern over you know they've historically, they've prioritized compliant regulatory concerns over financial financial outcomes and I think that that change is now really shifted towards our financial outcomes, rather than just focusing on the obvious.
I would argue outdated concerns over regulatory.
Great. Thanks for all that.
Our next question comes from Scott Fortune with Roth Capital Partners. Your line is open.
Good morning, and thanks for the questions real quick.
You mentioned, California.
On the California market footprint, there you'd called out obviously, Colorado seasonality, but how's, California in that regard and can you provide a little more color on your potential to increase efficiencies and margins. There is still a top revenue driver for you but.
The margin potential there and the challenging California market that represents right now.
So I'll start off with something very high level and turn it over to David.
California, I think our team executed quite well relative to the market conditions, you're seeing your you know it is a it continues to be very challenging market environment and then candidly. If you. If you think about you know one of the benefits of the combination with <unk>.
Refining and expanding our supply chain I think arguably one of the biggest benefits of being able to combine our portfolios out there, but it's a it's a tough market and it continues to be tough market for for different reasons. All the time right I mean, California, if you had to pick one or two states, where you know the political class loves to loves to get in the way of <unk>.
<unk> performing well I'd say, California with the Nobel Prize you know five times in a row, they've mastered that art and so we're in a we're in an environment, where we can really I think that if the team continues to execute and we continue to see those comps evolved hope.
Hopefully the.
The voters in California will catch up and as you know begin to elect officials that really pushed the market in a more constructive way or at least the existing elected officials begin to recognize the value that could be created by really supporting the industry rather than trying to undermine the industry.
And that to me is sort of a.
A lightning strike in a very positive direction of any of that happens, but in the meantime, we continue to show improvements and the team continues to adjust and frankly.
We continue to sort of evolve our tactics are to really.
Position ourselves in component in areas of the marketplace, where no one else seems to be playing as effectively as we are but David maybe you have some additional thoughts yeah I would just highlight that we've seen.
An improvement.
Our retail profile financially year over year, a large part too.
Some restructuring in terms of S&P and talent in the stores.
The repositioning of our internal products a change to our branding strategies at the retail level. Those have all been successful I think the wholesale market continues to be soft as are well publicized numbers year over year, the pricing environment for Colorado, there are a number of.
Look like to be pretty distressed cultivation operators, both indoor greenhouse and outdoor that I think will continue to struggle for the foreseeable future to the balance of this this season at least and so we're trying to remain disciplined manage costs and again trying to leverage the vertical.
Critical assets, we have to try to try to drive any incremental margin where margin neutrality that we can in 2022.
I appreciate the color.
And then one quick follow up for me provide a little more color on the Capex outlook.
Through 2022 different states.
<unk> going deeper and build scale in those key states I know you called out, Virginia, West, Virginia, and New Jersey.
As a color for projected capex for the rest of the year alright. Thank you calling for eight new stores in development to be added in 2020 to just prepare.
Sure.
I turn that over to Derek.
Yes, so we do not provide capex guidance for the year, but I will say consistent with the comments we've made already our investments have been frontloaded in anticipation of growth and then the additional growth we have coming for the balance of the year.
There is more limited capex needed because we made those investments.
Deeply in Italy.
Any color on new stores.
<unk>.
Development on <unk>.
Sure David why don't you want me to take that one yeah go ahead.
Yeah sure. So so on the on the retail front.
It's really around between now and the balance of the year, It's Virginia.
And one store in West, Virginia, we continue to diligence on the New York side.
As we think about adult use the opportunities there are still some regulatory clarity that needs to come to where we can put those locations, but on the retail front, what's pressing and what it's top of mind is the stores in Virginia, one remaining in West Virginia in the third location in New Jersey. Those are those are the retail cap.
Capex projects right in front of us.
Thanks, I appreciate the color I'll jump back in the queue.
Our next question comes from Matt Mcginley with Needham Your line is open.
Thank you you noted the improving trends in the second quarter relative to the first but can you get back to a fourth quarter level of revenue in the second quarter, given new Jersey's opened or is that just hard to predict at this point given the wholesale revenue as you noted it doesn't really materialize until late in the quarter.
I'm sure that New Jersey, as a positive catalyst.
Consumer and macro issues that Nick discussed in it.
It didn't just evaporate into the current quarter and I'm not I'm not sure what the messages on the second quarter relative to what happened in the first or or your ability to hit that full year guide.
So looking at Matt.
We don't give quarterly guidance because there is cyclicality in some of our markets and we've always.
We've always shied away from from sort of trying to predict when regulatory change happens.
But what I can say is if we felt that based on everything we're seeing in the second quarter that would that we wouldn't be able to hit our guidance and that the catalysts that we're expecting to materialize had had some some degree of.
Of a failure rate that.
That we haven't built into our model already.
You would have heard us come out and sort of suggests that we're going to we would reset expectations, but opening.
Opening up eight more dispensaries in Virginia is something that's in our control. We think we can do that quite well you know New Jersey has already turned adult use now. It's just a question of getting that final approval and our second vineland cultivation facility and really optimizing that and well that's something we know how to do pretty well.
West Virginia, the patient registration process continues to move ahead.
And the state of West Virginia continues just want to see that program expand.
That's very good you know, Virginia, the governor signed that piece of it.
Of legislation into law to make it easier for people to register and so those things that aren't going to be driving our our business, let's call. It from this point on are happening right now and I think that we've made the capital investment to prepare for those for those moments in time and thankfully.
Many of the things that have to happen from a regulatory perspective are basically already happened or are actually happening faster than we'd expected.
We reserve the right to sort of update people, if we see something happening.
That's you know that's that's that contradicts our current view or that causes us to rethink our existing view.
But the cyclicality in <unk> 22 in Colorado was pretty much the same type of phenomena that we saw in <unk> 'twenty one.
And I think that the b.
The improvements were seeing out of out of steel the improvements we're seeing out of different markets all of those things in aggregate.
Are actually quite consistent and so I think if there's one thing I wish we had the ability to do more proactively it's actually provide quarterly guidance you know that the markets are just not stable enough for us to do that right now which is why we feel very comfortable with the annual guidance, but you know where.
Sure.
So what youre, what we're effectively saying is that youre going to see a ramp in growth as the year goes on.
And that's you know that is not atypical from what we've seen in the past and I think it's pretty consistent with all the catalysts, we see coming but we're just not in a position to I think Lee.
You know what all of us will try to do a better job of.
Providing.
More complete.
And they say more complete but a more detailed picture so that people can sort of refine their assumptions to understand what that what that annual quarter over quarter sort of ramp looks like but the number one thing that I would highlight is that we wanted to continue to push on gross margin and that's precisely what we did and so whether we made decisions to slow down wholesale in the first quarter or not.
Whether or not there were cyclicality that doesn't change the way, we see the year unfolding as time goes on.
And my second question is then we don't have the full cash flow reconciliation from you yet, but the cash burn rate increased in the quarter how much of the sequential change in that cash generation was driven by working capital investment or something that could reverse in the second quarter or we need to continue to invest to grow that top line through 'twenty, two and the <unk> and the cash.
Situation may not look as good as the year progresses.
So what I'm Gonna do is turn it over to Derrick and let Derrick respond what I would say is we did build inventory in a number of markets. So that's obviously going to impact our working capital.
And I think what Youre seeing is that.
What youre hearing from US is that we anticipate cap of Capex actually moderating as the year goes on but let me turn it over to Derek.
Yep, Thank you, Nick and Echo those thoughts.
Cash balance at the end of Q1 again $168 million at very healthy cash balance we have that.
That does include some investments in working capital so with wholesale transactions.
At the ended the quarter not being as strong as we thought we do have investment in inventory as a result of that.
So we've got some some healthy inventory that we can work through now going through the balance of the year and into the into the second quarter.
That would also just note that Capex number again, we had a $29 5 million investment in Capex.
Not as a working capital impact, but obviously a cash impact.
Made early early and big investments in what we need to invest for the balance of the year as well.
Great. Thank you. Thank you.
Yes.
There are no further questions I'd like to turn the call back over to Nick <unk> for any closing remarks.
Great well. Thank you everybody, we really appreciate your consideration and support and if you have any follow up questions don't hesitate to reach out to US we look forward to catching up with everybody soon thank you.
Yes.
This concludes the program you may now disconnect everyone have a great day.
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