Columbia Care Inc. (NEO: CCHW) (CSE: CCHW) (OTCQX: CCHWF) (FSE: 3LP) is on a tear as it continues to launch brands, announce partnerships, and close deals that further expand its footprint in cannabis-legal states and reinforce its position as one of the nation’s top MSOs. In fact, as co-founder and CEO Nicholas Vita noted during…
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Columbia Care Inc. (NEO: CCHW) (CSE: CCHW) (OTCQX: CCHWF) (FSE: 3LP) is on a tear as it continues to launch brands, announce partnerships, and close deals that further expand its footprint in cannabis-legal states and reinforce its position as one of the nation’s top MSOs. In fact, as co-founder and CEO Nicholas Vita noted during a recent interview with CBE, if measured by the number of markets it is currently in, only one other MSO ranks higher than Columbia Care, which currently has retail operations in 15 states and one federal district: Arizona, California, Colorado, Delaware, Florida, Illinois, Maryland, Massachusetts, Missouri, New Jersey, New York, Ohio, Pennsylvania, Virginia, Utah, and Washington, D.C.
Founded in 2012, and headquartered in New York, Columbia Care is as deep a company as it is broad, holding licenses in 18 U.S. jurisdictions and the European Union. The company operates 130 facilities – 99 dispensaries and 31 cultivation and manufacturing facilities – including those under development. With two shops in a few states, and three or four in half a dozen others, the company’s relatively small retail footprint in some states is belied by the its extensive influence in other areas of the business, explained Vita.
“Let’s look at the industry on a state-by-state basis,” he said. “Pennsylvania is a perfect example. We have three dispensaries in northeastern Pennsylvania that are the leading dispensaries in that part of the state, but we also have the single largest cultivation/manufacturing infrastructure in the state, and we supply over 90 percent of its dispensaries, so we made a strategic and tactical decision to lead in the supply chain and lead in the efficiency of manufacturing to produce the best product, the most efficient product at the most effective price, so that we could tap into the wholesale market more aggressively than building out dispensaries. We made that call based on our view of the direction the state of Pennsylvania was moving in – they will be issuing more dispensary licenses – so the key was to make sure that not just our own supply chain but the supply chain of the entire network of state-level dispensaries was satisfied with our products.”
That would mean his brand penetration in the state is much greater than the retail footprint would imply. “That’s exactly right,” agreed Vita. “For example, in Colorado, we have 25 dispensaries, but we’re also the largest wholesaler in the state. We use that as an important part of the strategy to be linked at the hip on both sides in equal scale because it was such a highly fragmented market, and we felt we could derive more shareholder value and more organizational development by taking that approach.
“In Virginia, we have two out of the five licenses,” he added. “We have two dispensaries open, and we have the ability to open up 12. We plan on opening up all 12, but that permission only came fairly recently, and we still will have the single largest component of the of the wholesale market as well, because we’ve also just invested more in our brick-and-mortar on the cultivation and manufacturing side. New York is another example where we have the single largest cannabis cultivation facility on the East Coast, our facility in Long Island, and we are well prepared for the rollout of flower in New York State, which has mandated that no operator can have more than a certain number of dispensaries. So, we are certainly not disadvantaged there, but by the same token because we have so much more scale on the manufacturing side, we are a natural market leader.
“You can go market by market and see how we’ve decided to position ourselves,” he continued. “Some markets, it’s making sure we have our own fully integrated channel, but remember, we’ve also been expanding dramatically into the wholesale markets, so participating on both sides and making sure we optimize our margins is something that I suspect is a little bit unique, but there’s a reason why we look at each market like that. We’re maxed out. We will be maxed out Virginia, we’re maxed out in New York, we’re maxed out in New Jersey, we’re maxed out in Ohio, and in Massachusetts. We actually cannot have more facilities in many of our markets.”
This combination of regulatory restrictions and expansion strategy would seem to put the current onus on brand development. What is Columbia Care’s brand strategy now and going forward? “Yeah, I think that it’s a very important question,” replied Vita. “I think it is also probably the single most critical transition point for the Columbia Care organization. If I take a step back and use a linear sort of representation of time, we have always believed that in order to build brands, you had to have scale, and in order to have scale, you had to have a footprint, and in order to have a footprint, you had to have licenses. So, if you look back historically at how we approach the world and how we approach the market, we have built candidly one of the most attractive portfolios of states that any operator has in the United States. Then we decided to build out our purpose-built infrastructure to create brands and full integration so that we can take advantage of each market individually. Then we began to scale in through capital expenditure and M&A, take leading positions in each of those markets, and now what you’ve seen is that we have begun that conversion and the consolidation of not only our storefronts, but also rolling out brands.”
The rollout has been a long time in the making, he added. “Because we’ve been collecting data since 2012, we’ve been studying our consumers since 2012, and I think that’s an enormous point of distinction for us relative to our competitors, because we’ve actually been seeing how the market evolved, and we know what the market is looking for, what consumers are looking for, in a way I don’t think other people necessarily have the appreciation for,” said Vita. “What is more important is knowing what the consumer wants and then being able to deliver that in a consistent fashion across the country, which is actually quite a unique capability.”
The company currently employs several retail brands across the nation, including Patriot Care, Columbia Care, Capital City Care, gLeaf, The Green Solution. The Healing Center, Project Cannabis, and Cannabist, which will be the leading retail brand going forward.
“If you look at Patriot Care in Massachusetts versus Columbia Care in New York, versus TGS (The Green Solution) in Colorado, or even Project Cannabis in California, before we could create a consolidated network of dispensaries, we wanted to make sure we have a national network of dispensaries that actually have real scale in each market, and we now have that,” said Vita of the company’s retail strategy. “We have scale in Southern California; we scale in New York; scaled from coast to coast in each one of our markets. Now what you’ve seen is that we are introducing and rebranding Columbia Care and other facilities to Cannabist. Why? Well, it’s very simple. When we first started the company most of our markets were medical, and Columbia Care was very relevant for the medical population, but now that you have adult use, we’ve been evolving along with the regulation and along with the market, and Cannabist opens the door for us to create this very unique journey where you have targeted products that cross over from medical to adult use and everything in between. So, there has a very deliberate process that’s been under development for the past several years that you’re now seeing materialize. In the past week, we have made some big announcements with influencers and new brands that are being developed and rolled out on a parallel process with our own brands, and all of that is an effort to create and leverage the customer affinity both from a storefront perspective and for an individual product and a brand perspective. We never wanted to go out any other way other than taking one step and then taking the next step, and that’s how we climbed the mountain.”
In its most recent accent up the mountain, Columbia Care announced (following our interview) the closing of its acquisition of Colorado-based Medicine Man, which, according to a press release, will add “one cultivation facility and four dispensaries to Columbia Care’s Colorado operations, including the Medicine Man Longmont location, which is anticipated to close in Q1 2022. Columbia Care’s footprint in Colorado will now total 26 dispensaries and six cultivation and manufacturing facilities, including those under The Green Solution brand.”
Pitbull and Tyson
Other recent announcements by Columbia Care include two big product-based partnerships, one with rapper Pitbull and the other with prize fighter Mike Tyson, making this the champ’s second bid at a cannabis title. These celebrity deals seem different from the norm, however, in that neither is concentrated on the promotion of a single strain, but instead involve the creation of a portfolio of products for each celebrity, each to be rolled out nationally. It is a plan that seems to carry both more risk and a higher potential upside.
“I think that’s one of the things that we have that is unique; we can do this nationally because we have the manufacturing division,” said Vita. “And that’s the whole point, that before we could get to this point where we actually announced a partnership like this, we needed to make sure we could deliver on it. Going back to my point earlier about looking at time as a linear function, we had to have those other pieces in place in order to do as well, and we finally have those pieces in place, so we can do this better than anyone else.”
The individual partnerships were closely considered as well. “What is interesting is that the Pitbull partnership is with CBD,” said Vita. “Pitbull has been an icon in the Latino community as a musician and an artist for quite some time. His reach, 25 to 45 [years old], is precisely the category of consumers that are looking for ways to find healthier alternatives to Aleve, to Advil, to Tylenol, and that’s what CBD is. It’s an anti-inflammatory, a way to improve your health, and so not only does his reach factor in perfectly with our targeted market, but his reach as a Latin artist is ironically to one of the least targeted markets in the world. If you ask me what population is going to drive the United States for the next 50 years, it’s going to be the Hispanic population, and no one’s paying attention. So, we are happy to be the ones to sort of extend that olive branch, and to say we have somebody who has built a reputation as being true to his word, and who really stands for something. He does take positions that are sometimes controversial, but this is a guy who is self-made, and I think that really resonates. He’s not going to take his reputation lightly, and we’re not going to either, but this is a guy who has videos on YouTube that have over a billion views. Think about that, the reach, the power that someone like that can bring, and so we’re happy to partner with someone like that, because he embodies a lot of the values that we think are important.
“By the same token, when Mike Tyson walks into the ring, he walks out with $100 million personally, because he has such cachet and appeal,” added Vita. “He speaks to a part of the market that we didn’t [speak to], candidly, and so having the partnerships structured the way they are allows each of us to really focus on our strengths. But we needed someone with national scale because we’re a national, global organization. So, it’s just one of those things where the reason why we lead with these two wasn’t by accident, but because we think they speak to a part of the market that most people are ignoring. We’ve always been a little bit contrarian to a certain extent, and as we roll out the new brands for storefronts, as we roll out the new manufacturing capacity nationally, as we roll out our own new brands, these fit in very nicely, they don’t pull away from other products and other brands we’ve developed but actually bring a new cast of potential consumers into our midst.”
Columbia Care is in fact rolling out or expanding the reach of its own brands in a concerted effort that has been in play from the very beginning, according to Vita. “The way we approach it is, we first try to understand how the market breaks down,” he said. “I think the idea that you have a medical market and adult use market is ludicrous. You have hundreds of subcategories of consumers and patients, or however they want to self-identify, and they’re all looking for something that is relevant to their own set of needs. So, the first thing we want to do before we even begin to roll out our products and brands is to understand what areas of the market remain unaddressed, and what areas of the market are we uniquely well-suited to address. For example, Triple Seven, which is our very high-end flower brand that is known throughout California as being one of the best flower brands anywhere because of the esoteric genetics that they have – we can take that and export it throughout the United States with real authenticity, and at the same time, we know that in New York, in Massachusetts, in Florida, there really isn’t a product category that enables the consumer to find that super high-end flower alternative. So, we are filling a gap that we recognize is there in what is called the local product portfolio, but we’re doing it by first focusing on what the consumers want and are there opportunities to establish leadership in those categories.”
The company has been honing this branding strategy for years. “We opened up in New York in January 2016,” said Vita. “We were the first group to open there, and we were the first group to open in Massachusetts, where we have a lot of history and a lot of familiarity with the consumers we serve. That is why we’ve been so deliberate about making these changes. We didn’t want to change Colombia Care to just something. We wanted to make sure that it meant something, and that it was relevant to our consumers, and that it was something our team would be proud of, that really built culture and organizational cohesiveness. And that’s why Cannabist is such a no-brainer, because you go to a Cannabist for expertise. Whether you’re an adult use or medical consumer, you go there because they are the ones who know what it is they are selling and they have the best access to the best information to help you through your journey most effectively. There’s a reason why we’ve launched
Columbia Care of course exists in this strange new world of competing multistate operators of various sizes and capabilities. I asked Vita what he thinks of the current MSO environment and where it is headed. “I think you’re going to see more consolidation,” he replied. “I mean, there’s only one organization that has more markets than us and that’s Curaleaf. I also think that you’re going to see some musical chairs in terms of who the top five are based on growth rates. Because we’re in New York, New Jersey, and Virginia, we have more of those hyperbolic markets than anyone else. I think you’re going to see that impact our financial profile [similar to] other people who have had great success in marketplaces like Illinois and Arizona. I think those markets are closer to being mature than a lot of our markets, and so I think that you’re going to see a lot of movement. But anytime there is success among our competitors, it’s good for us; meaning that I want us to have well-capitalized, sophisticated operators. I want the market to develop and serve the communities properly, and I think it’s great. Because we have the largest footprint in Colorado, we’ve seen the patterns that evolve as markets mature, and that’s what you’re seeing in places like Florida, and in places like Pennsylvania. It’s not unexpected, but I think it’s just the first time a lot of people have ever seen that type of competition, whereas we recognize that it’s just part of the pattern, and that’s what we’re preparing for in all of our markets, which is why we’re pushing the brand conversion so quickly, so that we can avoid some of the pitfalls of that type of price-based, market-share movement.”
As to how the capital markets work into all of this, Vita is of two minds. “I look at the capital markets in sort of silos,” he said. “We have the debt capital markets, which have been very supportive of the industry, and you’ve seen that our cost of debt has gone down from plus 13 percent to about 6 percent over the past 12 months, and that’s a reflection of the underlying credit quality, which is fundamentally driven. Then we have the equity market, which has penalized us, but it’s not a mystery. What we have to do is continue to execute, to perform, and to improve our margins, and the technicals will follow. It’s hard to have a bona fide equity strategy when you don’t have the same sort of privileges and access that a normal company does, but that’s not unique to us. It’s something that everyone in the cannabis industry deals with. What I look forward to is the opportunity to literally stick it to everybody who’s been a naysayer. The company has been doing well. I’m very proud of the organization, I’m very proud of my team, and we have a lot of wind behind our backs that really is sort of unique. I love our next 24 to 36 months more than anyone else’s for all the right reasons. Sometimes it’s better to be lucky than smart, I guess, but what that mean ultimately is that I do expect our stock to begin to trade normally. I mean, think about it; if we just traded in line with our comps, my stock would be three times what it is today. That doesn’t make any sense when you think about our growth rates year over year, or sequentially, when you think about where our margins are headed, what are our scale is in each of the markets, and when you think about our national platform. It’s a little bit shocking, but my job is to make sure that we continue to prove to everybody that this is the place to look, and so that’s what we’re going to do.”
Vita has to believe his day is coming, and that when it does it will pay off handsomely. “I hope so as a shareholder and as a member of the team, and as a founder I look forward to that day, but the things that are in our control are fundamentally based, and I have so much gratitude for all of the investors that have supported us that I just can’t think of any other better way to do it other than to continue to deliver strong financial results, and then to fulfill the commitments that we’re making to the people that have given us so much trust and support.”
I noted his specific optimism about the upcoming two years. “Well, I think certainly there is always an element of luck, an element of decision-making, and an element of hard work, and I think hard work kind of gives you the view of the first two. But the fact of the matter is that when I look at our financial performance in 2020, we did about $198 million top line, and we’re telling the Street that we’re going to do around $500 million top line this year, so that’s pretty significant growth year over year. The beginning of this year, we have a zero percent EBITDA margin, and we’re telling the world that we’re going to have a 20 percent EBITDA margin by the end of this year, and we’re not backing off the margin on the adjusted EBITDA, because we think that the business ought to be able to do that. Now, if I use that as a historical proxy, that looks like the trend-line moved from the lower left to the upper right, but then when I look at the future – let’s just take our position in New York, where we are one of, if not the largest operator; we have the most scale, and we have our first harvest coming off the single largest facility on the East Coast supplying the medical market in New York, and we have the best locations – we’re in Brooklyn, Manhattan, Long Island, and up in Rochester from the dispensary perspective. So, this is a market that’s going to grow from roughly $100 million to $7 billion over the next five years as it converts to adult use, so it’s not unthinkable that New York could be bigger as a single market over the next couple of years than my entire revenue base was last year. In Virginia, where we have five licenses, we have the largest supply chain manufacturing investment in the state, and we will have a large number of dispensaries open. That is a wonderful place for us to be, but we don’t take that for granted. We plan on giving the state of Virginia access to the most reliable and highest quality products we possibly can and being a good a good corporate citizen for the retail and wholesale marketplace.”
What will differentiate a Columbia Care retail experience from that found at a competitor’s shop selling many of the same products? “I think aside from the quality and training of the personnel, the familiarity of the products, and the way we actually curate the types and varieties of brands and products we make available, the fact is we will have a technology side to our customer journey that no one else will have,” said Vita. “It’s not just about having a credit card to transact, which makes your life a little bit easier because you don’t have to use an ATM card or cash; it’s not just about having the right selection of products and the right people behind the counter – it’s about personalizing the experience and then extending that experience beyond the four walls of our dispensary. We obviously have a significant home delivery capability, but it comes back to the introduction of Forage as one other example. Forage is an AI-based tool that helps you find the products that are most suited for what you’re interested in, and helps you build preferences, and what that helps us do is manage our business more effectively from an inventory and sales perspective.
“So, by using technology as a blueprint, we learn more about you, we find out what you want, and then we basically try to cater towards your interests,” he added. “And that then becomes a very different experience than if you just walk into a Costco where they have a bunch of stuff on the wall. It’s much more like your traditional Apple experience, where you go to the Genius Bar and they have everything, all the information they need to know about how to help you, at their fingertips. And that’s really important, because then it gives us the ability to save you time as a consumer and a customer, it gives us the ability to find out the things that you want most without having to necessarily learn on the fly, we’re actually learning as you learn, and then it helps you think through the things that are most meaningful to you. And so, it’s a portfolio, a mosaic, if you will, of touch points that go beyond just the four walls and the product. It kind of reaches out into each area that you could think of for the consumer experience, and no one else is really spending time on that. And when you go through these things you start to realize that this is an incredibly unique combination of things, and we found it to be very effective, and we’re now starting to lean in, because we also get to use the technology to not only help us build better products, but also to take advantage of market opportunities, so it’s well-timed for whatever the individual is looking for.”
Does that mean consumers will have access to products they could not find elsewhere? “We do exactly that in all of our markets,” said Vita. “We have strains that are local, we have products and form factors that are unique, we have IP that we’ve pulled from the medical markets and converted into the adult use markets. And so, there are definitely products that serve as a catalyst for people to come to us rather than to go somewhere else. Those are constantly changing because it’s an ever-evolving landscape, and it’s not just the products we manufacture and innovate with, it’s also finding innovative smaller manufacturers on the wholesale side and making sure that they have their products represented on our shelves, too. So, for us, it’s a 360-degree view that has exactly that type of focus on the curation element of the products that we offer in cannabis. We that do for unique products, unique form factors, special brands, special pricing, all of those things that are part of the experience, but certainly not all of the experience.”
Men in Black
With over 3000 employees, Columbia Care is far from done adding stores, brands, and employees. Growth is so fluid that even Vita can get confused by the escalating numbers. “We expect to have over 100 dispensaries open by the end of the year,” he said. “I mean, we’re going to open five this quarter… five or six. No, seven. We’re constantly opening new facilities.”
There is so much dynamic activity taking place that the company also issues press releases at a seemingly furious clip. “The reason why we have a lot of press releases is because, think about it, we’re going from less than $200 million top line to… growing a business like that, there’s a lot that has to happen, so making sure that people are aware of what’s going on is very important to us, because people should understand and investors should understand that we have every intention of being the best in each of our markets,” said Vita. “That’s just something that is not going to happen overnight, and it definitely requires a lot of time and a lot of effort, but we feel good about the news flow because it’s a reflection of the activity.”
Vita, of course, has overseen Columbia Care’s activity from before the beginning. “I was the first employee, so I guess you go all the way back to the beginning of Columbia Care, and it was just kind of me sitting there, just sort of looking around the room saying, ‘Okay, so we’re going to have to build it,’” he said. “And so, [Michael Abbott] and I were the founders, I was the first employee, and I guess for better for worse I have the same seat that I’ve had since the company was founded. At some point, I’m hoping that the board finds someone better than me to run the business. And certainly, as the business grows it’s been an incredible experience taking something from concept and pre-revenue up to profitability, and now becoming a public company, and a multi-billion-dollar public company. That is really an amazing gift I’ve been given, and I don’t take it lightly.
“You know, the thing that I like to think I’ve never forgotten is that not everybody gets a chance to build a company, to realize the dream, and not everybody gets a chance to do something that is fundamentally good for the communities we serve,” he continued. “And not everybody gets a chance to experience the highs and the lows of being part of such a dynamic industry, no pun intended there. It’s just a real privilege. I mean, I hate to sound hokey about it, but I would have never been tapped to become the CEO of Ford, right? This industry doesn’t attract that kind of person. This industry attracts somebody who’s willing to get into the ring, roll their sleeves up, and really fight for their place at the table. And that’s what we’ve always done; we’ve always been very proud of the way we conducted our affairs, but I could not have done this alone. My inspiration comes from the people we serve, and from the people who I work with. I see how hard everyone is working, and I see how grateful the patients are in seeing the results of what we’ve been able to accomplish. And it makes me want to work harder. I know the business will continue to evolve, but it’s a little bit like that scene in Men in Black, where there’s always something going wrong, there’s always something around the corner that’s going to be a tough road to follow, or a tough obstacle to overcome, but you just deal with it. You learn that this is just part of the opportunity, and it’s part of the way we grow and learn as an organization.”
I asked if he feels more in control of his company’s destiny now than when he founded it nearly a decade ago. “I feel that it’s the same,” he said. “I think that the bigger we get, the more lives we effect, the more we have to lose, and that adds an element of pressure and expectation. It’s not that there are fewer exogenous things that can push us in one direction or the other. They’re just different, and some that may have been potentially catastrophic five years ago are really just afterthoughts today, but it doesn’t mean they’re not there. It just seems that we’ve continued to adapt to the environment, and as we grow, we see a new set of problems, a new set of obstacles, a new set of opportunities. But I’ve never felt that anything was out of our control. I felt it was our opportunity to lose. I guess that may be a naive thing to say, but I’m a little bit of a softy when it comes to the American Dream. And for me, this was an opportunity for someone to come out of left field with a group of people they really trust and build something. And I don’t know if we could have done it anywhere else in the world, but it continues to be ours to lose and it continues to be ours to capitalize on and do correctly so that we can create a sustainable and enduring industry.”
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