Release Date: November 07, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Cannabist Company Holdings Inc (CBSTF, Financial) successfully completed the sale of assets in Arizona and Eastern Virginia, generating $105 million in proceeds.
- The company is making significant progress in transforming its business model, with over half of the transformation completed.
- Wholesale revenue increased by 2% sequentially to $19.5 million, despite divestitures in Virginia and Arizona.
- The Ohio market transition to adult use has been successful, with volumes nearly doubling and a significant influx of new customers.
- The company is targeting a 20% adjusted EBITDA margin in 2025, indicating a focus on improving profitability.
Negative Points
- Revenue for the third quarter was down 8% from the second quarter, primarily due to the sale of businesses in Virginia and Arizona.
- The company experienced a slight decline in gross margin, down 35 basis points to 38.2%.
- Cash from operations was negative $18 million, a significant decline from previous quarters.
- The Florida operations have been loss-making and continue to be a drag on adjusted EBITDA.
- The company faces challenges from the 280E taxation model and limited access to investment capital.
Q & A Highlights
Q: Can you provide insights on the company's performance on a pro forma basis, considering the divestitures?
A: Derek Watson, CFO: Without the impact of divestitures, our revenue would have been flat quarter over quarter. For Q4, we will see the full impact of these divestitures, including Florida. We are not ready to provide guidance yet, but once the Florida divestitures are complete, we will be in a better position to provide pro forma guidance.
Q: Did you offer any details on the EBITDA impact from the divestitures?
A: Derek Watson, CFO: We did not provide specific details, but the quarter had a lot of noise due to the divestitures of high-margin businesses in Eastern Virginia and Arizona. We are still working through the loss-making Florida operations, and additional cost-cutting measures are being implemented in Q4.
Q: What are your expectations for the Ohio market, especially with adult-use regulations and pricing dynamics?
A: Jesse Channon, President: We expected a twofold increase in Ohio, which aligns with our current performance. Our stores are less impacted by Michigan's pricing due to their location. We anticipate growth as adult-use regulations are fully implemented, allowing better consumer engagement and increased daily purchase limits.
Q: Can you elaborate on the negative cash flow from operations this quarter?
A: Derek Watson, CFO: The negative cash flow of $18 million was due to divestitures, restructuring payments, and deferred payment catch-ups. Growth in our wholesale business also contributed, as increased revenue led to higher receivables. We expect this to improve in Q4.
Q: How will you allocate capital after receiving proceeds from the Florida divestitures?
A: David Hart, CEO: Our focus is on strengthening the balance sheet and deleveraging in 2024 and 2025. Capex will remain light, around $2 to $3 million per quarter, primarily for growth opportunities. Derek Watson, CFO: Delivering is the primary objective, but we will also invest in new stores and manufacturing capabilities as needed.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
