CCHWF - Columbia Care Inc. (CCHWF) Q1 2023 Earnings Call Transcript

2023-05-15 10:04:05 ET

Columbia Care Inc. (CCHWF)

Q1 2023 Earnings Conference Call

May 15, 2023 8:00 AM ET

Company Participants

Lee Ann Evans - Senior Vice President of Capital Markets

Nicholas Vita - Chief Executive Officer

Derek Watson - Chief Financial Officer

David Hart - Chief Operating Officer

Conference Call Participants

Aaron Grey - Alliance Global Partners

Scott Fortune - ROTH MKM

Glenn Mattson - Ladenburg Thalmann

Andrew Semple - Echelon Wealth Markets

Presentation

Operator

Good day and welcome to the First Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. After the speakers' presentation, there'll be a question-and-answer session instructions will be given at that time. As a reminder, this call may be recorded.

I would now like to turn the call over to Lee Ann Evans, Senior Vice President of Capital Markets. You may begin.

Lee Ann Evans

Thank you, operator. Good morning and thank you for joining Columbia Care's first quarter 20-23 earnings conference call. With me today are Nicholas Vita, our Chief Executive Officer; David Hart, our Chief Operating Officer; Derek Watson, our Chief Financial Officer; and Jesse Channon, our Chief Growth Officer.

Earlier this morning, we issued a press release reporting our first quarter 2023 results, which we will also file with applicable Canadian securities regulatory [Technical Difficulty]

Actual results may differ materially from those indicated by such forward-looking statements as a result of various important factors which we disclosed in more detail in the Risk Factors section of our annual Form 10-K for the year ended December 31, 2022 which has been filed with applicable regulatory authorities and also in 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 EBITDA and adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other companies. Columbia Care considers 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. A 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 Vita to get us started. Nick?

Nicholas Vita

Thank you, Lee. Good morning and thank you all for joining our call today. As we discussed on our fourth quarter 2022 earnings call just six weeks ago, as an organization, we remain intensely focused on optimizing our asset portfolio and operational structure. We are leaning into the areas of our business that are driving value and eliminating those that don't. We've prioritized rigorous cost management and we are moving towards positive cash flow generation, which we anticipate later this year.

In the first quarter, we achieved positive top line growth of 1% year-over-year, despite the closure of three dispensaries at the beginning of the quarter. Need to amortize a portion of our revenue attached to the rewards accrued by our Stash Cash loyalty program members and ongoing pressure is on consumers' wallets and pricing pressures in certain markets. These factors, along with the expected seasonality in 1Q we discussed during our last earnings call, impacted our top line on a sequential basis, and resulted in a revenue decrease of approximately 1%.

Our adjusted EBITDA margin in 1Q reflected the flow through from the absorption accounting reallocation in gross margin that occurred due to the rationalization of core cultivation assets at the beginning of the quarter at the end of 4Q. This anticipated decline in gross margin was partially offset by the cost reduction measures that we executed upon during the second-half of the first quarter.

As we mentioned in our last call, we expect the cost reduction measures announced in January to generate $35 million in net annual savings significantly contributing to improved cash flow this year. Due to the timing of implementation of these changes especially for cultivation rationalization, reductions in our operating and overhead costs aren't expected to show a full quarter's benefit until the end of the second quarter.

Our focus on cash flow from operations does come with some trade-offs to utilize our canopy square footage more efficiently, reduce headcount and rightsize operating costs we saw an over allocation of certain fixed costs such as -- sale leaseback payments to COGS. This was anticipated and discussed during our last call. However, we made the decision to focus first on our SG&A and back of house utilization rates. With that behind us, we expect to begin implementing our plan to improve absorption and costing strategies across the country to utilize cultivation square footage and manufacturing space as effectively as possible.

Concurrently -- concurrent with that initiative taking hold, we expect to continue to invest in areas and locations that are driving profitable growth and we continue to bring new form factors of fresh genetics and differentiated brands to our customers and patients. David will be sharing more color with you in a moment on our key markets that suffice it to say, we are very pleased with the progress we are making in our fastest growing markets and we are seeing meaningful improvements in markets like Ohio and Pennsylvania, as well as green shoots in the more mature markets where we have made the most significant operational adjustments such as California and Colorado.

Finally, we have very specific development programs to optimize our dispensary portfolio in Virginia, New Jersey and Maryland all of which have significant market growth potential in very attractive submarkets such as Prince George's County, Maryland. Lastly, we are very excited about the launch of adult use in Maryland in July, and Delaware in the second-half of 2023 and finally New York, one of the largest cannabis markets in the world where we are extremely well positioned with ample cultivation capacity and prime retail locations.

As Derek will discuss momentarily, we have improved the liquidity profile of the company through recent actions such as extending the maturity of more than $38 million of senior secured notes to May 2024, divesting non-core and unprofitable assets and continuously evaluating appropriate measures to further delever the business in the current environment. With a commitment to improving the fundamentals of our business, we continuing the momentum of our ongoing operational and financial reprioritization resources, which includes targeted cost reduction measures, non-core asset divestitures, improvements in cultivation and manufacturing and optimizing our liquidity position.

Stepping back and assessing where we stand today, I firmly believe two things. First, we are exceptionally well positioned with continued growth momentum in the best markets in the U.S., thanks to our strategic footprint and asset base. Second, we have strong and sustainable differentiated advantages with best-in-class potential, limited capital needs and the right positioning for current market conditions. We are poised for expanding margins to generate free cash flow as the year unfolds.

We are pleased with the progress that we have achieved in the first quarter. We look forward to additional meaningful progress over the coming quarters. We continue to see embedded potential in our organization in our markets with known catalysts on the horizon. Our retail and cultivation portfolios are well positioned ready to take advantage of the growth opportunities ahead, now with reduced burden from underperforming areas and operations, as well as an improved liquidity profile thanks to the measures taken during the first quarter to the extent near-term maturity maturities.

Turning to the Cresco Labs transaction, Columbia Care continues to collaborate with Cresco Labs on the divestiture transactions required to obtain the regulatory approvals that are conditions of closing of the agreement. Aside from our best efforts, we have limited updates to provide today on the timing for execution of the agreements relating to outstanding divestitures, transactions and look forward to answering your questions during Q&A.

With that, I will now turn the call over to Derek to review our financial results and outlook in more detail. Derek?

Derek Watson

Thank you, Nick, and good morning, everyone. I'll provide a summary of the key financial results for the first quarter, discuss the key trends we're seeing in our markets and comment on the pending Cresco transaction.

In the first quarter, we achieved $124.5 million in revenue, representing growth of 1% over Q1 of 2022 and a 1% decline sequentially as we'd anticipated primarily due to normal seasonality. In the first quarter, we opened three new retail locations, two in Virginia, one in West Virginia and as part of our previously announced restructuring efforts closed two further unprofitable dispensaries in Colorado. Together with the sale of our Missouri operations, which included one dispensary, we therefore ended Q1 with 84 active retail locations. We've since opened an additional cannabis store in Norfolk, Virginia, bringing the current store count to now 85.

In Q1, our wholesale revenue was flat, compared to Q4 of 2022 at $15.4 million and represented 12% of total revenue in the quarter. Average basket size, which is a combined measure of pricing, discounts and share of wallet from guests at our retail stores decreased quarter-over-quarter by less than 1%, which is a significant improvement from the larger declines experienced in prior quarters.

As Nick mentioned, in Q1 we saw continued growth in our emerging markets, particularly New Jersey, Virginia and West Virginia, and also saw approximately 7% growth in revenue in both Ohio and Pennsylvania quarter-over-quarter and 8% growth in Maryland as that market prepares for adult use on July 1. Revenue declined in Colorado and California, partly impact by the closure of retail locations in both markets.

Adjusted gross profit for the first quarter increased sequentially to $47.7 million, up from $47.2 million in Q4, resulting in an adjusted gross margin of 38.3%, up almost 1 percentage point from Q4 ’22. As we've highlighted previously due to rationalization of certain cultivation assets, our Q1 gross margin was impacted by unfavorable absorption at underutilized sites that require us to expense overhead costs rather than capitalizing them into inventory. Our reduced canopy in certain markets will continue to generate cash savings, but will also continue to create an unfavorable impact on gross margin until utilization rates improve.

Adjusted EBITDA for Q1 was $16.4 million, representing a 13% margin and was supported by cost savings initiatives completed during the first quarter. These initiatives announced in early January reduced or exited cultivation operations in six markets, closed four unprofitable retail stores in Colorado and California and eliminated approximately 25% of our corporate positions. These are on track to generate a net $35 million in annualized savings with incremental cost saving measures in the pipeline.

On to our liquidity, we ended the quarter with $40.2 million in cash, this represented an $8 million cash outflow in the quarter and included capital expenditures of $5.7 million, one-time severance payments of $1.2 million, $3 million initial net proceeds on our sale of the Missouri operations and over $13 million in a combination of income tax and interest payments. As you can see, without these items, our operations continue to create positive cash flow in the quarter.

As we announced in late March, we extended the maturity on our 13% senior secured notes, which are now due in May of 2024. This extension was done under the existing indenture and did not require consent nor fees. There are no additional maturities on the horizon until December 2023 and $5.6 million of convertible notes come due and we'd expect to settle these out of our operating cash flow. We've taken necessary steps to strengthen our balance sheet and we made operating adjustments to create a clear path to positive free cash flow later in 2023.

In mid-March, we signed a definitive agreement to divest our interest in the Missouri market that represents one dispensary and one processing center for a total consideration of $6.9 million with a net $3 million paid on signing in March. As 2023 progresses, we'll continue our focus on cost discipline, optimizing our asset base, preserving cash and deploying capital efficiently.

Now turning to the pending transaction with Cresco Labs. As we've mentioned, we continue to support Cresco in their efforts to bring the transaction to a close. Transaction aside, we continue to execute on initiatives to strengthen our own business, and look forward to the growth that the Columbia Care operations can bring in the future.

With that, let me turn the call over to David to cover operational highlights. David?

David Hart

Thank you, Derek. I will now highlight important operational developments during the first quarter, particularly in our top markets. On a revenue basis, our top five markets alphabetically were Colorado, New Jersey, Ohio, Pennsylvania and Virginia. Pennsylvania replaced California in Q1. On an adjusted EBITDA basis, our top five markets were Maryland, New Jersey, Ohio, Pennsylvania, Virginia. Maryland replaced Massachusetts in Q1. New Jersey and Virginia remained top markets in both revenue and adjusted EBITDA demonstrating continued strength. Maryland's inclusion in the top five is an encouraging sign of what's to come as that market prepares for adult use on July 1 of this year.

During the first quarter, the prevailing trends from an operational perspective were growth in emerging markets, price stability relative to the previous 18 months and realized cost saving measures taken last year. I will now go into more detail on our top markets.

In Colorado, we remain focused on our restructuring efforts. We closed two additional underperforming retail locations during the quarter, bringing us to a total of 23 active dispensaries in the state. These store closures along with other initiatives we've implemented resulted in slightly improved gross margin quarter-over-quarter in Colorado. We continue to see improvements in flower quality and potency as a result of the long-term efforts to enhance productivity and SOP adherence in our Colorado cultivation operations.

In Q1, Maryland replaced Massachusetts as a top market by adjusted EBITDA. During the quarter, we experienced improvements in our overall manufacturing throughput, allowing us to bring higher quality products like [Indiscernible] in the meat growing consumer demand. Introduction of these products led to improvements in wholesale, which is a positive trend given the imminent wholesale opportunities in Maryland as the market transitions to adult use in July.

Given our efficient operations in the state and the steps we've taken to improve our post-harvest abilities and wholesale strategy, we feel confident that we'll be ready to meet the anticipated surge in demand. As a reminder, we have three active retail locations in the State in Chevy Chase, Frederick and Rockville.

Moving on to New Jersey, which continues to be a growth driver. We saw 7% growth in revenue quarter-over-quarter and our two active retail locations in the state remain among our top performing dispensaries the entire portfolio. We continue to see promising growth in the wholesale market with additional stores coming online. We continue to improve our genetics and introduce new products like Hedy our line of FX based gummies to keep up with consumer demand as the market evolves. We also have a third retail location in development.

Ohio also remained in top market by revenue and adjusted EBITDA during the quarter. Pricing in the state is beginning to stabilize and our dispensaries maintained their throughput during the quarter. We continue to see high quality genetics out of our Mt. Orab facility and experienced significant growth in our wholesale business including a record month during the quarter. We're looking forward to expansion of the wholesale market as incremental dispensaries come online.

Pennsylvania replaced California as the top market by revenue, supported by price stability in the wholesale market, an increase in foot traffic at the dispensary level and favorable trends in retail sales. We significantly reduced our operational canopy in our Saxton cultivation facility as part of the company wide rationalization effort. While this pressures gross margin in the near-term due to underutilized capacity, we expect to put more plants under lights as we see demand continue to build.

In Q1, Virginia continued to be a standout market. Changes made to the patient registration process in the state have made it easier for individuals to access the medical market and continue to do all that we can to keep up with demand for new products and form factors in the market. We opened two new dispensaries in Hampton and Colonial Heights during the quarter, and another cannabis dispensary in Norfolk, the 9th of the 12th planned dispensaries in the state. We remain confident about the future growth prospects the market has to offer.

As we are halfway into the second quarter, we are focused on improving genetic selection and productivity in all of our cultivation facilities. Automation improvements and continued adherence to standardization represent a significant opportunity for us to improve gross margins going forward. I want to thank the team for their continued commitment. Thank you again to the team for their execution.

I will now turn the call back to Nick to take your questions. Nick?

Nicholas Vita

Thank you, David. Operator, can you please open up the line for questions?

Question-and-Answer Session

Operator

[Operator Instructions] Our first question comes from Aaron Grey with Alliance Global Partners. Your line is open.

Aaron Grey

Hi, good morning and thank you for the questions. So first one for me just talking about the margin. You spoke again to some of the unfavorable absorption from underutilization. Can you talk about how much of an impact that had during a quarter? And I know you look for that to persist, so are you [Technical Difficulty] to ease a bit or just giving so much of an impact they expect kind of going forward? And then if you can give more color in terms of how much of an impact from those restructuring measures trying to flow through, I think, sitting in the second quarter? So how much of an impact should we start to see just to try and put some pieces down in terms of what EBITDA margin expectations to expect? Thanks.

Derek Watson

Yes. So appreciate the question, this is Derek on the gross margin specifically. So the underutilization of Canopy that we implemented as a result of the restructuring at the end of Q4 and Q1 that's about a 5 percentage point impact on gross margin. So we've got a reported gross margin of 38% in Q1, that's after the reduction of this canopy and that 5% overhang, we are continuing to see some improvements in canopy and so that utilization will increase as David mentioned over time. But again, the accounting requires us to take that as a cost and a hit to our gross margin if we don't have those asset utilized.

Aaron Grey

Okay, all right, great. Thanks for that color. Same question for me, so I know obviously a lot of questions around the Cresco deal. I know you guys said there's a little bit more to add at this time than the last call that we had. But just any more color you could provide in terms of divestitures you talked about previously saying there was demand out there maybe sometimes think about outside traditional one. So are you still seeing similar levels of demand? Anything about how I think about after, kind of, the June 3, I know you guys can both agree to extend. But just how to think about divestitures and then adding additional assets to those divestitures to also address potential upcoming debt as well? And how that's potentially impacting the closure of the deal? Thanks.

Nicholas Vita

So I think there are a couple of questions there in that train of thought. In terms of the divestitures, we continue to move forward on the divesture front, obviously, we've got a great partner in homes and they're working through their process. There was a lot of information that came at in New York last week is an example that I'm sure we'll have everyone, sort of, trying to figure out exactly what direction the State of New York decides to move in. We're having conversations for all the other markets, and it's -- I think at this point, what I can say is they're great assets. There has been demand from a variety of different pockets. We continue to move forward, but these processes are always very unpredictable and so it's hard to handicap, kind of, what a timeline would look like and what an outcome should look like in the absence of definitive agreements.

As far as, sort of, other asset sales and other sort of initiatives, right? I would just, sort of, break the decision making process into two different buckets. The Columbia Care balance sheet is fine. We feel very comfortable with where we are from a liquidity perspective. We're making decisions to improve profitability and we expect that profitability to allow us to begin to build cash just from a fundamental perspective as the year progresses and certainly into next year, and that leads up to our first maturity, which is over a year away, actually about a year away today. And so we're very comfortable with where that stands.

Separately and apart from that, there's the reorganization that we're going through right now and the way we think about asset sales. We've made the decision to focus on the markets that are really driving the most value. I think that our strategy up until, sort of, the restructuring was announced was to have our fingers in a lot of pots and that has served us well. But at this point, especially in the context of the Cresco merger, we're not in a position to go out and continue to scale into a lot of these markets. So we really need to focus on the market for we already have scale. Thankfully, we have enormous scale in the number of very, very meaningful markets that are providing us with a very attractive runway going forward.

So when you look at a market like Missouri, the decision to exit was as much about driving profitability and margins as it was to, sort of, do a relative value assessment, right? Where are we going to be able to either redeploy that capital or enhance liquidity to improve our overall performance? And so we don't have a lot of assets like that. Whatever assets in the portfolio that remain could certainly fall into that bucket if we push in that direction. Hopefully, that's helpful.

Aaron Grey

That's great. Thanks for that detail, and I'll go ahead and jump back in the queue.

Nicholas Vita

Thank you.

Operator

Thank you. Our next question comes from Scott Fortune with ROTH MKM. Your line is open.

Scott Fortune

Yes. Good morning and thanks for the questions. Real quick, can you provide a little more color on expected $35 million in net annual savings? And the update, I know your timing you mentioned that will probably be [Indiscernible] primarily playing towards the end of the second quarter. But just kind of as we see additional cultivation, optimization coming on board and still all this will primarily come on the second-half, just kind of a little bit color on that $35 million and then [Technical Difficulty] in the timing and cadence of it as we expect to hit the financials here?

Derek Watson

Sure. And I appreciate the question. The restructuring, I'd say the latest round of restructuring, to be clear. That we announced in Q1 was a result of actions that we started in Q4. By the end of Q1, we've completed that restructuring, the reductions in heads, particularly corporate overhead that we took place, all those positions have been eliminated by the end of the first quarter. So we are starting to see the benefit of those cash savings now fully in the second quarter.

It's obviously building part of that restructuring was a canopy reduction at six markets around the country and we're starting to see a slight improvement in utilization of those sites as well. The $35 million of annualized cash savings, we're starting to see the benefit of that in Q1, sorry in Q2. And as Nick mentioned, we'll see the benefit of that and driving towards free cash flow anticipation in the balance of 2023.

Scott Fortune

Perfect. And just to kind of follow-up on that, I mean, with the focus on positive cash flow generation here, can you just kind of provide an update on the inventory level? Where you said how much of that is part of the free cash flow generation here with working capital deferred taxes all part of that? And I know you guys are built out and your CapEx are kind of limited, but any additional color on the CapEx for the rest of the year to kind of meet this positive cash flow generation that you guys are targeting here?

Nicholas Vita

So I think what you'll see is that in the first quarter, there wasn't a sort of a meaningful improvement in working capital. But we do expect that to become a source of cash as the year goes on. That's going to be one obvious area that we focus on. CapEx, we always expected the first quarter to be the high-end of the range in terms of the, sort of, annual spend. And that was because we were basically paying for the facilities that were built out prior to that. So we would expect the ceiling for a quarterly CapEx number to be what you saw in the first quarter and everything to trail down from there. So we anticipate, sort of, let's call it the contributors below the income statement for cash flow, including working capital to be either for us this is a year of singles we're not -- we don't need any home runs to make things work. We just need to make sure we execute on sort of a lot of the smaller details. And so what you'll hear us talk about a lot is sort of meaningful, but small moves that actually have a profound effect over a longer period of time.

So sort of are you -- we will have maintenance CapEx. We will have some CapEx. As David mentioned, we're going to be building out some dispensaries later on this year, but those are not big ticket items. We don't need to add any more cultivation. We will have improvements in working capital as the year goes on, particularly as some of our newer products and newer strains come online. But that again is something that we don't need to be a home run in order to really drive value for us. And so as you think about sort of the way we're driving cash flow, the single largest contributor is going to be from the income statement and the way you see it closer correlation between adjusted EBITDA and operating income over the next 12 months. And that for us is meaningful, because that's obviously a very high quality source of earnings going forward.

Derek, I don't know if you have anything to add to that.

Derek Watson

No, that's absolutely right. So the CapEx in Q1, again just a reminder of the numbers, a $5.7 million number we had three stores opened in Q1 and one opened subsequent to the end of the quarter. So a lot of that CapEx was supporting the dispensary openings. And as Nick said, we expect that to be the cap of CapEx by quarter for the balance of the year. And in terms of inventories, you'll see on our balance sheet inventory increased slightly from Q4 of ‘22, partly because the canopy reductions take a little bit of time to execute on. But going forward, you should expect to see the benefit of those canopy reductions in inventory coming down, which will be a driver and source of working capital benefits.

Scott Fortune

I appreciate it. Thanks for the color.

Operator

Thank you. Our next question comes from Glenn Mattson with Ladenburg Thalmann. Your line is open.

Glenn Mattson

Hello. Can you hear me?

Nicholas Vita

We can.

Glenn Mattson

Great. So yes. Just, I guess, start off with, I'm kind of curious as the Cresco deal, kind of, continues to drag on. I know you guys talked about you know, possible further delevering or whatever. You know, you could be making decisions now about some asset sales or whatever if the transaction, you know, we’re to not, you know, be completed, you know, and the timing could be very important. So, like, I guess just -- can you talk about, like, your level of patience with how long this is taking versus what would be in the best interest of Columbia Care long-term if it was to remain an independent company and just kind of think about or talk about how you're thinking about that a little bit?

Nicholas Vita

So let me just start by saying, our shareholders have voted. We have a process in place we're working very closely with Cresco to move the transaction forward along with the asset sales and divestitures that are required to get regulatory approval. There's nothing that changes that. So we have that as a path that we are on and there's an outside date, which is the end of June at which point, sort of, the transaction is we're currently, sort of, describing it. Either gets extended by mutual consent and which requires both parties or it doesn't. And so right now, we have all of our efforts that, that need to be focused on the Cresco transaction are focused on the Cresco transaction.

Now on a parallel path, we have made the commitment to Cresco and to our shareholders and to our stakeholders broadly to really take a lot of steps internally facing that we believe will drive value not only for Columbia Care sort of stakeholders, but also for Cresco at the point in time when the transaction consummates. So everything we're doing right now, whether the asset sales, improvements to our cost structure, reorganization of the way we actually function, is what I would describe a very, sort of, a very important outcrop of a very deliberate process that has taken place over the past 12 months when we need it with the minute we announce the transaction Cresco, we had obviously a process in place to move that transaction forward. But we never stop focusing on our own business. And I think what we use this unusual period of time to really think about is how do we position the assets of Columbia Care for the greatest success possible, for the greatest profitability and that's what you're seeing.

So any assets that are sold, we're obviously doing that in collaboration with Cresco, right? We can't do these things unilaterally, we -- based on the terms of the agreement. But I can tell you that we wouldn't consider them and we wouldn't have fallen through them unless we thought they were in the best interest of not only our stakeholders, but also Cresco's on a combined basis. As far as liquidity is concerned, as far as the balance sheet is concerned, I think fortunately we have what I would argue is an exceptionally sophisticated management team that is very familiar with the capital markets and with balance sheet considerations and we're critically aware of what the rumor mill sounds like, right? We're critically aware of the misinformation that's out there. And we're critically aware of the impact that, sort of, people's concerns regarding liquidity could have and have had on our stock price. And on the spread and the fact is that we don't have a liquidity issue that I can see and I've got the best information of anybody on the phone call aside from Derek.

And when we think about the next 12 months, we think about the next 18 months, the next 36 months, I think leverage is something that we want to address. And it's a very natural progression for us to reallocate any cash flow that's generated into the balance sheet to reduce that leverage, because at our market cap every dollar of debt we take off of the balance sheet has an accelerator on the value of our equity. So it's a very simple, sort of, transactional relationship between the two sides of our balance sheet, I don't feel any pressure to do anything dramatic today, but I can tell you the things that we're doing have been a byproduct of a very long and thoughtful process that will continue and our intention is to make sure that if there are opportunities to delever or take advantage of the asset sale processes or other indication of interest. We certainly will look at it, because I think deleveraging is a very easy way to create equity value over the 12 to 24 months if we remain an independent entity.

So it's a fair question that has a lot of complexity, because of the transaction with Cresco. But I can tell you right now this is -- it's not something that we're sitting there waiting for somebody else to kind of solve our problems. We're taking a very proactive approach to it. And we feel very comfortable where we are. Derek, I don't know if you have anything to add to that.

Derek Watson

That's great. Nothing to add.

Glenn Mattson

Yes. Thanks for that color, Nick. David, maybe can you just touch on as you went through your state overview, kind of, sound like Pennsylvania stood out as a little bit of perhaps you guys are outperforming versus what others have said this quarter a little bit, maybe? Can you just give us a sense of what you're seeing in Pennsylvania and how that performance is going?

Derek Watson

Sure. I think it's -- in Pennsylvania, you know, our footprint, we obviously have a cultivation facility through the gLeaf acquisition and three dispensaries, I think it sounds like a relatively simplistic answer, but it was just relative outperformance for us at the hyperlocal level for our dispensaries and some modest improvement in the cultivation wholesale opportunity in Q1. So I don't think it was anything herculean other than just sort of better execution at the hyper local level by the team.

Glenn Mattson

Okay. Thanks guys.

Derek Watson

Sure. Thank you.

Operator

Thank you. [Operator Instructions] And our next question comes from Andrew Semple with Echelon Wealth Markets. Your line is open.

Andrew Semple

Hi there. Good morning, and thanks for taking my question. First one, I'll ask one quick one, the Cresco transaction here, there's been some time that's obviously passed since the last update. Just want to get your sense on the timing and as more specifically I guess on the timing of things to be announced. It feels like June is approaching quickly here. If we were to see divestiture announcements announced in the near-term, do you think there'd be sufficient time to get regulatory approval for those announcements? Or would you have the ability with some wiggle room beyond the June 30 dates?

Nicholas Vita

So it's a great question. And those are really board level decisions in terms of extending the things that are in our control are that -- are making sure the business is run properly and driving value and having a very optimistic and realistic view of what the next 24, 36 months look like for Columbia Care asset -- Columbia Care's asset pool. The divestitures, there are so many different factors that go into the timeline for the announcement of divestiture, everything from regulatory to just definitive agreements that needs to be negotiated. All of that is partially in our control and partially not, because Cresco and Columbia Care obviously aligned on one side of the equation, but then you have the other parties on the other side. And every group that's coming to talk to us, it would not be surprising to think that they might have both an operating and a financing component to that conversation. So it's a, sort of, a little bit of a three-dimensional game of chess.

But what I can tell you is that if the two boards need to have those conversations about an extension of time, I'm sure they will. And I don't think it's a stretch to say it's getting tight and I think that's a fair characterization, that's a fair question for you to ask, but those are really board level conversations that I can't comment on.

Andrew Semple

Understood and appreciate you providing some additional color there. Moving on to Virginia, a state that’s the company has been highlighting as one of the strongest markets over the past few quarters and you continue to open new dispensaries there. Just want to get an update maybe on the timing of you opening the remainder of the stores that you have licensed in that state? And could you maybe speak to the wholesale dynamics within that market and how that's been developing as other parties open more stores?

David Hart

Sure. This is David. I'll take that one. You are correct, we continue to be enthusiastic about the State of Virginia. We have at least one more plan to open this year. We continue to look for, we have said that's on the previous two calls, we're being very thoughtful about site selection for the remaining dispensaries to make sure that they're well positioned for the eventual adult use. So we have -- we are swinging hammers and expect to open at least open more through the balance of the year. We did, as Derek mentioned, we opened one in Q2. So we've got at least one more planned for the balance of the year. And we do anticipate opening all of the dispensaries in the next call it calendar 12 months, but we're, kind of, pull as many into this year as we can.

Andrew Semple

Great. Thank you.

Operator

Thank you. There are no further questions at this time. I'd like to turn the call back over to Nicholas Vita for any closing remarks.

Nicholas Vita

Well, thank you everybody for joining us today. And please reach out to us if you have any other questions, we're always around. And as many of you know, we've been engaging with various stakeholders and we will continue to do so to make sure that everybody has the best information that we can provide. So have a great day. Thanks, everyone.

Operator

Thank you. This does conclude the program. You may now disconnect.

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Columbia Care Inc. (CCHWF) Q1 2023 Earnings Call Transcript