A Conversation with the CEO of Columbia Care

EA: Nick, Columbia Care is development to a $500 million company in an industry that is still illegal on the federal level. Can you give us a brief overview of Columbia Care and how you got there?
NV: Absolutely. And, it's funny it's we are actually not only sort of one of the larger companies, we're actually the oldest multi-state operator. So our first market technically was Washington DC and Arizona. And I remember when we first began, everyone thought we were crazy because no one believed that the regulatory legal changes could happen the way they have as quickly as they have.

And, what I would say is like any other entrepreneurial endeavor, we learned everything kind of the hard way. So, we made every mistake in the book. And I think the one area that has become a core competency for the organization is that when we make a mistake, we really don't make the same mistake twice. So it's been a fascinating, fascinating journey because unlike a lot of businesses, we don't have the normal infrastructure, systems and vendors and counterparties that a lot of industries take for granted.

So, for example, we don't have access to the banking system. We couldn't even hire plumbers at one point because we couldn't have bank accounts. So, we didn't know how to pay people. So, as we built out a business that not only had an agricultural component, but also a manufacturing and retail component, we had to figure everything out as if nothing else ever existed at all in the business world. And, so to say that the trend line has gone from the lower left to the upper right in hindsight, I think is fair. But, at the time it seemed very, very, sort of very volatile because there were some great moments and there was some moments of real concern and like any young company, there were days when we weren't sure how we were going to solve the problems, but we did, one at a time and we just keep kept our feet moving.
So, it's been a really incredible, incredible opportunity, but more importantly, it's been a great sort of challenge to create a new business in a new sector. And then on top of it, try to create that business in a way that actually is relevant to the 21st century, which is very different than I think how companies built themselves even as recently as the 1990s.
EA: Thanks, Nick. What does it mean to the industry that New York state, which obviously includes New York City has approved adult use recreational cannabis?
NV: I think it's very, very important. Not only is New York, the largest east coast state, but it's a bellwether, meaning so goes New York, so goes the rest of the country. And I think that New York has always been the capital of the world that continues to be, in spite of COVID. And, now we look at the New York market, which has always had a very strong illicit market and the state has decided to sort of tax and regulate and make cannabis legal, not only for medical purposes, but for adult use purposes.

And, I think you're going to see a really significant, not only tax revenue contribution, but also a jobs contribution on the manufacturing agricultural and the retail side.
EA:Now, I know Columbia Care is a medicinal cannabis company, but also a recreational cannabis company. How different is it to run those two industries? Those two different companies?
NV: In some respects, it's very similar. In others, it's very different. So, our products all begin with the same plant and many of the same chemicals. I think what makes medical unique to the adult use is that you have many more regulations. You have, for example, you have a much more regimented sort of distribution and access point, which is different than adult use. So, rather than having an age limit, you actually have to have a qualifying condition and you have to have the involvement of a doctor. Because we're such an old company, every single one of our markets at one point was a medical market. And those markets have now transitioned to adult uses as a result we've transitioned. But, I think that the things that make it similar, you still have compliance.

We still have internal standards that are higher in general than most of the markets we operate in. We know we have very significant training. We have things that constantly evolve along with the organization to allow us to scale from basically zero employees and $0 to almost 3000 employees and over 500 million in top line. And so, there's no kind of simple answer to that question, but there is definitely overlap in the Venn diagram. I think though the biggest difference and the biggest challenge that we continue to work through and really meet head-on is the conversion into a branding environment from just a medical and data-driven environment.

And by that, I mean, you really do have to have sort of the change to our storefront, which we just announced moving from Columbia Care to Cannabis. We're introducing a number of new product lines and form factors that I think are more relevant for not only the wellness category, but also the adult use category. So, we'll have a balanced portfolio as opposed to simply medically oriented products, but that's part of the fun aspect of the business and you really get to build something and address the markets as they evolve. And, you become a catalyst for that evolution.
EA: The preliminary rules for New York, according to what I've seen, appear to be designed to allow for a wide variety of entrepreneurs and companies to participate in the industry. What impact will that have on the industry?
NV: Well, it's a very foundational impact. You now have more of a normalized operating environment where you have better access. You have wider access. You'll have more operators participating in the marketplace that will bring additional capital investment and additional sort of awareness. I think the most fundamental thing that New York has done, which a lot of other states have done as well is, is make sure that there is a diversity and inclusion element to the conversion from medical to adult use.

So, you're going to see a new cast of entrepreneurs given the opportunity to enter the cannabis market with an advantaged position. And, hopefully that translates into real economic success and economic diversity among communities that haven't had the opportunity to participate in the regulated cannabis market to a large extent. And that's, to me, very, very exciting. It also creates a very interesting sort of network effect where we have a direct interest as one of the oldest operators to see diversity and inclusion sort of manifest in real economic success and business development, so that you can see that synergy between sort of the policy demands, the regulatory demands, and now the operational and financial outcomes.
EA:Earlier, you spoke about the differences and similarities in running a medicinal cannabis company, compared to a recreational cannabis company. How hard is it to implement a recreational product line in a traditional environment?
NV: It depends on the regulations. So some markets like New York, you couldn't have a smokable flower. You had to have a dose metered form factors that that are effectively pharmaceutical products and made to FDA sort of standards. Other markets, you can have a much more fluid overlap between medical products and adult use products. And in some markets, it's very difficult to distinguish them from one another. We actually take the position that having the Columbia Care product line as the flagship medical products is something that people have always come to expect and trust. And we intend to provide those products nationally, whether they are in medical markets or adult use markets.

At the same time, we're rolling out and introducing and commercializing additional brands and products and form factors into the wellness and adult use markets that may have a little bit of a different look, different feel, different application, but for us it's part and parcel because all of our decision making starts with understanding the consumer. Understanding the regulations, understanding the markets, understanding the people and the communities we serve using the data we've collected since 2012, 2013, and then applying that in a very practical sense to develop and innovate the best products and the best services that are most relevant and helpful to providing access to the consumers and patients who are interested in accessing these programs.
EA:What are the major innovations you expect to see in the coming year in the industry?
NV: Well, I think that's a lot of the innovation may be considered sort of table stakes from the outside looking in because it involves changing business models to accommodate a more normalized, federally regulated environment. I don't know if that means the US government will actually legalize cannabis, but I think that there are things that are being discussed in Congress and in the White House that actually could result in some pretty profound opportunities for the sector broadly.

And so I think that having access to the banking system would be enormous having access to the US capital markets would be an incredible opportunity. So, you would see obviously a significant reduction in cost of capital, significant increase in access to capital. Which means that companies can actually accelerate their growth and consolidate the market because this is a highly fragmented market.

I think that from a sort of a societal perspective, what we observed is that as time has gone on cannabis has become much more mainstream. I think the inclusion aspects of the regulatory frameworks that are being developed and implemented at the state level are critical to not only sort of creating this embracing amongst the broader population, but also reaffirming the position of having a balanced and sort of highly equitized operating environment, where you have an enormous amount of diversity in every respect and within each state program.
EA:If we focus on the New York City marketplace for a moment, is delivery services a big part of that?
NV: It is. I mean, I liken this to conversations I've had with administrators and universities. When a college wants to figure out where to put their sidewalks, what they do is they plant grass and they see where the grass gets worn down first. And, then they plant the sidewalks on top of it to just basically mimic the traffic patterns. It's widely known, whether people like it or not, that the illicit market has been incredibly strong in every metropolitan area, including New York. Home delivery has been a massive part of that. And so, for us, we have home delivery in New York. It's a significant part of our business. We're going to continue to lean into that. And, we want to do that for a number of reasons, not just because it's economically smart, but also because it provides access.

We want people to understand that their time is worth a lot to us. And so making sure that, that journey can graVitate beyond the four walls of our facilities is very important. And by the way, that's a trend that you've seen in every product category. I mean, how many people go to the supermarket in a COVID world rather than just having groceries delivered?

So, this is something that everybody's becoming more and more tech savvy and comfortable with. And, we want to lead that conversation, which is one of the backbones behind our recent announcement to change our storefronts nationally to Cannabis. Because, there's an enormous technology component that involves home delivery and virtual shopping, and actually a credit card that provides consumer credit. So, it's a whole ranging of things that I think leverage technology and kind of best practices and pulling in and pull them into the cannabis setting.
EA: Does this current market create for growth by acquisition?
NV: It does. I mean, I think that we were a little bit slow to the M and A game. We've talked about this, but I worked at Goldman Sachs for a long time, and I was a banker there who saw a number of acquisitions work and a number of acquisitions, create great headlines, but they're very hard to integrate. And, so my big fear and building Columbia Care was to make sure that we had enough of a stable foundation and solid foundation and leadership cast that was very, very deep, so that we could integrate business as well and actually take acquisitions and turn them into real opportunities to drive shareholder value.

The fragmented nature of the market we're in is significant and it's national. And, so I just don't know how over time you have an industry that remains so broken in so many different pieces when there are opportunities for scales of economy. And, so we've been driving, I think a lot of that discussion within the states, we operate to sort of try to create some synergies, revenue margin and efficiencies to ensure that customers have access to cost-effective high quality products that they're interested in and regulators can sleep at night, knowing that they have very well capitalized, efficient operators that are going to always put the compliance aspects of their business.
EA:We talked earlier about Columbia Care operating in 18 states so there's cultivation and selling in all those states. What issues does that create? And by that, I mean, you can't transport cannabis across state lines in the US.
NV: So, it creates a very asset intensive business. And so, one way to think about it is we have to make sure that every dollar we deploy into a fixed asset is sufficiently scaled so that we can generate a rate of return that makes that investment worthwhile. I think that there is some... There are two schools of thought. One is that the states will continue to manage these programs and administrate them for the foreseeable future, just like they do with alcohol or the banking industry or the insurance industry. And, the other is that there will at some point be interstate commerce. In which case, you have an over burden asset base that needs to be consolidated and rationalized.

Our strategy has really been predicated on the notion that the states need tax revenue need jobs. The diversity and inclusion initiatives are critical not only at the state political level, but also in the federal level. And as a result, there's going to be a significant delay in terms of implementing any kind of interstate commerce, because it's just politically untenable. You cannot sort of undermine those two principles, which have been driving these transitions from no programs to medical programs to adult use.

At the same time, we're also preparing for a world where you do have interstate commerce. And so we're the largest grower in Colorado by multiples. We have significant scalable resources on the east coast. Now, you mentioned the acquisition we made in Florida, and those can become real centers of excellence on hubs for and manufacturing in particular regions. And, it's sort of interesting. We don't know how the world would look, but we're preparing for all the eventual outcomes and we're doing it in a way that is immediately accretive to shareholder value.
EA:Nick, the last question for today is how has COVID impacted your business?
NV: I think that there are three things that have made a huge difference to us. Number one, cannabis was one of the few industries that nationally was designated an essential service. So in every single market, almost every governor and state legislature designated us an essential service. So, we were able to not only able, but actually required to operate throughout the COVID crisis. And, I think that that was a very important sort of psychological barrier that was broken by the political class in designating us with that degree of importance. Because, a lot of people have wondered what is cannabis? They didn't really know. Most people are not in the cannabis market, but once you've received that designation, once you're characterized as essential, it changes and it eliminates a lot of the stigma. And so that was very important.

Number two, I think the patterns of behavior and the willingness to try cannabis was driven by the fact that people were at home. They weren't able to go to work, they weren't able to socialize. So, they wanted to take advantage of the personal time and free time in a way that was productive. We saw a lot of people moving away from the alcohol industry and moving away from sort of prescription drugs and actually looking for natural, less, I guess the ability alternatives. Cannabis certainly fills into that category very, very well.

And then third, we've seen an increase in the demographics, the scope of the demographics. So it's not just people in their twenties and thirties who are coming into our stores. It's people in their fifties, sixties, seventies, and eighties that are coming into our store and everyone is coming in for a different reason, but they all have something in common that is, they believe and have experienced the benefits of using cannabis in their lives to improve some aspect of their life. And that to me is really important and critical.

I don't know if that would have happened as quickly had we not had COVID, but it certainly has accelerated over the past two years from my perspective.
EA:Nick, thanks for joining me today. And, thanks for listening to CannaCast, a part of the EisnerAmper podcast series. Visit eisneramper.com/cannabis for more information and podcasts.

And, please join us at our next CannaCast podcast where we discussing other budding issues. Thank you.

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