Columbia Care Inc. (CCHWF) Q4 2019 Earnings Conference Call March 10, 2020 8:00 AM ET
Gary Santo - Vice President of Investor Relations
Nicholas Vita - Chief Executive Officer
Lars Boesgaard - Chief Financial Officer
David Hart - Chief Operating Officer
Conference Call Participants
Vivien Azer - Cowen & Co.
Matt Bottomley - Canaccord Genuity
Andrew Semple - Echelon Wealth Partners Inc.
Jason Zandberg - PI Financial Corp.
Scott Fortune - ROTH Capital Partners
Russell Stanley - Beacon Securities
Graeme Kreindler - Eight Capital
Good morning, ladies and gentlemen. Welcome to the Columbia Care’s Fourth Quarter and Full Year 2019 Earnings Conference Call. I’m your operator for today’s call. Please note that all lines have been placed on mute to prevent any background noise.
This call is being recorded for replay purposes. A replay of the audio webcast will be available in the Investors section of the company’s website approximately 2 hours after completion of the call and will be archived for 30 days.
I would now like to turn the call over to your host for today, Gary Santo, Vice President of Investor Relations for Columbia Care.
Thank you, Rob. Good morning, everyone, and thank you for joining us for Columbia Care’s fourth quarter and full year 2019 earnings conference call. With me today are Nicholas Vita, our Chief Executive Officer; Lars Boesgaard, our Chief Financial Officer; David Hart, our Chief Operating Officer; Mary Miller, our General Counsel; and Josh Snyder, our Vice President of Business Development.
Earlier this morning, we issued a press release reporting our fourth quarter and full-year results, which we also filed with the applicable Canadian securities regulatory authorities on SEDAR. A copy of this release is available in the Investors section of our corporate website at www.col-care.com, where you can also 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 constitute forward-looking statements within the meaning of applicable Canadian 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 final prospectus dated March 21, 2019, filed with the applicable Canadian securities regulatory authorities and also found at www.sedar.com.
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-IFRS financial measures, such as adjusted EBITDA and gross profit margin, excluding changes in fair value of biological assets. These measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. Columbia Care considers certain non-IFRS measures to be meaningful indicators of the performance of its business, in addition to but not as a substitute for our IFRS results.
A reconciliation of such non-IFRS financial measures to their nearest comparable IFRS measure is included in our press release issued earlier today. Nick will begin his comments today with a high-level review of our accomplishments during the fourth quarter and full year, followed by Lars, who’ll provide an overview of our financial performance; Nick will then discuss our outlook and guidance for fiscal 2020; after which, the team will take questions.
With that, I will turn the call over to Nick.
Thank you, Gary. Welcome, everybody, to this morning’s call. 2019 was an incredible year for Columbia Care. As we began the year, we were a 7-year-old private company with 30 dispensaries, in operation across 7 U.S. markets with a little over 750,000 sales transactions since inception.
Through the support of our investors and the commitment and hard work of our team, we opened more dispensaries in 1 year than we had in the previous 7 combined; doubled the number of markets we operated in.
Our dispensary count currently stands at 35, with 6 additional locations awaiting final regulatory approval to open, bringing the total to 41. Regulatory delays for both facility and product launches affected our plans in 2019, and it continued to drive timelines into 2020. But with the capital plan behind us and most of the regulatory approvals behind us, we’re very excited about an execution focused year.
In terms of state – our successful launch of adult sales in Massachusetts resulted in significant overnight revenue growth. Persistent demand has resulted in our low Massachusetts location now expected to annualize at roughly $24 million revenue run-rate with fourth quarter revenue up 204% compared to the prior year.
Adjusted EBITDA margins were roughly 34% and annualized revenue per square foot was over $4,200 per square foot. With our Boston dispensary in the late stages of obtaining approval for adult sales, we expect Massachusetts to have a significant impact on our 2020 performance.
We also expect Boston to be another strong performer. Pennsylvania continues to be an outstanding market for us with revenue up over 91% since the first quarter of 2019. In the 5 quarters since opening our Pennsylvania market has achieved positive EBITDA free cash flow and returned our initial investment.
In addition to Pennsylvania, New York, Massachusetts also achieved positive EBITDA by the end of 2019, with another 6 markets expected to crossover in early 2020.
We continue to innovate in 2019 with the national launches of our CNC Card and CC@Home delivery service. CNC as you may know is the nation’s first legal credit card for the purchase of cannabis products. And following successful pilot program in New York, it’s now active in 8 jurisdictions, Arizona, California, Delaware, Florida, Illinois, Massachusetts, Maryland and New York and available online.
The credit metrics continue to be strong with 63% approval rating, almost $3 million in purchases and less than 1% in bad debt. The CNC has had a positive impact on the average basket size in both dispensaries yielding more than 20% average gain than through our Home Delivery program with over 25% annual average gain. And we are continuing to explore ways in which we could expand the program to the broader market by introducing partnerships nationally.
Our Home Delivery service is active in 3 jurisdictions now. And whilst still early days of our national rollout, it’s already producing impressive results as the average basket sizes are approximately 60% higher than in-dispensary purchases in the jurisdictions where it’s active.
We successfully launched our Columbia Care Platinum CBD products in the U.S., in both retail and e-commerce channels. We continue to see our presence in the European markets with the first sales of our Platinum CBD products in December. On the M&A front, we continue to be on track to close our acquisition of The Green Solution, Colorado’s market leader and with as many as 7 of our medical markets potentially converted to adult use in the next 18 to 24 months.
The addition of TGS’ expertise and product portfolio geared towards the adult use markets cannot come at a better time.
Towards the end of the year, we delivered on our promise to identify non-dilutive sources of capital closing on our first sale-leaseback transaction valued at about $34.5 million. Well, we may not have accomplished all that we set out to do for the year, I’m proud of the progress we’ve made and the position we have developed for the company going into 2020.
With that, I’ll turn it over to Lars.
Thanks, Nick. I’ll begin by discussing some key items from our fourth quarter of 2019. Starting with revenue, we reported total revenues in the fourth quarter of $23.2 million, an increase of 111% over last year. Our growth in entirely organic as we added no new business through acquisitions.
In addition to our revenue, our partner in Ohio saw an encouraging start with $1.4 million in sales with 4 dispensaries in the first operational quarter. Our gross profit before fair value adjustments was $5.5 million, an increase of $1.6 million or 40% over last year, driven by volume growth of our business and offset our production cost of some of our facilities undergoing completion during the quarter.
We’ve recognized a positive impact from fair value adjustments related to biological assets of $12.7 million compared to a negative impact of $4.5 million in 2018. The increase was driven by high capitalized value of biological assets.
Operating expenses for the fourth quarter was $34.7 million compared to $18.6 million last year. The increase was primarily caused by an increase of $4.5 million in salary, benefits and facilities expenses, $4.3 million in share-based compensation expense as well as increased promotional expenses and depreciation.
Our adjusted EBITDA for the third quarter – fourth quarter was a negative $13.9 million compared to a negative $2.9 million in the previous year. The lower adjusted EBITDA was primarily caused by higher operating expenses. As of December 31, our cash balance was approximately $47.5 million.
Now turning to the results for the full year of 2019, our reported revenue for the year was $77.5 million, an increase of 97% compared to 2018, again driven by organic growth of our dispensary network and increased per store sales. Once again, our reported revenue does not include sales of $1.4 million by our partner in Ohio.
Gross profit before fair value adjustments was $20.6 million, an increase of 25% compared to 2018. We’ve recognized a positive impact of gross profit from fair value adjustments related to biological assets was $16.3 million compared to $0.7 million in 2018 that difference was driven by decrease in the fair value of inventory sold during the year.
Operating expense from 2019 was $129.8 million compared to $50.8 million in 2018. The increase was primarily due to $20.3 million increase in share-based compensation, an increase of $17.2 million related to salary, benefit and facilities expenses, $14.4 million increase in professional fees and $11.1 million in non-cash listing fee expense, reflecting the consolidation of assets acquired in our reverse-takeover transaction in April.
Adjusted EBITDA for 2019 was a negative $46.9 million, compared to negative $11.1 million in 2018, and that difference was primarily due to higher operating expenses.
With that, I’ll turn the call back to Nick.
Thank you, Lars. I’d like to take a few minutes to discuss our accomplishments since the end of the year and provide an outlook for – guidance for 2020. Since January 1, we launched adult use in Illinois which has been an unmitigated success, we completed our Aurora cultivation and manufacturing facility in Illinois which is great, because it gives us access not only to retail channel for our products, but also the wholesale market.
We opened our San Diego manufacturing facility allowing us to introduce our highly formulated pharmaceutical quality products into the California market which is obviously a huge wholesale opportunity for us. We have 6 additional dispensaries, 4 in Florida, 1 in New Jersey, 1 in Virginia built and awaiting final regulatory approval to open bringing our total count to 41. We have received approval to sell flower in New York, which is a huge, huge step in the right direction for the New York program. We were approved to begin cultivation in New Jersey.
We are awarded a dispensary license in Utah. We are awarded a processing dispensary license in Missouri subject to the completion of a management services agreement. We achieved the first OTC sales of our Columbia Care Platinum products are manufacturing in United States, but sold in the UK. We added depth and public company experience to our Board with the additions of Frank Savage and Jeff Clarke, and we established a Strategic Advisory Board, appointing former directors John Howard and David Solomon as inaugural members, who are directly with management team as we look at M&A landscape and particularly the opportunity set out there.
In 2020, Columbia Care will continue the transition from its hyper growth strategy to really optimizing the value and the cash flow characteristics of each licensed jurisdiction and really developing scale in each market. As a practical matter, in providing our guidance for 2020, Columbia Care does not incorporate changes in the regulatory environment, including the potential positive impact of any future transitions from medical only markets into adult use markets, despite our expectations and experience regarding several of our markets that are expected to convert near-term.
We are also excluding our recent wins in Missouri and Utah, as well as any new market openings, the development of additional assets, future M&A and additional pursuit activities. In assessing the ramp for our newer facilities, it is also important to note that the markets that have been open for 12-plus months are typically providing positive EBITDA contribution before corporate overhead. Also while on the subject to facility I want to mentioned that our efforts to optimize our dispensary build-out plans in Florida, where we are able to take advantage of temporary publications in place of traditional dispensaries allowing us to reach our target population and optimized revenue with much less capital investment and an improved labor model.
As a result, we revised our dispensary count for 14 in Florida, all of which will be operational by the end of the first quarter, with an additional 6 to 8 temporary locations throughout – that will be positioned throughout the state. The complements of home delivery activities that will give us depth in each of our local markets.
For the fiscal year 2020, the company expects the following pro forma – the following performance, pro forma guidance assumes a full year integration of The Green Solution. Stand-alone revenue of approximately $155 million to $180 million driven primarily by continued growth throughout the company’s existing 35 dispensaries and wholesale operations. The opening of the 6 dispensaries are currently awaiting regulatory approval including new market launches in New Jersey and Virginia, and then, 4 additional dispensaries in Florida.
The completion of the second medical and adult use dispensary in Illinois and 6 to 8 temporary pickup locations in Florida. Pro forma revenue as expected to be in the range of $234 million to $265 million with TGS continuing to grow their market share in Colorado. Gross margins on both a stand-alone basis and pro forma basis, excluding the impact of charges in the fair value of biological assets and inventory sold are expected to reach more than 40% during the fourth quarter, ramping each preceding quarter.
We expect to achieve adjusted EBITDA breakeven in the fourth quarter on a stand-alone basis, and in the third quarter on a pro forma basis. Our full-year CapEx is expected to be in the neighborhood of $25 million to $30 million on both a stand-alone and pro forma basis to roughly 50% of that occurring in first quarter as the remaining 2019 growth initiatives are completed.
We look forward to an exciting 2020. As of now, we’ve completed our 2019 capital program, we expect to leverage our fixed assets to drive profitability in each market as well as on a consolidated basis.
The shareholders should expect our pace of activity to increase as we continue to execute against our desire to make Columbia Care the best-in-class and most-trusted global cannabis provider, with the highest return on shareholder value.
With that, we’ll open up the call to questions. Operator?
Thank you. We’ll now be conducting the question-and-answer session. [Operator Instructions] Thank you. And our first question today comes from the line of Vivien Azer with Cowen. Please proceed with your question.
Hi, good morning.
So, Nick, it sounds awfully prudent to not bake in any regulatory change embedded in your assumptions around guidance. It sounds like you’re constructive on the potential for regulatory change likely in the [just back-weighted] [ph] in the back-half of this year. Can you just add some more color on the 7 markets, probabilities where you’re most or at least optimistic or encouraged? Thanks.
So, I guess, what I would like to do is simple, the 7 markets we expect to have a movement, let’s call it, in the next 18 to 24 months are Arizona, D.C., Delaware, Maryland, New Jersey, New York and Pennsylvania. I think that there has been a lot of discussion about Florida potentially being in 2022. But that would really – that’s really sort of a question mark right now.
Each one of those markets had different dynamics, but it’s fascinating, because you look at in market like New York, as an example, 20 million residents, 250 million visitors a year, that could easily become the largest market overnight in an adult use environment. New Jersey has a significant existing sort of, let’s call it, base of residents, but significant, significant, significant demand for expansion and growth, akin to what we’ve seen in Massachusetts and Illinois.
And if you – you may recall that, it’s been our experience that when you see this transition occur, revenue jumps almost overnight, between 3x and 5x. And so, it’s not a sort of a really tapered process, it’s almost a C change.
Then you have markets like Washington, D.C., where there are 600,000 residents. And people might not think that so exciting. But they have over 25 million visitors a year. So now you begin to look at a market that is sort of in the same order of magnitude as something like Las Vegas, which is huge.
And so, the conversion to adult use opens up a whole range of opportunities that go well beyond the traditional definitions of an available market on the local basis. David, do you have anything to add to that?
I think the outline that Nick described in terms of the timing for all 7 markets I think is accurate. It’s hard to pin down the definitive timeline for some of those. I think Arizona we know it’s probably in 2022, early 2022. The others I think it’s sometime between the later part of this year and sometime in 2021. But as Nick mentioned, we haven’t yet incorporated that into our guidance for 2020.
Got it, that’s really helpful. Let me just ask a follow up on this and then I’ll jump back in the queue. Just, Nick, as a point of clarification on – just from a process standpoint in D.C., can D.C., actually legalized for adult use unilaterally or can Congress overrule that? Thanks.
So it depends on who you ask. I think that the D.C. government, I believe they have the right to do that. But there are, obviously, sort of governors, let’s call it, speed governors through the federal funding process that could inhibit the timelines.
It really depends on how the ranking members on the oversight committees in Congress view. Obviously, with a Democratic Congress, we think the chances are higher than not. But there has been a significant interest in – there has been a significant interest expressed from a number of the D.C. Council members to push this through.
The next question comes from the line of Matt Bottomley with Canaccord. Please proceed with your question.
Good morning. Thanks for taking the questions. Just wanted to touch-base on the availability of additional capital through potential sale and leasebacks, and maybe if you could just line up your cash position at yearend of about $50 million, your 2020 CapEx budget of $25 million to $30 million, and then the interim cash burns [until you] [ph] you reflect into adjusted EBITDA or even cash flow positivity and just if there’ll be a need for those further sales and leasebacks or if it will be more opportunistic in that nature?
So in the first quarter, we’ve provided guidance and we’ve talked about it in the past. We expect to close another sale leaseback in the first quarter. We are always looking out for additional sources of non-dilutive capital. And obviously, the credit markets have been interesting for a number of other market participants. And also, we actually have met with a number of credit investors, although nothing has been disclosed to the marketplace.
It’s we have not debt currently. We only have cash. So the view of the company and then what’s changed is that now that we’re done with our capital plans or capital [deed] [ph] sort of the portfolio is fully built out. And as you see moderation in CapEx going down this – in first quarter, and then, again, in the second quarter, as each one of these markets transitions not only to EBITDA, but cash flow positive, we think it’s appropriate to begin looking at the entire balance sheet, not just the equities over the balance sheet.
So we’re going to be opportunistic, but there is – we’re also trying to be very thoughtful and very timely in when and how we bring in that capital. So I think it would be reasonable to expect to see us sort of continue to sort of push our balance sheet to be as, to give us as much financial and strategic flexibility as possible.
Perfect. And then, just another quick question, if you could just provide any more color, it hasn’t closed yet, but on The Green Solution. Clearly, it’s a good chunk of your guidance for 2020, looks like it’s a good little operation there with respect to its margin profile.
So you had mentioned in the release the ability or the plan to increase market share there. So maybe just a little bit on the dynamic of Colorado and for the pros and cons, I guess, of ramping that up.
So what I’m going to do is turn it over to David quickly to give some of the sort of the micro comments. But I think what you’ve noticed is that we’ve always been very targeted in how we approach each market and why we try to build critical mass in each market. We have tried to target what’s called the super states, New York, Florida, California. But among those super states are actually markets like Colorado, because even though it only has between 6.5 million and 7 million people, it has a very significant tourist mix, and frankly, it’s the second largest cannabis market in the world.
And so, their leadership not only from a manufacturing efficiency perspective, but also from a distribution perspective has been overwhelmingly sort of scaled by their ability to interact with their consumers using technology, and frankly, having very well recognized brands and product offerings. They’re very well suited for those markets, and so, all of those have contributed to their success.
But let me turn it over to David. And he can sort of provide a little bit more granularity on how they – on what we would expect to see and how we would expect them to sort of deliver on 2020.
Sure. Thanks, Nick. So within the footprints, including the 23 dispensaries, we’re opportunistically looking at 2020 to take advantage not only of the retail, the retail opportunity, but for the first time, wholesale. They had very successful outdoor harvests late in 2019. And, therefore, based on what we see from a supply/demand perspective in the state of Colorado, there’s still going to be a shortage from a supply perspective, so I think we’re – the team, The TGS team is well positioned to take advantage of that.
And it’s still a highly fragmented market with respect to market share, even though TGS is the leader. So we continue to think that organically there is an opportunity to grow the business both at the retail and wholesale level. What we’ve looked at in terms of the initial 2020 outlook for TGS is just strictly organic growth both retail and wholesale.
Yeah. And if I can just add, one of the things that’s interesting about Colorado is, and we’ve talked about this before, but their experience in Colorado, going through, let’s call it, the medical cycle and then the first phases of the adult use cycle, now, more of a sort of a moderation in the sort of the pricing volatility and the let’s – and the sort of the operating environment.
That’s a cycle we would expect to see occur in every one of our markets that’s converting from medical to adult use. So the skill-set that they’ve developed to sort of not only capture a leading market share, drive margins, drive cash flow and then drive innovation, all of that is transferable into our new markets. And we’re already beginning to see some of those insights taper into other markets and sort of really begin to have an impact on the way we sort of think about the business going forward.
Great. Thanks, guys.
The next question comes from the line of Andrew Semple with Echelon Wealth Partners. Please proceed with your question.
Hi, good morning.
Just wanted to see if you guys had any additional color on the beta Massachusetts, obviously, that’s behind us now, but wondering if there is going to be any kind of normalization impact on gross margins in Q1.
Do you want to start?
Yeah, this is David speaking. I think our business in Massachusetts continues to see improvements in the gross margin line. Internally, that’s result of us bringing new cannabis online and improved yields. So I think the data point that everyone is looking at in Massachusetts is with the wholesale market pricing is going to be in 2020. And I think that’s going to be reflection of the incremental cannabis that is going to or not going to come online in 2020.
We continue to see demand across all of the categories, all of the skews without question. And so we’re recently – we’re optimistic about gross margin profile for our business in Massachusetts on a year-over-year basis in 2019, heading its 2020, yeah.
And I would say that Massachusetts is a good metaphor for what we’re seeing in a number of our markets where we’ve seen new cultivation and manufacturing capacity come online whether it’s California, Ohio, sort of you go to the longer list of although capital projects we completed in 2019 and then in the first part of 2020. Those results up to – and in Florida, with those results will now begin to at really sort of reap benefits in a material way. So one of the main drivers of cash flow for us is it going to be sort of isolate, low-hanging fruit at the gross margin line, and then, of course, to begin through the income statement.
Great. Thanks for the color there. With respect to New York taking a hard look at adult use sales. Is that a marketplace where you may look to add cultivation capacity kind of within a top 12-month timeframe? I believe you hold an offset for additional 180,000 square feet at your current location. Or is that something you were – you would prefer to see the regulations come out first before making the decision?
It’s funny. We’ve always trying to be very prudent in spending on cultivation and manufacturing. The return profile is very high, but what we don’t want to be stuck with this sort of a Taj Mahal that we’re unable to leverage over the long period, over the longer time horizon. New York, in fact many of the East Coast markets are have an undersupply issue right now even in the medical setting. So for example, if you look at New Jersey, it’s critical into our supply. So our plan to be extend that we end up making any additional decisions to expand our cultivation, let’s call the second half of this year. It would be exactly in New York, it would be in New Jersey would be in a state to their transitioning to that. We don’t run into the same supply in gross margin issues that we’ve encountered in places like Illinois and Massachusetts. It’s a good part we have, because any time demand outstripped supply that’s fundamentally positive.
But we’ve obviously what – because where the market leader in the place like New York, we want to make sure we use the transition as an opportunity actually solidify our business and consolidated additional market share. So we are – the short story is we are looking to extend and whether it’s at that – at our existing facility or it whereby combining other facilities into the portfolio, we’re going to be very opportunistic.
Okay. I appreciate the color there. With respect to your CNC Card, is that something where we can see it is in all your dispensaries today? Or is that deployment that is still ongoing? And if you got any updates on kind of the consumer uptake of that, that would be appreciated?
A couple of things. So it’s ongoing and we’re rolling it out. We haven’t really invested a lot into marketing it. We just finished the rebranding exercise that will – we will be unveiling in the second quarter, but part of that process involves bringing on partners. And so we had a number of conversations with some large operators in the individual states, multi-states technology platform providers. And so this is really graduated beyond being simply a Columbia Care sort of platform piece, we think this is much better service being an opportunity for the entire market, not only B2C, but also B2B, especially in markets like California where everyone is getting destroy by working capital issues. This could be a major sort of pivot point for the industry.
And so that more to come on those specific details, but we’ve been working on this very quietly behind the scenes and we’re very excited about it, because in each market there has been an organic pickup. And the trend line has been the same across all of the major statistics in terms of performance in contribution, and the numbers who speak for themselves. So we’re thrilled that where the point we’re at, and frankly, we think it’s going to have a big impact nationally.
Great. That’s all in my end. Thank you very much.
Thank you. Our next question is from the line of Jason Zandberg with PI Financial. Please proceed with your question.
Hi, good morning.
Just looking at your guidance for CapEx in 2020. Just wanted to know, if you could provide what the priorities are – of that CapEx given a significant dropdown from what you spent in 2019 just wanted to kind of get an idea of where you expect to deploy that money?
So the – sure, in the first quarter, it’s really to pay the bills for everything we finished up in 2019. So it’s just a sort of ordinance leftover, just sort of reflecting infrastructure build out. But for the rest of the year, it’s really maintenance CapEx there maybe some projects here and there. For example, on the additional dispensary in Illinois maybe – for example, we just start out, we are able to open up 5 more dispensaries in Virginia. So there is a shortage of potential users, but what we are really focused on right now is allocating capital into markets where we think we can drive cash flow factors.
So for example, one of the prior callers asked about New York have used that millennials in New York and in advanced the transition to adult use. We can really outperform a lot of our competitors and we can really drive cash flow operations and scale. And so it really becomes a question on prioritization rather than sort of opportunity set. And the prioritization today is to lean into markets that are going to that transition process, because we know what the profound impact that has, not at the local level, but at the corporate level.
Lars, do you have anything to add to that?
The only thing I’ll just add is for next earlier comment, we’re wrapping up our cultivation in New Jersey and Virginia, right. So that’s all getting ready for the approvals that we just received.
Okay. Great. And then, would it be possible to breakout wholesale revenue in Q4 and sort of what your – I assume it’s not that much in Q4. But sort of what your expectations are for 2020 for wholesale versus the retail revenue?
So we have not expected much in the way of wholesale. I think that we’ve had that sort of an interesting dynamic where everything we’ve been able to sell, everything we’ve been able to make me sell. And so we would like to enter the wholesale market, but we haven’t had the productive capacity. We haven’t found that magical balance where we have excess capacity to sell in the wholesale market. So I think that for now is safe to assume that we are thinking about the business as sort of leveraging our own resources first. But it is something, if we can find – for example, we do scale into New Jersey. We do scale into one of our other markets where there’s a robust wholesale market.
I’ll highlight the perfect example. I think you might see some increases in wholesale year-over-year as well as in place like California. But that’s the main driver business that are really are the things that we can control directly and then everything else is kind of [craving] [ph] on top. David or Lars, do you have anything to add to that?
No, I would say, there is certain market like Illinois where there is a regulatory requirement coming out of replacement in factoring to provide a portion with our capacity to the market. So what we certainly haven’t there in California with expectations in our 2020 relative to the production is come online in San Diego, it’s not just going to our own dispensary. So you covered most of the markets where we have the opportunity, but again, it’s going to be in our forecast with the small portion of our 2020 revenue guidance.
Yeah. Okay. Great. And then just if I could one last one, just number of cannabis companies had supply chain instructions to their many part where any supply chain instruction given the coronavirus and the lack of flow from China to U.S. at this point?
Coronavirus, what’s that, never heard of it. No, we have – so I think we haven’t had any issues. It’s so far so good.
Okay. Perfect. Thank you.
But you do bring up – I feel like – I always feel obligated to say this. What I can tell you that we’ve been delighted in the way for business is performed throughout the first quarter so far. Our guidance obviously does not include any affective corona. But I’m frankly I’m more worried about the regular flu at this point than corona, so stay tuned.
Thank you. Our next question is from the line of Scott Fortune with ROTH Capital. Please proceed with your questions. Mr. Fortune, please go ahead with your questions.
Yes. Thank you. Good morning. Sorry about that. Just wanted to dig into Florida a little bit, I know, you opened up 6 dispensaries there. And now kind of looking at that the popup model and then how does home delivery in your cultivation kind of work from building up Florida going forward? Can I just get the strategy around that panel?
Sure. This is David. So we did invest a significant amount of our capital in 2019 into the Florida market. We are – I think, tomorrow – this week we are actually getting the final inspection for a large portion of incremental cannabis that’s going to come online indoor cannabis in our Lakeland, Florida facility. So we’re still very comfortable with what we have in terms of cultivation and manufacturing capacity relative to what we have now built, which is 14 dispensaries to the market.
With respect to home delivery, we are going to be very strategic and how we roll that out similar to what we did in New York, which was essentially zip code by zip code. This is all about hyper local competition. And so we are identifying which dispensaries we will start home delivery from first, and then we will rollout from there. I think we understand the economies of home delivery and how that should be rolled out on a facility by facility basis. But our intent is to do that in the state of Florida.
And Scott, just one other thing to add to David’s comments. What we’ve found is that home delivery works, but we have credits of people don’t like to pay for things in cash, when someone comes to the front door. And so one of the exciting parts about home delivery platform we’re introducing in Florida is that we can actually create an automatic fulfillment model, which is looking different then people are used to of what we can scheduled around them in their availability and it becomes a cashless transaction. So that’s one of the way we try to kind of build local ecosystems using the different services and products.
And then real quick up following the popup in strategies kind of the fee that area where we don’t have popup and then fees that make sense going forward to add that dispensary there kind of just being a pause or hold on the expense side build out from that standpoint?
Well, there are some markets where there are simply getting accessible to dispensaries. And so it’s not only an opportunity to test the market before you make real capital – permanent capital commitments. But frankly, it’s a much less invasive labor model and operating model cost structure. So it give us the ability to sort of flex into sort of test the market, and make sure we’re in the right locations. I think that something that a lot of people who are in the hard way in the regions and in municipalities that they not have local expertise and they don’t these dispensaries and they end of not be in the right sport.
We rather – we’re very happy with the locations we have, but what we like to do is take advantage of this regulatory opportunity. And not only sort of find a more capital efficient way to drive revenue. But also really perfect the location before we sort of created permanent structure.
Okay. Thanks for the color. I appreciate it.
The next question comes from the line of Russell Stanley with Beacon Securities. Please proceed with your questions.
Good morning. Just to build on the Florida update and those temporary locations. Can you talk about what, I guess, the CapEx is quite eliminated on per location basis? Can you tell us on the details there with respect to or comparing that to a traditional brick and mortar location? And can you talk about what sort of permitting differences there are in setting up a popup location and how usually that can be kind of take kind of move to other location is part of the testing process you mentioned?
This is David. So at a very high level with the way we’ve modeled out the temporary location is essentially a delivery from an existing dispensary. And so you can have scheduled deliveries on an everyday basis in the temporary location, and so the CapEx that’s required is very minimal. You’re talking about some security. You’re not talking about full build out for dispensary in the staffing associated with it. So it’s very minimal. And it does need to originate from one of our existing dispensaries.
And so we’re looking at the proximity from our existing dispensaries and finding out new locations in that time, perhaps, it’s not actually taking on a full blown lease, it’s working with a local partner to have what we feel like a modified sub-lease. So the CapEx and the OpEx associated with it is very minimal relative to full build out of 8 dispensaries.
Okay. How do the permitting requirements compared and how we usually is it free to move around within the given city?
So I think it depends on municipality. But what we found is that, because it’s not a fixed structure or permanent structure. It offers a lot more flexibility from its owning perspective. Obviously, each town, each city has its own secularities and its own leadership and its own interpretation. But it definitely offers additional flexibility that we wouldn’t have with a permanent structure what have to go through a normal CBA approval process or a normal up permitting process for certificate of occupancy.
Excellent. And just moving onto Utah and Missouri, I know that there are not in your guidance. But could you talk about your options there with CapEx might be to add build those out, and when we put see those become operational.
So it’s really second half issue for us. We’re not focused – we have some much on our plate right now. And we’re really focused on driving profitability within each market, obviously, when we went through our board approval process to release guidance. There was one very clear message that I received from my board and that was, if you’re going to give guidance you better find a way to either meet or beat. And meeting isn’t really an option. So we’re going to do our best sort of really executing what we have.
We are delighted to be part of the Utah program and we’re delighted to be part of Missouri program, and we plan on bringing our very best resources and people into those markets. But we really haven’t given much guidance, in terms of CapEx or OpEx or timing other that it will give the latter half of the year for we engage there. And then simply, because we want to make sure we can really focused on an effective way.
Great. Thanks for the color.
Our next question comes from the line of Graeme Kreindler with Eight Capital. Please proceed with your question.
Yeah. Hi, good morning, and thanks for taking my questions. I just wanted to go back quickly to the guidance as well as the pro forma with respect to TGS. Looking through the numbers, the way I am thinking about it is at the final transaction, you guys have mentioned 1.6 in 2020 revenue transaction multiple which implied about, I think $87.5 million of contribution in 2020. Looking at the bridge on the pro forma here, the range for TGS looks like it’s closer to $80 million to $85 million. So I’m just curious in terms of slight changes in estimates especially considering the color auto is that how to record year in terms of the overall growth in the market there on the sale. So I just want to get some color there? Thanks.
So what I can tell you is that, this is the first formal guidance we provided. So I would just – I will start of that point. And I think hopefully you heard my sort of context relative to the Board’s sort of overview of how we provide sort of formal guidance on behalf of company.
TGS has seen this – as a market leader, has had strong performance so far year-to-date and we expect that to continue. The rising tide raises all ships, but in a very – they’ve managed to outperform competitors based on their execution-ability and based on frankly their entrance into the wholesale market.
So we’re – if we’re going to provide guidance, we want to make sure we provide guidance that we can meet or beat. And I think I would just leave it at that.
Okay, understood, thanks. And then, just to follow-up with respect to the comments previously on the call, on the retail/wholesale split, as it relates to TGS, quite a significant amount of productive capacity on the cultivation side, as well as the manufacturing and processing side of things. So just want to clarify whether those comments were more on the core Columbia Care side of things or they’re speaking more on a pro forma basis. And with respect to that CapEx guidance, does that mean that it’s really just maintenance CapEx for TGS moving forward? Thanks.
For TGS, it’s really is maintenance CapEx. I think it’s one of the things we found so interesting about them as an organization. When we – by the time we had sort of, let’s call it, announced the transaction, may have really completed the bulk of a major capital program very similar to the one that we were involved with. They were focused on increasing productive capacity and really reducing the cost per gram on a dry weight equivalent basis and their productive efficiencies.
All of that has been a source of real value for TGS on a standalone basis. And we think that know-how can be translated into Columbia Care. The Columbia Care, when we think about our productive capacities and we think about what we target internally from a grams per square foot on dry weight equivalent basis, we target between 60 to 65 grams per square foot on a dry weight equivalent basis. And we target over 5 – little over 5 harvests a year. And so, we happen to have a very efficient indoor growing capability.
They have a very proficient capability that is both indoor and outdoor and it’s multi-leveled. So I think the combination is going to be very strong.
Okay, thank you.
Thank you. The next question is from the line of Vivien Azer with Cowen. Please proceed with your questions.
Hi. Thank you for the follow-up. Look, I just wanted to dig on your CBD launch in the U.S., if you can provide some context, number one, on the store distribution penetration, like you have a number of [FDM] [ph] outlets you’re already in and what are you targeting for 2020, so that’s question number one on CBD. Question number 2, how much CBD revenue is embedded in your full year revenue guidance. Thanks.
Thanks, Vivien. And so, what we really haven’t projected much contribution from CBD at all. Our products are great. And they’re sort of – they’re getting traction. But candidly what we have found is that the traditional retail model is not that attractive, relative to the traditional – just sort of the more traditional business that we’re in, which is the THC side of the business. And so, it doesn’t really add a lot either to the bottom-line or to the top-line to get involved in some of these mass retailers, because 3 SKUs a month, 5 SKUs a month on an ongoing basis doesn’t move the needle when you’re talking about a business with a revenue base of over $200 million.
And so, we’ve thought about – we looked at all the options, we’ve looked at, frankly, a lot of the structures that competitors have adopted, looked at the profitability. And if the number one goal this year is to drive cash flow from operations up to the parent company to transition not only to EBITDA positive, but cash flow from operations positive, most of our resources in focus is going to be spend on the THC side of the business or what’s called the Rx side of the business.
For us, CBD is a – it’s a natural extension and it’s an entry point for a lot of people better gaining confidence and comfort moving into cannabinoid phenomenon. But in the U.S. markets, I know that everyone like to talk about an oreo with a CBD in it. We just don’t see that happening, especially now that so many of the Canadian companies had issues. Now, I think there is a reluctance amongst some of the larger players to really lean into CBD until there is – there are real federal guidelines in the U.S.
So it is something that we think about. It’s something that we have sort of expertise in. And it’s something that we’re taking advantage of opportunistically. But it’s not going to be a real driver of the business and it’s not something we’re really hanging our hat on for time being. If something changes we’ll certainly let know you and let the market know. But it’s just they’re much, much more profitable, much more high growth opportunities for us to focus on in our core markets.
Understood. [That answers, people] [ph]. Thank you.
Thank you. At this time, we’ve reached the allotted time for question-and-answers. And I will turn the floor back to Nick Vita for closing comments.
Great. I just wanted to thank everybody on the phone, and frankly, thank the team for their hard work. It has been a whirlwind year and nothing is ever perfect. You see markets like this and you wonder, is the sky falling, and it’s not.
We’ve seen really, really spectacular performance out of the assets we’ve built. We’re excited about this year. We’re delighted to finally give sort of real thoughtful guidance to the marketplace. And on behalf of team, we’re just – we would like to express our gratitude for all your support. So thanks very much.
Thank you. This concludes today’s conference. You may disconnect your lines at this time. Thank you for your participation.