Good morning, everyone, and thank you for participating in today's conference call to discuss Columbia Care's Financial Results for the Fourth Quarter and Full Year ended December 31st, 2021. 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 two hours after the completion of the call and will be archived for 30 days. I would now like to turn the conference over to Lee Evans, Senior Vice President, Capital Markets for Columbia Care.
Thank you, Melissa. Good morning, and thank you for joining Columbia Care's fourth quarter and full year 2021 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 fourth quarter and full year 2021 results, which we also filed with the applicable Canadian Securities Regulatory Authorities on SEDAR and the U.S. Securities and Exchange Commission on EDGAR. A copy of this release is available on the Investors section of our corporate website, where you will also be able to 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 and U.S. 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 Annual Information Form dated March 31st, 2021, as filed with applicable regulatory authorities and posted on SEDAR in our amended Form 10 filed with the SEC on February 15, 2022 on EDGAR. 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 refer to certain non-GAAP financial measures such as 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. As this is our first call reporting under GAAP, for a final time on this call, we will also refer to certain non-IFRS financial measures, such as combined Adjusted EBITDA. These references are intended to assist analysts in assessing our results as our 2021 guidance was presented with reference to IFRS.
These non-IFRS financial measures do not have any standardized meaning prescribed by IFRS and may not be comparable to similar measures presented by other companies. A reconciliation of such non-IFRS financial measures to their nearest comparable IFRS 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?
Thank you, Lee, and good morning, everyone. Our team is very pleased to be with you today to discuss our fourth quarter and full year results, as well as our outlook for the coming year. First, allow me to comment on the exciting news that Columbia Care will be combining with Cresco Labs to become the undisputed leader in Cannabist in North America. As was announced yesterday, Columbia Care will be combining with Cresco Labs, creating the new leader in North American Cannabist. Together, Columbia Care and Cresco Labs will be the largest multi-state operator on a pro forma basis, with over $1.4 billion in revenue and leading positions in 17 states and the District of Columbia.
The combined company will have over 130 retail locations, a more diversified revenue stream by market, full vertical integration in 16 states, and an industry-leading wholesale platform. The combined company's scale will enable us to leverage our investments, increase vertical integration, and reduce redundant operating costs more effectively. The share exchange will give Columbia shareholders approximately 35% ownership of the combined company on a fully diluted in-the-money basis. To summarize it succinctly, the combination of the best companies in the business enables us to accelerate our strategies for the growth and deliver the best outcomes for shareholders. Cresco and Columbia Care are aligned in our vision for the future of Cannabist, and together we will be best positioned to continue our mission as a combined force.
With Columbia Care's strategic footprint, national footprint in the most attractive markets, especially those poised to transition to adult use, such as New Jersey and Virginia, alongside Cresco's success and execution and incredibly popular brands, we will together create the most important and investable company in cannabis. Getting to know Charlie Bachtell, the Co-founder and CEO of Cresco, along with his team and the culture at Cresco, has given me a great deal of confidence in the ability to successfully integrate Columbia Care and maximize the value of the tremendous footprint we've assembled so that we can best serve our patients and consumers. I am now more excited than ever about the possibilities before us, and together with Cresco, we will accelerate the pace of profitable growth. Now let me turn briefly to the fourth quarter and full year 2021.
Looking back on the past year, I am so proud of what we've been able to achieve. In 2021, we opened 12 new retail locations, inclusive of Medicine Man in Colorado, entered three new markets, West Virginia, Missouri, and Utah, upgraded 22 locations to the new Cannabist branding, and expanded to 49 different product categories across our house of brands, such as Classix, Triple Seven, and Seed & Strain, added more than 1 million sq ft of additional growth capacity, including the largest cultivation facility on the East Coast in Riverhead on the North Fork of Long Island, New York. These achievements and others that David will discuss in more detail in just a few moments drove strong year-over-year financial results.
On a GAAP basis, revenue rose from $179.5 million to over $460 million, an increase of 156%. On a combined IFRS basis, revenue rose 139% in line with our guidance. We extended our record of sequential growth every quarter in 2021, including 5% sequential growth in 4Q. We had strong bottom line growth with combined Adjusted EBITDA reaching a record $85 million, also in line with our guidance.
Last quarter, I spoke about our four North Stars being the MSO in the best markets for the best margins, establishing a nationwide retail experience with Cannabist, as well as a highly recognizable and sought after national brands portfolio, continuing to build upon our unique and sustainable competitive advantages and leveraging data-driven decision-making to ensure customer loyalty and drive the highest returns on investment. We are relentlessly pursuing these initiatives, and will continue to do so up to and through the combination with Cresco. The groundbreaking combination of the two companies will accelerate the pace of change, and it represents a clear inflection point in the growth opportunity for both companies. We believe the time for consolidation is now, allowing for the preservation and generation of cash flow today and creating the most strategic positioning ahead of federal legalization and greater capital markets access.
We look forward to having all of you with us on this journey as we create the most important and investable company in Cannabist. Now I will turn the call over to our CFO, Derek Watson, to cover our financial results and outlook. Derek?
Thank you, Nick, and good morning, everyone. I'll provide a brief summary of the key financial results for the fourth quarter and the full year, discuss our outlook for 2022, and briefly address the exciting transaction with Cresco that we announced yesterday. As we've mentioned today in our preliminary earnings release last week, this is our first quarter and full year reporting under U.S. GAAP after we became an SEC filer in mid-February. We hope to make this transition as transparent as possible. We've provided a reconciliation between our IFRS and U.S. GAAP results, and we'll reference comparable IFRS results for the fourth quarter and full year, given that was the basis of our 2021 guidance. Also, keep in mind that due to the close of our Ohio transaction effective July 1st, starting in Q3 of 2021, we no longer report closely combined metrics.
For the full year therefore, the first six months do include combined metrics. Again, we've provided that reconciliation in our supplemental materials. To begin with our results, revenue in the fourth quarter was $139 million, an increase of more than 5% sequentially quarter-over-quarter, and over 70% year-over-year when compared with Q4 of 2020. The sequential growth was driven primarily by sales increases in our Massachusetts, Florida, and Virginia markets. In our Colorado wholesale business, where we had our first outdoor harvest, and contribution from the acquisition of Medicine Man in Colorado that joined the Columbia Care family effective November 1st. For the full year, we achieved $474 million in combined revenue, representing growth of 139% year-over-year and in line with our IFRS guidance.
Adjusted gross profit for the fourth quarter declined sequentially by approximately $1 million to $64 million under IFRS, resulting in an adjusted gross margin of 46%, down from 49% in Q3, and bringing our full-year adjusted gross margin to 45.1%. The main driver of this sequential decline was softness in the Pennsylvania market and wholesale in particular. Reported operating expenses were $70 million in the fourth quarter, excluding a one-time impairment charge, compared to $62 million in the third quarter. As a percentage of reported revenue, our operating expenses continue a downward trend with our corporate-only operating expense now representing 11% of total revenue in Q4. Combined Adjusted EBITDA for 2021 was $85.1 million, also in line with our guidance, bringing our full-year Adjusted EBITDA margin to 18%.
This Adjusted EBITDA in Q4 was $27 million or 20% of revenue, down 4 percentage points from Q3 and driven by the margin compression we've described, but 8 percentage points higher when compared to Q4 of 2020. The equivalent Adjusted EBITDA margin under U.S. GAAP was 13%, and this will be the basis we use for our 2022 guidance and results going forward. Wholesale represented approximately 19% of revenue in Q4 compared to 20% in Q3, the change driven again by the decline in our Pennsylvania market. We had another quarter of positive cash flow from operations, helping bring our year-end cash balance to approximately $82 million. Subsequent to year-end, we also completed a private placement of $185 million in 9.5% senior notes due 2026.
This financing is non-dilutive and provides us with continued flexibility as we invest in our growth initiatives. Capital expenditures in the fourth quarter were approximately $45 million, compared to $41 million in the third quarter. We continue to invest in our growth markets, including New Jersey, West Virginia, New York, and in the expansion of other cultivation sites, including in Ohio and Pennsylvania. Turning to our outlook for 2022. Again, we're issuing guidance in U.S. GAAP and guiding to $625 million-$675 million in revenue and $120 million-$135 million in Adjusted EBITDA. This outlook assumes adult use begins in New Jersey in Q2 of 2022, but does not include any contribution from future acquisitions, nor any changes in the regulatory environment in our other markets.
As our competitors have already been reporting, we continue to see some headwinds from late 2021 extending into early 2022, including unfavorable pricing dynamics in certain markets such as Pennsylvania and California. Macro pressures such as inflation impacting discretionary spending, and we no longer see income subsidies for consumers as we did during the height of the pandemic. With the combination of these factors, we foresee flat to negative top line growth in Q1 of 2022 versus the fourth quarter. However, we continue to focus on improving our gross margins through cultivation efficiencies and scale, even in markets where competition is increasing, and further improving our EBITDA margins by leveraging corporate overhead. We're anticipating positive catalysts in the year, including adult use sales in New Jersey, new store openings in Virginia and West Virginia, and organic growth in many of our existing markets like Florida and Ohio.
Lastly, I'd like to quickly address the exciting transaction announced yesterday with Cresco. As Nick has mentioned already, the combination of two of the largest MSOs will create the number one operator in the industry based on pro forma revenue, and with a leading national footprint in both wholesale and retail. In looking at the strength of this combination, we anticipate significant value to be created through operating synergies, avoiding the duplication of longer-term CapEx in overlapping markets, and proceeds from the sale of assets in jurisdiction where there is some regulatory overlap. There's obviously a lot more to do here, but based on the anticipated timing of closing around the end of 2022, we'll be working with the Cresco team over the next nine-plus months to develop a thoughtful approach to this integration and how we execute against this post-closing of the transaction.
With that, let me turn the call over to David to cover more of our operational highlights. David?
Thank you, Derek, and good morning, everyone. I'd also like to take a look back at the key accomplishments of this past year, as well as discuss the current operational landscape. In addition to the highlights that Nick covered, we had transformative achievements in 2021, reflective of our priorities to continually optimize our efficiency from an operational perspective, especially when we saw ongoing pricing pressure in both wholesale and retail in Q4. Chief among these investments in 2021, beginning with cultivation and manufacturing, over the course of 2021, we added over 1 million sq ft of incremental cultivation and manufacturing capacity. The optimization of production planning, genetic selection, environmental controls, and plant management across the cultivation portfolio, which has driven a dramatic and favorable impact on gross margin improvement, as well as crop yield and potency.
Being first to market with the introduction of wholesale flower sales in Virginia in September and in New York in October. The launch of the Classix whole flower brand in five markets in a single day in October, the largest single-day launch of a flower brand in the industry, which was made possible by the infrastructure and team that we have in place. The completion of the first harvest at our new Riverhead, New York location in December, which is now producing flower for the New York medical program. The opening of our first manufacturing site in West Virginia, with three retail locations open to date and another expected to come online shortly before the end of this quarter. The addition of a manufacturing site in Missouri, which became operational in Q4.
A record indoor harvest in Colorado, where the results are indicative of the progress we're making in our overarching strategy. Onto retail. We have maintained a continuous focus on driving labor productivity at the store level, despite the challenging hiring environment. The continued expansion and improvement in store-level dashboard systems to maximize efficiencies across our entire retail footprint. The conversion of 26 stores to the Cannabist brand, including all 14 Florida locations, which were simultaneously converted on the same day. Approximately one-third of all Columbia Care retail locations are now under the Cannabist brand, which was introduced in May of 2021.
We also closed several meaningful acquisitions in 2021, including The Healing Center San Diego, Green Leaf Medical, CannAscend in Ohio, Medicine Man in Colorado, and nearly 1 million sq ft of cultivation production capacity on Long Island, New York, all of which have served to deepen our footprint. These achievements are the result of the hard work of everyone in our manufacturing, distribution, and retail networks, and I'm incredibly proud of what they've accomplished. As we discussed in the third quarter call, we continue to operate in a challenging environment, from hiring, to inflationary costs, to aggressive discounting by competitors, to regulatory delays. Our teams continue to work hard every day to drive the top and bottom line. As we look back at Q4 more specifically, on a revenue basis, our top five markets in alphabetical order were California, Colorado, Massachusetts, Ohio, and Pennsylvania.
On an Adjusted EBITDA basis, the top five markets alphabetically were Colorado, Maryland, Massachusetts, Pennsylvania, and Virginia. We opened the West Virginia and Missouri manufacturing sites, as I mentioned a moment ago, as well as a retail location in Richmond. We opened Virginia Beach in Q1 of 2022, and now have four locations opened in the state of Virginia. We ended the year with 79 retail locations open and another 20 under development. To date, we have 83 active retail locations and 16 in development. Looking forward to 2022, we remain highly focused on a number of key initiatives, retail openings with 16 cannabis locations in the pipeline, including West Virginia, New Jersey, New York, and Virginia, expansion of cultivation in our Riverhead, New York facility to scale with growing medical program and the advance of adult use.
Further optimization of our cultivation facilities to maximize yield and quality. Maintaining grams per square foot and THC levels for flower will be critical to offset price decline curves anticipated in many of our markets. A concentrated effort of driving efficiencies in our packing and distribution capabilities to match the significant performance improvements that we've achieved elsewhere in the value chain. Further development of the Forage application, enabling consumers to explore production options, order the products of their choice, and further inform our manufacturing and distribution decision-making through data. A continued expansion of our nationwide rollout of our exclusive product brands. Much of the CapEx spend in Q4 was dedicated to cultivation in markets such as Ohio, West Virginia, New York and Virginia, which we anticipate will demonstrate results in 2022, particularly in the second half.
We continue to put money to work for growth opportunities. We are facing pricing pressure in some markets. We're also investing in incremental canopy to ensure that we can manage the costs. We have made progress in automating and standardizing across the markets, which sets us up nicely for 2022. With that, I would like to turn the call back to Nick for a few closing points before we open up for the Q&A. Nick?
Thank you, David. I want to close with a final note on the transaction that was announced yesterday and what it means for Columbia Care. The extraordinary strength of this partnership is undeniable. Together, Columbia Care and Cresco Labs will be the true leader of this industry by every measure, but most importantly, we're natural partners with complementary skills, cultures, and values. While we've been competitors since the very beginning, we've always had a mutual respect for how each other operates in this space. This partnership will establish the new leader in North American cannabis and the most important and impactful company in our industry by every measure. We will be positioned for balanced and sustainable growth by marrying Cresco Labs' number one wholesale portfolio and Columbia Care's robust retail network.
There is a lot of work ahead of us to bring the transaction to a successful close, including divestitures, but I am confident in our ability to execute as we have in the past. I'm inspired by what this partnership means for the future of Columbia Care and the cannabis industry as a whole. We have found partners that see the world through the same lens as us, and we have the opportunity to make a historic impact. We will continue to strive forward towards execution of our strategic priorities in 2022 and look forward to a new chapter for Columbia Care going forward thereafter. I am grateful to my team and everyone, including those of you on this phone, who have worked so hard to bring us to this point and cannot thank you enough. We're happy now to take your questions. Operator?
Thank you. If you'd like to ask a question, please press star one on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star two if you'd like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. In the interest of time, we ask that you each keep to one question and one follow-up. Thank you. Our first question comes from the line of Aaron Grey with Alliance Global Partners. Please proceed with your question.
Hi, Aaron.
Hi, Nick and team. Good morning, and thank you for the questions. First question from me. Appreciate the color in terms of, you know, the margin impact and that coming from Pennsylvania. Obviously we've got some of the third-party data, you know, seeing some of the pressure there, in the overall market as well as, you know, for legacy gLeaf. Just wondering in terms of, you know, how do you think about the timing of that turning around? Looks like you're gonna expect some continued margin pressure there. Maybe changes you're making, you know, at the cultivation and when you might expect to see a turnaround in terms of your market share, and the overall kind of pricing that you're seeing within Pennsylvania. Thank you.
Sure. David Hart, why don't I turn that over to you?
Sure. Thanks. We are in the middle of the construction process for our Saxton facility in the state of Pennsylvania. I think everyone's aware that it is a large footprint. We've invested a fair amount of capital into that project. We are going to add incremental canopy over a phased approach as we bring product to market. In addition to the incremental canopy, and obviously I think the leveraging the fixed assets that are scheduled for 2022, we're also in the middle of introducing a number of our national brands into the state of Pennsylvania, which we've not yet done.
From our perspective, there is incremental supply that's gonna be coming out of our facility in Pennsylvania over the course of 2022. We obviously wanna be thoughtful about that. We continue to press the envelope with respect to the percentage of gLeaf product that's on our three stores' shelves. That continues to increase as we work to bring incremental genetics, potency and quality from the Saxon facility into the marketplace. We continue to develop relationships across the market in Pennsylvania. There are obviously plenty of legacy relationships with the gLeaf team, but we've done our best to bring some incremental relationships.
From an operational perspective, it's a timing issue with how much incremental canopy we're gonna bring on during the course of 2022. We're gonna be thoughtful about that as we look at the market. I think we highlighted in Q3, late Q3, and early Q4, that we had some production issues in the Saxon facility that have now been fully resolved. The quality and quantity and material coming out of that facility is back to historical levels. In fact, I think it's above, which is positive for gross margin. We continue to watch very closely the Pennsylvania wholesale market. We see it both on the retail side in our stores and obviously what the gLeaf team is seeing in real time on the wholesale side.
We're taking a balanced approach to bringing that incremental canopy on, but there's no question that to the extent that there are price decline curves that present themselves in 2022 in Pennsylvania, having that incremental scale and leverage will allow us to be efficient with our production and hopefully offset from a gross margin perspective those price decline curves.
All right, great. Thank you very much for that color. That's helpful. Some questions from me before I pass it along. First quarter, you know, flat, to down some. We look at the remainder of the year at the midpoint of guidance, you know, that implies about $170 million, you know, average, if you assume it's flat for the first quarter. You know, a pretty good amount of growth for the remainder of the year. You talked about pricing pressure continuing. I just wanna know in terms of how much pricing pressure you have, you know, embedded within your model for the remainder of the year, versus the growth opportunities that you see in terms of New Jersey starting the new stores, in Virginia and West Virginia.
really just wanna get better color in terms of what pricing expectations you have embedded within the guidance. Thank you.
Let me turn that over to Derek, and then I'll hand it over to David.
Yeah. Thank you, Nick. We're looking at obviously 17 different markets around the country. There are different pricing pressures depending on the market. A number of our markets, we have experienced increased average basket size in Q4.
A lot of that, in many cases is due to the Cannabist rollout and people switching into our new retail banner and spending more in those stores. Yes, there's pricing pressure, but between the segments that we're operating in, we are seeing some uplift in prices. That's true for a lot of markets around the country as we move through 2022.
David, do you have any thoughts?
Yeah. I would also add, you know, we've gone through this digestive phase before with our CapEx, and that's obviously something we're in the middle of right now based on what we spent in totality in 2021. You're talking about new canopy, you know, analyzing year-over-year in Virginia, New Jersey, New York, Ohio, obviously West Virginia, Florida, and improvements in yields across the board, but particularly in Colorado and California and Pennsylvania, and new manufacturing in Arizona, Florida, obviously West Virginia and Ohio. There's a fair amount of new assets, and production coming out of our assets, during the course of 2022 as a result of the investments we made in 2021.
That is all of that material coming online and working its way through our supply chain and ultimately in the wholesale and retail market, will provide incremental lift as well from a just a total dollars perspective.
Okay, great. Thank you very much for the color, and I'll jump back into the queue.
Thank you. Our next question comes from the line of Vivien Azer with Cowen and Company. Please proceed with your question.
Hi, good morning. Thank you. I wanted to follow up on Aaron's line of questioning on Pennsylvania. Sorry to belabor the point, but it clearly has been such a topical market throughout earnings season. You know, this is a market where you and your competitors have been incredibly transparent about the amount of capacity that's coming online, so deflation shouldn't have been unexpected, I don't think. I am curious, you know, relative to your internal expectations, where did deflation trend not just for the fourth quarter, but we're a week out from closing 1Q, so any incremental commentary on 1Q would be helpful, too. Thank you.
I'll turn that over to David, and then I'll turn it over to Derek.
Sure. Morning, Vivien. In Pennsylvania, we have tried to provide a fair amount of transparency. There's obviously a lot of data that's out there through third party resources to show where the trends are. We saw in Q3, early Q3, and then actually into Q4, we saw some price decline curves in Pennsylvania that I think were pretty breathtaking for a period of time. They have rebounded, particularly for I think what is now taking place in Pennsylvania, which we've seen in other markets, particularly markets like in Colorado or in California, where there's a segmentation with respect to quality and potency. The price decline curves for, you know, call that B or C quality flower is pretty significant in Pennsylvania, and we don't anticipate that rebounding anytime soon.
The market for high quality, high potency flower has rebounded in terms of the price per pound. That is one data point that is, you know, constructive for the Pennsylvania market. There is clearly still demand for high quality flower. That is part of our thinking and part of our expectation for Pennsylvania. I think it just highlights what we're probably gonna see, I think, in most of the markets on the East Coast, which wasn't probably present two years ago, is that genetic diversification and potency matter from a pricing perspective. You will see that categorization of flower and flower derivatives in most of these markets, including Pennsylvania.
That's one of the key factors that we're focused on, which is the productivity coming out of the facility in Pennsylvania. In addition, I do think that bringing in a number of new, not only just genetics, but new form factors and brands, namely our national brands into that Pennsylvania market, will help allow us to put incremental products on the shelf throughout the state. To me, those are the factors that we control internally right now within Columbia Care and Legacy gLeaf for our expectations for Pennsylvania. But there's no question it was a sizable part of our business and our expectation the second half of 2021. You know, we have made obviously some forecasting assumptions for 2022 as it relates to Pennsylvania.
I think thankfully we've got a number of markets that are expected to outpace the broader market in terms of growth opportunities organic to Columbia Care, but also at the macro level within the state that are gonna be tailwinds for us through the course of the year to help offset what we think will continue to be some constraints on the demand side for, you know, anything below A quality flower coming out of Pennsylvania.
Derek, do you have anything to add?
Yeah.
Yes, go ahead.
Sure. It's one of those markets where obviously the industry is positioning for adult use coming on, so there's more cultivation coming online in Pennsylvania ahead of that. Not unexpected. I will just add to what David was saying, which is we've reported here that Pennsylvania is still one of our top five markets, both revenue and Adjusted EBITDA. Although there's some headwinds from Q4 of 2021, and including some of the cultivation challenges that David mentioned, it's still one of our top markets and remains in that top profile for us.
Understood. Thank you for that color. Just to follow up on that, though, you know, given the characterization of the drop-off at the end of 3Q, it seems like the price deflation perhaps started, but certainly was more significant than you'd anticipated. I appreciate that you're bringing on more canopy in Pennsylvania to insulate gross margin and skew towards a higher quality profile with, you know, genetic diversification. All of that is clearly important. I'm hopeful that you guys can articulate maybe, you know, a little bit more specifically, you know, how you guys changed your market modeling in terms of, you know, the supply and demand imbalance. I get it, you know, there's optimism in the market around, you know, use. I don't share that optimism.
you know, there's still a lot of capacity coming online. So how have you changed your market modeling assumptions? Thanks.
Look, Vivien, like, let me just add to that. I think, you know, piggybacking on, you know, trying to avoid being repetitive, but, like, this is a scale game, right? You have to have the most efficient manufacturing model with the best products, and you have to be able to convey products that is actually sort of embrace the value proposition in the eyes of the consumer. When you think about the way we've changed our market modeling, we have assumed a price decline curve that we're not going to discuss today, but it is a price decline curve.
That is based on not only the impact of the macroeconomic environment, which is probably, in my opinion, the single most important factor that's hurting the wallet of the consumer, but also the competitive dynamics. There are always going to be, you know, additional players coming into every market, right? This is just the way every market is gonna materialize over time, and I think the industry needs to get positioned for that eventuality. That is one of the driving factors behind our decision to combine with Cresco. Our Saxon facility is arguably the most scaled facility in the state of Pennsylvania.
We will be able to produce products at a much lower rate and a much higher level of quality than most of our competitors, if not all of our competitors. When you add to that the idea of the sort of value proposition, the form factors of branding, right? That is the only way that someone can escape the commoditization of their products. That's precisely what we are doing. Not only have we changed our market model, we've actually adjusted our overall strategy and tactics to the way we approach Pennsylvania and the national market. It's a very fair question, but I think that you have to sort of. Like, this is something we've seen in Colorado, something we've seen in California.
It doesn't surprise us at all, and it shouldn't surprise anybody on this phone because this is gonna happen in New York, this is gonna happen in Virginia. The question is, what is the timeline? You know, that is, I think when you think about it from the standpoint of sort of the top-down, like, that's what's driving a lot of our decisions right now, in addition to cost of capital, other things like that. It is, you know, the specifics of how we do it and why we do it, I think are proprietary, but the overall, the overarching sort of changes we've made continue to improve. By the way, we have seen improvements in our pricing power in the wholesale market.
There, you know, there's value to be had in having a fully integrated model that allows you to insulate yourself somewhat from a lot of those dynamics.
Thank you. Our next question comes from the line of Matt McGinley with Needham & Company. Please proceed with your question.
Thank you. Your 2022 guidance implies that you expect around a six to seven point improvement in EBITDA rate this year. Would you expect that improvement to be weighted more to gross margin improvement or from G&A leverage? On the flat to negative comment for top line in the first quarter, does that extend the margin rate as well, or would the operating efficiencies that you've been speaking about enable you to grow that rate in the first quarter as well?
Let me turn that over to David, and then I'll also ask Derek to weigh in.
Yeah. It's a good question. It's a combination of both. There's clearly incremental scale and leverage that we're gonna achieve from an OpEx perspective as we grow just the organic top line. That's definitely a part of the story. We do expect to continue to see some improvements. Again, we've got a number of markets, but in aggregate, we expect to continue to see incremental throughput that's gonna drive incremental gross margin improvement during the course of the year. But Derek, I'll hand it over to you if you want to provide any sort of specificity.
Sure. Yeah. Well said, it is a combination. We've obviously got high top line growth in 2022 as we're expanding in markets and we've got new store openings. It is a leverage. It is a scale benefit on the cultivation assets and the gross margin and the infrastructure that we've built in corporate expenses. Yeah, very much hitting both aspects.
Agreed. On the CapEx spend, you spent about 75% of your total dollars in the last two quarters of 2021. Do you expect to sustain CapEx at that level into this year? How much of that spend would you expect to make on growth investments relative to some of the productivity enhancements that you invested in or put in place last year?
I'll start off with a very high level statement. The CapEx curve will decline as the year goes forward. If you recall, when we raised the debt at the beginning of the year, that was really to position the three kind of primary transition markets, New York, New Jersey, and Virginia. We continue to invest in those markets, but that's in anticipation of sort of an adult use changeover. You know, there will be small enhancements here and there, but the bulk of the capital is really going to sort of materially meaningful opportunities that are kind of near term. Let me turn that over to David and Derek again.
Yeah. I'd echo that, and a lot of that is, as Nick has mentioned, on the evolution of the individual markets. When we're creating initial scale in a new market, and New York, Virginia, New Jersey being great examples of that, there's a lot of CapEx to just build that footprint. As the markets evolve, and we've talked about Colorado and Pennsylvania already, those investments are to improve efficiency and improve yields, and that's obviously helping the gross margin in those more mature markets.
Great.
Thank you. Our next question comes from line of Matt Bottomley with Canaccord Genuity. Please proceed with your question.
Good morning, everyone, and congrats on yesterday's news. Just was wondering on your potential, you know, future endeavors here on continuing to increase operating leverage and, you know, getting full economics from a lot of the facilities you guys have built out in the past. Is there any change on the back of yesterday's news, given that it is, you know, a nine-month plus probably closing date on that deal with Cresco of things that you might take, you know, your foot off the accelerator on that you otherwise would have, considering there could be divestitures of some of these assets? Does that play in at all to your forecasts for next year?
I'm going to. Let me take a very high level approach to that. Obviously, you know, we're in a moment of time where we have to be very, very deliberate in how we think about the business and how we move forward. I think the safe assumption is to sort of look at the world through the lens of Columbia Care standalone until the moment in time that Columbia Care is combined with Cresco. We're gonna keep our foot on the gas and push ourselves as hard as we can. The lesson we learned from last year regarding our guidance is that we actually had to reduce guidance. I'm sure everyone on the phone remembers that.
That was not an easy process for us. A lot of the feedback we heard from many of our institutional investors was, "You're not getting credit for being a high growth player in this market. You're not getting the multiple you deserve, so don't put out expectations that are anything but more than achievable." That's precisely what we've done. We've taken a very conservative approach based on the portfolio we have. There are obviously headwinds in some markets, and there are opportunities in others, but we're managing the headwinds, I think, effectively and intelligently, and we're taking advantage of the opportunities as aggressively as we can. We are absolutely not taking our foot off the gas.
We're pushing ourselves harder than ever to make sure that we've, you know, we continue to move forward and continue the momentum. I would anticipate that, you know, carrying through the next year. One of the things that I never wanna have to do again is go back to the Street and basically, you know, sort of eat my hat and apologize for having to reset expectations. It's just, you know, it was actually really driven by a very practical kind of messaging and credibility issue more than anything.
Got it. Okay, thanks. I just wanted to pivot now to New Jersey specifically. You mentioned in the prepared remarks, you know, potentially a Q2 kickoff date. I know there's a meeting later today with the commission, but I'm just wondering if I can get a little more granularity on your expectations, just, you know, maybe in terms of materiality for how the rollout's gonna go. You know, not specific to anything, Columbia Care, but just sort of more macro. It doesn't seem like there's a lot of stores that are gonna be approved out of the gate. What's your expectation for, you know, where this state is by the end of the year, assuming everything goes along timelines in terms of just infrastructure to supply this market? Very large TAM, very large population, but just seems like the.
What's built today for all the 12 or 10 operators is fairly modest relative to the opportunity size.
From a very high level perspective, one of the lessons we learned year after year after year is that the political process, the regulatory process is highly complicated and unpredictable. It is the single least predictable element of our business. We, you know, I'm sure you remember in the fourth quarter, there was some expectations set that New Jersey would transition to adult use in fourth quarter of 2021, or then it was the first quarter of 2022. We've always said that it's a second quarter 2022 issue. I think that's a reasonable expectation. We may be proven to be wrong, but it was conservative at the time we sort of began to share it, and I think it's turned out that conservatism has turned out to be appropriate.
It is a massive market. It is a very well-regulated market, and I think it's an intelligently regulated market. You know, there are other political and regulatory matters that will need to be addressed by the state before the program really takes off, and that's something that will take time. You know, I think that having expectation for what New Jersey could mean for the industry is very, very realistic and appropriate. I would always sort of, you know, whatever expectations are, I always kind of push it back a couple of quarters because things happen, and then there are those things that are always out of the industry's control because decisions are being made by policymakers.
I think that you'll see a very, very nice ramp, revenue ramp going into the end of this year. I think the second half of the year, you're gonna begin to see the semblance of a foundation being set. I do think you see the rollout of adult use, but it'll be slower than people expect, and I think there will be a lot of hurdles that the operators have to overcome, just to get their facilities up and running. If you recall, you know, one of the most complicated elements of this process has been to get the local municipalities to provide that letter of support. We've done that in two out of our three markets. The third market has expressed support. Now we're having an issue with the Department of Transportation. Who would've thought, right?
For us, we have done, in my opinion, everything right. The team has executed absolutely flawlessly on the ground and done a great job. Our manufacturing capacity is coming along exactly as we'd hoped. It's not coming online. It didn't come online ahead of the curve too far, which is something I did not want to happen. We've made those investments. We're very happy with them and the way things are turning out. There definitely will be sort of speed bumps along the way. I think it's gonna be a great market and really beginning to show that trend line materialize towards the end of this year. Between now and then, if, by the way, if I'm wrong, great.
That means everyone has upside, especially us. I think that's just a safe way to think about it.
Thank you. Our next question comes from the line of Kenric Tyghe with ATB Capital Markets. Please proceed with your question.
Thank you, and good morning. Nick, you know, one of the other markets that has been a bit of an outlier through this reporting season is Massachusetts. Can you speak to what do you think needs to change? You know, where is the rebalancing that's required, or what is the rebalancing that's required in Massachusetts? How material do you think that, you know, Boston is and remains to Massachusetts finally getting some wind in its sails and, you know, perhaps charting a slightly better course through at least the second half of this year, at least, if not the first?
Candidly, I think Massachusetts has been one of the most impressive markets in our portfolio. I'll give a high level overview and then hand it over to David. We have increased market share. We have maintained profitability and pricing. We've shown extremely high levels of growth relative to competitors, in spite of the fact we've seen a massive influx of the number of competitors, both on dispensary and cultivation side. It's been a great market for us. It continues to be a great market for us. Candidly, I think that the team has done an outstanding job of executing relative to the headwinds that they've been pushing up against.
The market will continue, you know, as we've seen in every other market, you know, as markets mature, you will see more and more competition come online. That competition will try to compete on price. They'll try to buy market share. That's not the game we play. The conversion to Cannabist has been very successful. We continue to see strong growth out of our Boston facility.
you know, as far as the sort of the CCC and kind of let's call it, local municipal, political relations are concerned, you know, we really have tried to do our level best to maintain and, you know, continually, you know, sort of improve those relationships so that we can execute on the model without having to sort of stumble on any, you know, unintended consequences with either the regulators locally or at the state level. I actually think that the team has done an outstanding job, especially when you look at some of the incumbents and where the market was 12 months ago.
There are people who have lost 50% or 60% of their revenue base based on the fact that they, you know, either didn't have the right supply chain, the right products, the right marketing, the right service, whatever it is. Meanwhile, we've continued to kind of chug ahead. You know, Columbia Care, if there's one thing we've always been very good at, it's being kind of Steady Eddie, right? You know, we're more the turtle than the hare, but we keep on making progress on a very kind of deliberate basis. Let me turn that over to David and see if David has any thoughts.
The only thing I would just add briefly that, you know, we did invest in Massachusetts last year in the conversion of our Lowell dispensary to the Cannabist brand. We increased the number of point of sale stations, did a number of other things. We dramatically improved the size of the vault and some other things. We probably experienced the greatest number of competitors in a 15-mile radius in any of our dispensaries took place in Lowell, and that store continued to perform and to take market share. I think we've done a really good job. Location matters, team and obviously menu and portfolio selection matters. We've done a great job at a blunting strategy for when competitors have come online.
On the manufacturing side, we did invest in our cultivation manufacturing facility to add incremental post-harvest automation, which we've now fully scaled up in our. As of this quarter, we're actually opportunistically buying biomass to run through our post-harvest production for incremental opportunities for pre-roll production in our stores and then obviously in the wholesale market. We continue to see great opportunities in Massachusetts on a relative basis, quarter-over-quarter. As Nick mentioned, the profitability there has remained strong and resilient.
We're very happy with where we are in Massachusetts, and I think this summer is gonna be where you see new records for us with respect to foot traffic and total revenues out of our Boston facility, because we were not open, you know, in the peak months, if you will, foot traffic last year. Obviously, we expect the foot traffic in just Boston, generally speaking, to be significantly higher than it was last year or the year before with the pandemic. We continue to see good things out of Massachusetts for us on a relative basis.
That's right, Tyler. Thanks. Just a quick final one, switching to the West Coast. Nick, can you provide some insight into the extent to which your, you know, relative positioning in the state has buffered you to some extent from the pressures? Also a reminder on, you know, where you are in terms of the capacity utilization, sort of exiting the year in California. Thank you.
Look, we, you know, it's funny if you look back historically to 2021, we sort of a lot of the pain we felt was self-imposed because we had thought Pennsylvania would be a dramatic sort of outperformer relative to expectations. That turned out not to be true. That's why we took Colorado and California offline to really reconstruct not only our organization but our supply chain. The fact that we have a sort of, let's call it, a closed loop circle in California, I think has helped us insulate ourselves somewhat from the pricing power. Now, if you recall back to when we made the acquisition of Project Cannabis, one of the things we were most excited about was the wholesale number and the wholesale opportunity.
The issue we ran into was, and the reason why we took our supply chain as sort of our, what's called our manufacturing supply chain offline in 2021 in California, is that the product quality was great for 2018, 2019, but it was not competitive in 2022. We're beginning to see the improvements work through the system. We're beginning to see sort of the organization improve. To be very candid, the California market needs a little bit of leadership. When I say leadership, it needs political leadership. It is a disaster. They can't get out of their own way, you know, if you know, in under any circumstances. I've never seen
We've seen some of this happen, but you know, you've got crime running rampant, you know. It's ridiculous. Our view is that it is a phenomenally attractive market. We've always been contrarian. I actually think California is gonna be one of the best. You know, it has historically been you know, the biggest market in the world. I think going forward, it'll be a very attractive market. The time to make the investments in a market is when everyone else is running away, right? It's when no one else sees the opportunity, but it's absolutely there.
With the right products, with the right supply chain, with the right quality, you can actually insulate yourself to a large degree from the pricing pressures that people have seen, and frankly, from the competitive dynamic of the illicit market. Because the illicit market is fine, right, but it's not, it's not great. It is just very, very cheap. You know, if you look at what drives consumer sentiment, it's the cost. Then it's the quality. You know, it's not a one-for-one correlation. If we can get the quality up and be cost competitive. By the way, some of that is driven by changes from a taxation perspective.
When the city of San Diego eliminated its cultivation tax, or when the state of California was thinking about eliminating its cultivation tax, that is very, very helpful to us. If we could simply make our products, if you stripped out the tax expense and you just look at, you know, the sort of a one-for-one comparison, our products, and I dare say many of the other organized operators in California would be very, very competitive. But it's the taxation issue that's been problematic. I think in Sacramento, they're beginning to realize it. You know, you can't tax your way out of success, or towards success, I should say.
You know, I think California is exactly the right time to be looking at it because, you know, I think we've kind of passed the trough. I think we're starting to see some stability. I think we've seen a lot of mom-and-pops and illicit operators actually, you know, give up because they simply cannot compete with the competitive dynamics that are coming out. I think scale will actually turn out to be one of the most important things. You know, if you go way back in history of Columbia Care, one of the things we always hoped to do and hoped to be able to be was a structuring element in a disorganized marketplace.
You know, whether it was Colorado or California, and particularly now you look at the combination between Columbia Care and Cresco, we're gonna have the scale to actually add an element of structure to an otherwise inherently unstructured marketplace.
Thank you. Our next question comes from the line of Andrew Semple with Echelon Capital. Please proceed with your question.
Hi there. Good morning, and congrats on the transaction.
Thank you.
Just the first question here, housekeeping item on the EBITDA guidance. You know, just hoping you can maybe provide or be able to quantify the impact of the transition to U.S. GAAP reporting on the 2022 EBITDA outlook, you know, relative to what that EBITDA outlook would have been on an IFRS basis.
Derek, why don't I turn that over to you?
That sounds good. We've provided for transparency for 2021, the equivalent GAAP. We've got an 18% EBITDA margin under IFRS and a 13% under U.S. GAAP. That's indicative of the adjustments that you'd make from one to another. There are a number of competitors in the industry that have already made that adjustment, I think, with similar spreads. That's not an unreasonable expectation to continue into 2022 and beyond.
Okay, understood. Thank you. Switching gears to Virginia, I just wanted to get an update on that market. Could you maybe speak to the timing of store openings? Could you give us an update on how patients are responding to dried flower products, you know, now in the market? And could you comment on have there been any improvements to the patient onboarding bottleneck, that was the, you know, issue for market growth, over the past few months?
Absolutely. David, why don't you start off and if there's anything I have to add, I can always ping you back.
Sure. With respect to store openings, we continue to try to thread the needle to make sure the locations we identify and ultimately commercialize are going to be viable for adult use when ultimately adult use comes. There have been some locations where, frankly, we just didn't think it was gonna be a good fit from an adult use perspective to get the actual local municipality to opt in or opt out, however you want to define it. We continue to be thoughtful about that. There has been an uptick in patient count in the state of Virginia. It's getting noticeably easier for patients to get registered and come into and become active patients in the program.
I think, you know, there is a robust wholesale market that we're clearly the leader of as of right now. On a combined basis with gLeaf and Columbia Care, we've got a nice, healthy wholesale business to have our products on the shelves throughout the state. Got good relationships with our competitors in the state. The stores that we have opened have been productive relatively quickly. I think the two things that were material that needed to happen for the state of Virginia outside of adult use, obviously not coming this year, was to have flower introduced into the marketplace and for patient registration to become easier and have that timeline condensed as much as possible. Those things are happening. They're just not happening overnight.
We continue to see nice trends in the state of Virginia. It's obviously very meaningful for us, even in the absence of an adult use timeline that's this year. We're gonna continue to be thoughtful about where we place our stores. The expectation is that we can get most of them across the finish line during the course of 2022. I will say, you know, we're gonna be hyper-focused on finding great locations above anything else, and if that takes a bit of time, so be it. This is from my vantage point, I wanna make sure we get really strong, commercially viable locations for adult use when it does come.
We don't have the regulations for adult use, so we're trying to make sure that we're just optimally positioned in those locations.
Thank you. Our next question comes from the line of Scott Fortune with Roth Capital Partners. Please proceed with your question.
Hey, good morning. This is Nick on for Scott. I was just looking for color on New York. You had a significant share of that market with your high-quality medical offering early on. I was wondering if you could just provide color on where you are now in terms of share and kind of how the pivot to a wellness-focused model in some of your locations has impacted your positioning there. Thank you.
Sure. Let me start off with a high level comment and I'll turn it over to David. You know, we've actually had a significant increase in the wholesale activity. The dispensaries have performed well, but the wholesale activities is probably the single biggest beneficiary in the New York State, since we began offering flower. I would say the following. We have arguably one of the most efficient and high quality supply chains for, let's call it, you know, medical, but now I would argue also adult use oriented products.
Now we don't have adult use sales, we don't have adult use products in New York, but those sort of what's called the wellness element of the product portfolio has been very well received and continues to improve in terms of market share and customer loyalty. Most importantly, customer loyalty, not just at the individual consumer, but on the wholesale side. Let me turn that over to David and see if David has any specifics that you'd like to share.
Yeah, no, Nick, I think you answered. I don't think I have anything fundamental to ask, to answer there.
Okay, great. That, that's it for me. Thank you, guys. I'll pass it on.
Thank you.
Thank you, ladies and gentlemen. That concludes our question and answer session. I'll turn the floor back to Mr. Vita for any final comments.
Great. Well, thank you, everybody, for your time today. We really appreciate it. I'm sure we'll be having multiple follow-up conversations. This is an incredibly important and exciting moment in the history of Columbia Care, in the history of Cresco, and frankly, in the history of the industry. You know, as we've heard, we all talked today, many of the headwinds that we're seeing in markets are some of which are fairly standard when you see markets mature. Others are, you know, specifically consequences of the macroeconomic environment, and yet others are the result of political decisions and regulatory decisions that, you know, all of which have to be worked through in a collaborative way with the sort of organizations and the entities and the people who we all answer to.
The fact of the matter is the fundamentals of the industry are incredibly exciting. We see a massive pipeline of markets transitioning from medical to adult use over the next several years. You know, the element of scale will be a huge driver of efficiencies, both from a capital allocation and a cost of capital perspective. We couldn't be more excited. I forget who asked the question about whether or not we're putting our foot in the gas.
I'd say we probably, you know, we fill the tank up with gas, and we're all in to make sure that, you know, this organization and the organization on a combined basis with Cresco winds up being, you know, not only a defining moment for both organizations, but really to change the way people think about Cannabist in a very profoundly positive way. Thank you all for your time today. We appreciate it, and we look forward to speaking with you soon.
Thank you. This concludes today's conference. You may disconnect your lines at this time. Thank you for your participation.