Q1 2022 Systemwide Pro Forma Revenue of $32.4 million, an increase of 7% from Q1 2021
Q1 2022 Adjusted EBITDA of $9.0 million, an increase of 53% from Q1 2021
Conference call to be held today, May 23, 2022 at 5:00 p.m. ET
PHOENIX, Ariz., May 23, 2022 – 4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) (“4Front” or the “Company”), a vertically integrated, multi-state cannabis operator and retailer, today announced its financial results for the first quarter ended March 31, 2022 (“Q1 2022”). All financial information is presented in U.S. dollars unless otherwise indicated.
Q1 2022 Highlights
- Systemwide Pro Forma Revenue increased 7% year-over-year to $32.4 million
- GAAP revenue increased 13% year-over-year to $26.1 million
- Adjusted EBITDA increased 53% year-over-year to $9.0 million
- Completed accretive acquisition of New England Cannabis Corporation (“NECC”), more than doubling the Company’s total flower canopy in Massachusetts and scaling its presence as a dominant wholesaler and producer in the state
- Signed definitive agreement to acquire Island Cannabis Co. (“Island”), combining premier California brand with 4Front’s state-of-the-art Commerce, California manufacturing facility (acquisition subsequently completed in April 2022)
Systemwide Pro Forma Revenue and Adjusted EBITDA are Non-GAAP measures. See “Note Regarding Non-GAAP Measures, Reconciliation, and Discussion”.
Management Commentary
“Our business inflected during the first quarter of 2022 as a result of the investments and efficiencies we made over the last 18 months to meet our long-term strategic goals,” said Leo Gontmakher, Chief Executive Officer of 4Front. “We now have a fully-capitalized infrastructure in place to drive robust growth through this year and well into the future. Our thesis of providing consistent, low-cost production at scale continues to play out as designed, with the operational achievements from 2021 continuing to provide a solid foundation for the expected growth of our production and sales.”
“In California, we were proud to announce the acquisition of Island at the end of March and its subsequent closing in April. The Island brand and their seasoned management team are perfect complements to the 4Front model, and since closing the transaction we have fully integrated Island into our production and distribution channels. The scale of our Commerce operations enables us to buy similarly successful, attractive brands and manufacture them at considerably lower cost, producing strong margins which fall right to our bottom line. We look forward to announcing more exciting developments in California over the coming months.”
“Our retail operations are showing solid performance, with increasing customer counts despite some expected pricing headwinds. Additionally, our cultivation and manufacturing processes and facilities are now fully optimized for the large-scale production of high-quality, low-cost products. The acquisition of NECC and its state-of-the-art facility, the best we have ever seen, has contributed to improvements not only in Massachusetts, but across our platform as we further implement their practices into our own process. The resulting high-quality flower has enabled increased sales of our house brands and further penetration into wholesale markets.”
“We’re excited to set up our next stage of growth in Illinois, with the first phase of our latest facility in Matteson expected to be completed in six months and ahead of schedule. I am confident that with the completion of the Matteson facility on the near horizon, and a fully operational Commerce facility showing strong sales momentum, we are fully prepared for our next stage of growth as a business.”
“Our corporate, operational, and commercial decisions are driven by our commitment to supplying our customers with low-cost, high-quality cannabis and consumer packaged goods at scale, all while maximizing shareholder value. I am more confident than ever that we have one of the most knowledgeable and experienced teams to successfully outperform in this industry as it continues to mature. We look forward to reporting our continued success as we progress through a very active Q2.”
Operational Highlights and Current Developments
In January 2022, the Company completed its acquisition of NECC, following approval by the Massachusetts Cannabis Control Commission. NECC’s state-of-the art 55,000 square foot cultivation and production facility significantly bolsters 4Front’s strategic position in the Massachusetts market and expands the Company’s institutional knowledge of lighting, airflow, and fertigation techniques. The acquisition firmly establishes the Company’s presence as a leading operator in the region and allows for the expanded distribution of our products in the wholesale market, supporting our goal of being the premier low-cost finished goods wholesaler in Massachusetts.
In March 2022, 4Front signed a definitive agreement to acquire Island Cannabis Co., a leading California producer of pre-roll, flower, and concentrate products, and the first California brand to join 4Front’s platform. Following its subsequent completion in April 2022, the acquisition adds premium flower to the 4Front product suite, and significant talent to the Company’s bench. Importantly to the Company’s long-term California strategy, Island’s management team brings deep operational experience in the local market to 4Front. Following the completion of the acquisition, 4Front has appointed former Island executives to its management team, including Ray Landgraf as President of California Operations, and Brandon Mills as Executive Vice President.
Production at the Company’s 170,000 square foot state-of-the-art production facility in Commerce, California continues to ramp, and after six months of operations, 4Front is more confident than ever that it is uniquely positioned to be truly disruptive in a California market that is ripe for consolidation and subsequent streamlining of cost efficiencies. The Commerce facility allows the Company to acquire brands and manufacture them significantly cheaper and more profitably, seamlessly integrating into 4Front’s production lines in a matter of weeks – a key differentiator in its California growth strategy.
Construction of 4Front’s cultivation and production facility in Matteson, Illinois remains ahead of schedule and on track to be completed in Q4 2022. The 250,000 square foot initial phase is expected to begin operations in Q1 2023 and will be a key growth factor moving forward as the Company expands its wholesale business and retail footprint in Illinois. Consumer and wholesale demand continues to increase in the state, and with only two of its allowable ten dispensaries open so far, the Company anticipates substantial room for growth as it expands both its retail footprint and its wholesale presence in the medium-term.
Q1 2022 Financial Overview
Systemwide Pro Forma Revenue for Q1 2022 was $32.4 million, up 7% from Q1 2021. GAAP revenue for Q1 2022 was $26.1 million, up 13% from Q1 2021. The Company reiterates its belief that wholesale growth in both Massachusetts and Illinois is poised to strengthen over the year as additional retail comes on-line in those underserved states.
Adjusted EBITDA for Q1 2022 was $9.0 million, up 53% from Q1 2021, representing an Adjusted EBITDA margin of 28%. Stepwise growth of Adjusted EBITDA and margin is expected to continue through 2023 as the Company’s operations drive increased production, higher sales volumes, and additional retail opportunities.
As of March 31, 2022, the Company had $8.6 million of cash and $48.7 million of related-party long-term debt not due until May 2024. As of today the Company has 636,636,686 subordinate voting shares outstanding.
Conference Call
The Company will host a conference call and webcast today, Monday, May 23, 2022, at 5:00 p.m. ET to review its operational and financial results and provide an update on current business trends.
| DATE: | Monday, May 23, 2022 |
| TIME: | 5:00 p.m. Eastern Time |
| U.S./CANADA TOLL-FREE DIAL-IN: | 1-888-664-6392 |
| WEBCAST: | The conference call will be broadcast live and available for replay at this link: https://produceredition.webcasts.com/starthere.jsp?ei=1546261&tp_key=3e8ddb380d |
| REPLAY: | A telephonic replay of the conference call will be available until June 6, 2022. Toll-free replay number: 1-888-390-0541 Replay entry code: 240284# |
| INTERNATIONAL DIAL-IN ASSISTANCE: | Contact IR@4FrontVentures.com |
About 4Front Ventures Corp.
4Front Ventures Corp. (“4Front” or the “Company”) (CSE: FFNT) (OTCQX: FFNTF) is a national, vertically integrated multi-state cannabis operator who owns or manages operations and facilities in strategic medical and adult-use cannabis markets, including California, Illinois, Massachusetts, Michigan and Washington. Since its founding in 2011, 4Front has built a strong reputation for its high standards and low-cost cultivation and production methodologies earned through a track record of success in facility design, cultivation, genetics, growing processes, manufacturing, purchasing, distribution, and retail. To date, 4Front has successfully brought to market more than 20 different cannabis brands and over 1,800 products, which are strategically distributed through its fully owned and operated Mission dispensaries and retail outlets in its core markets. As the Company continues to drive value for its shareholders, its team is applying its decade of expertise in the sector across the cannabis industry value chain and ecosystem. For more information, visit https://4frontventures.com/.
Financial Statements
4FRONT VENTURES CORP.
Formerly 4Front Holdings, LLC
Condensed Consolidated Interim Balance Sheets
As of March 31, 2022 and December 31, 2021
| March 31, 2022 | December 31, 2021 | |
| ASSETS | ||
| Current assets: | ||
| Cash | $ 8,638 | $ 22,581 |
| Accounts receivable, net | 2,742 | 1,946 |
| Other receivables | 1,802 | 289 |
| Current portion of lease receivables | 2,627 | 3,630 |
| Inventory | 25,910 | 20,087 |
| Current portion of notes receivable | 11 | 109 |
| Prepaid expenses | 2,079 | 2,232 |
| Total current assets | 43,809 | 50,874 |
| Property and equipment, net | 57,815 | 42,633 |
| Lease receivables | 7,543 | 6,748 |
| Intangible assets, net | 43,616 | 26,246 |
| Goodwill | 33,404 | 23,155 |
| Right-of-use assets | 99,395 | 100,519 |
| Deposits | 5,107 | 5,364 |
| TOTAL ASSETS | $ 290,689 | $ 255,539 |
| LIABILITIES AND SHAREHOLDERS’ EQUITY | ||
| LIABILITIES | ||
| Current liabilities: | ||
| Accounts payable | $ 5,110 | $ 2,131 |
| Accrued expenses and other current liabilities | 7,596 | 9,411 |
| Taxes payable | 27,619 | 23,968 |
| Derivative liability | 2,202 | 3,502 |
| Current portion of convertible notes | — | 2,784 |
| Current portion of lease liability | 3,700 | 3,629 |
| Current portion of notes payable and accrued interest | 5,385 | 3,413 |
| Total current liabilities | 51,612 | 48,838 |
| Convertible notes | 14,920 | 14,641 |
| Notes payable and accrued interest from related party | 48,651 | 48,266 |
| Long term notes payable | 1,709 | 1,709 |
| Long term accounts payable | 1,200 | 1,200 |
| Contingent consideration payable | 2,393 | 2,393 |
| Construction finance liability | 16,000 | — |
| Deferred tax liability | 7,162 | 7,849 |
| Lease liability | 93,505 | 93,111 |
| TOTAL LIABILITIES | 237,152 | 218,007 |
| SHAREHOLDERS’ EQUITY | ||
| Equity attributable to 4Front Ventures Corp. | 294,981 | 274,120 |
| Additional paid-in capital | 53,235 | 52,197 |
| Deficit | (294,756) | (288,857) |
| Non-controlling interest | 77 | 72 |
| TOTAL SHAREHOLDERS’ EQUITY | 53,537 | 37,532 |
| TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY | $ 290,689 | $ 255,539 |
4FRONT VENTURES CORP.
Formerly 4Front Holdings, LLC
Condensed Consolidated Interim Statements of Operations and Comprehensive Loss
For the Three Months Ended March 31, 2022 and March 31, 2021
| Three Months Ended March 31, | ||
| 2022 | 2021 | |
| REVENUE | ||
| Revenue from sale of goods | $ 23,083 | $ 20,080 |
| Real estate income | 2,965 | 2,890 |
| Total revenues | 26,048 | 22,970 |
| Cost of goods sold | (12,594) | (9,125) |
| Gross profit | 13,454 | 13,845 |
| OPERATING EXPENSES | ||
| Selling and marketing expenses | 5,166 | 5,157 |
| General and administrative expenses | 7,644 | 5,165 |
| Depreciation and amortization | 847 | 774 |
| Equity based compensation | 1,038 | 2,396 |
| Total operating expenses | 14,695 | 13,492 |
| (Loss) Income from operations | (1,241) | 353 |
| Other income (expense) | ||
| Interest income | 2 | 3 |
| Interest expense | (2,620) | (2,461) |
| Amortization of loan discount upon conversion of debt to equity | — | (2,915) |
| Change in fair value of derivative liability | 1,300 | (2,532) |
| Loss on lease termination | — | (879) |
| Other | 103 | — |
| Total other income (expense), net | (1,215) | (8,784) |
| Net loss before income taxes | (2,456) | (8,431) |
| Income tax expense | (3,438) | (2,653) |
| Net loss from continuing operations | (5,894) | (11,084) |
| Net loss | (5,894) | (11,084) |
| Net income (loss) attributable to non-controlling interest | 5 | 5 |
| Net loss attributable to shareholders | $ (5,899) | $ (11,089) |
| Basic and diluted loss per share | $ (0.01) | $ (0.02) |
| Weighted average number of shares outstanding, basic and diluted | 619,113,389 | 558,997,571 |
Note Regarding Non-GAAP Measures, Reconciliation, and Discussion
In this press release, 4Front refers to non-GAAP financial measures Systemwide Pro Forma Revenue and Adjusted EBITDA. These measures do not have any standardized meaning prescribed by GAAP and may not be comparable to similar measures presented by other issuers.
4Front defines Systemwide Pro Forma Revenue as total revenue plus revenue from entities with which the Company has a management contract, or effectively similar relationship (net of any management fee or effectively similar revenue) but does not consolidate the financial results of per U.S. GAAP ASC 810. 4Front considers this measure to be an appropriate indicator of the growth and scope of the business.
Adjusted EBITDA is defined by the Company as earnings before interest, taxes, depreciation and amortization less share-based compensation expense and one-time charges related to acquisition, financing related costs and other non-recurring expenses. 4Front considers this measure to be an important indicator of the financial strength and performance of our business.
Systemwide Pro Forma Revenue Reconciliation for the Three Months Ended March 31, 2022
| Revenue (GAAP) | $26,048 |
| Less: Real Estate Income | 2,965 |
| Plus: Systemwide Revenue Adjustment | 9,309 |
| Systemwide Pro Forma Revenue (non-GAAP) | $32,392 |
This news release was prepared by management of 4Front Ventures, which takes full responsibility for its contents. The Canadian Securities Exchange (“CSE”) has not reviewed and does not accept responsibility for the adequacy of this news release. Neither the CSE nor its Regulation Services Provider (as that term is defined in the policies of the CSE) accepts responsibility for the adequacy or accuracy of this release.
This news release does not constitute an offer to sell or a solicitation of an offer to sell any of the securities in the United States.
