4Front M&A Strategy Pays Off, Plans For Bloom Farms Bought Deal

After the market closed on Monday, 4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) posted positive results — buoyed by growth from lucrative M&A deals over the past year. The vertical multi-state operator announced its financial results for the second quarter ended June 30, 2022.

4Front delivered approximately $34.5 million in total revenue during the period, versus $34.4 million the same period last year — beating the Yahoo Finance Average analyst estimate for revenues of $27 million. The gain is primarily due to increased revenue in the company’s wholesale revenue as it ramps portions of its business in California, Illinois and Massachusetts.

The earnings per share remained at a loss of one cent — in line with both the pervious quarter and the same time last year.

“Throughout the second quarter and now halfway through the third quarter, we are seeing an acceleration of business trends within our growth markets, particularly in Massachusetts and California,” said CEO Leo Gontmakhert. “Our retail locations platform-wide maintained or gained market share, despite anticipated pricing headwinds as we continue to expand our customer base with new product innovations and quality improvements. We believe we are poised for a significant leg of growth to take place over the next 12 months as we leverage our investments in state-of-the-art automation and scaled manufacturing processes, supplemented by strategic and accretive M&A.”

4Front posted an adjusted EBITDA of $9.2 million in the quarter, up 23% from the same time last year — representing an adjusted EBITDA margin of 26.7%. The company said that continued growth of adjusted EBITDA and margins is expected to persist through 2023 as the company’s operations drive increased production and higher sales volumes without material increases to overhead.

The company had $6.0 million of cash and $49.5 million of related-party long-term debt not due until May, 2024. It has 636,636,686 subordinate voting shares outstanding.

4Front also announced that it has signed a definitive agreement to acquire the California-based Bloom Farms brands. The company said it will complete the transaction with Bloom Farms in the coming weeks, and expects to announce similar acquisitions over the next several quarters.

“In the distressed and fragmented California market, we are seeing increased interest from companies looking to 4Front as their low-cost producer of choice,” said Gontmakhert. “Our long-term plans are to deepen and expand these relationships to grow revenue over time and add a retail presence in the state.”

4Front said at the start of the fiscal year that it continues to believe that wholesale growth in both Massachusetts and Illinois is poised to strengthen over the year “as additional retail comes online in those underserved states.”

“After implementing new techniques and methodologies to our production processes in Massachusetts, we made notable improvements to the yield and quality of our flower across the country during Q2,” Gontmakhert said about the progress since then. “These new processes have now been incorporated in Massachusetts and Illinois, and we are currently applying them to our facilities in Washington. As the construction of Phase 1 of our Illinois cultivation and production facility nears completion, we are looking to expand our retail footprint in the state over the coming months in preparation for that facility to commence operations in 2023.”

“We are excited by the momentum we have seen so far in Q3, and I am convinced that the next twelve months will demonstrate the power of our model at significant scale, paving the way for robust, sustained growth in the long term,” said Gontmakhert.

Adam Jackson

Adam Jackson writes about the cannabis industry for the Green Market Report. He previously covered the Missouri Statehouse for the Columbia Missourian and has written for the Missouri Independent. He most recently covered retail, restaurants and other consumer companies for Bloomberg Business News. You can find him on Twitter at @adam_sjackson and email him at adam.jackson@crain.com.

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