4Front Ventures Making Progress On Revenue, Headwinds Remain

Multi-state operator 4Front Ventures (OTC:FFNTF) reported its fourth-quarter and full-year fiscal 2019 results, plus the company gave preliminary first-quarter numbers. The fourth-quarter revenue increased 525% to $17.5 million over last year’s revenue for the same time period. 2019 revenue increased 786% to $31 million over 2018’s revenue of $3 million.

The company delivered a fourth-quarter net loss of $5.4 million and included a non-cash impairment charge of $146.3m related to the timing of the closing of the Cannex transaction. 4FRont delivered a 2019 net loss of $180 million. The company reported a net loss per share of $0.43 for the year versus a net loss of $0.03. The company did say that demand was robust despite the COVID-19 pandemic.

The company though isn’t out of the woods just yet. Its balance sheet had cash and equivalents of $11.5 million with total debt of $80.1 million.

“2019 was a transformative year for our company. With the acquisition of Cannex in July and its subsequent integration into 4Front during the second half of the year, 4Front became a leader in the mass-production of low-cost, high quality, branded cannabis products,” said Leo Gontmakher, CEO of 4Front. “Entering 2020, we have been laser-focused on leaning out and replicating our low-cost cultivation and production model in targeted states. The implementation of this model at our facilities in Georgetown and Worcester, Massachusetts, and in Elk Grove Village, Illinois, is expected to enable us to increase the production of cannabis products to meet the new adult-use demand expected in those two states.”

Looking Ahead

4Front gave preliminary first quarter 2020 results with total systemwide pro forma sales increasing 36% sequentially to $23.8m. The preliminary IFRS Sales for the first quarter of 2020 increased by 37% quarter-over-quarter to $17.6m. Gross profit, less the impact of adjustments for biological assets, for the first quarter were $9.7m. The adjusted EBITDA for the first quarter was a loss of $3.8m.

The company said it owns and controls highly attractive real estate in Washington state consisting of 176,000 square feet of state-of-the-art industrial space built for cultivation, production and distribution. The assets, however, are encumbered by senior secured debt associated with Gotham Green Partners. 4Front said a sale and leaseback of these assets would likely enable it to remove the senior secured debt from its capitalization table, creating the benefit of removing significant debt from the balance sheet while giving the company flexibility to more freely pursue non or minimally dilutive project financing options. The company is in active discussions with multiple partners on a transaction.

Mr Gontmakher added: “The work our team has done over the past six months to focus our business model, streamline our cost structure and fortify our balance sheet has set the stage for us to accelerate growth across our core markets of WashingtonIllinoisMassachusettsMichigan and California. Reducing debt, in particular the elimination of the senior secured convertible debt, will greatly improve our financial flexibility and will allow us to consider a wider range of financing funding options as we look to expand deeper into those core markets. 4Front has never been stronger than it is today, supported by a strengthened balance sheet, proven expertise, and streamlined operations.”

 

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.


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