4Front Ventures Archives - Green Market Report

Debra BorchardtDebra BorchardtSeptember 1, 2020
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5min2960

4Front Ventures Corp. (OTCQX:FFNTF) reported revenue of $12.7 million in the second quarter versus $2.5 million for the same time period as last year. However, sales at 4Front were flat quarter-over-quarter. The company said that it achieved positive operating cash flow in the month of August and expects a positive adjusted EBITDA starting in the third-quarter of 2020.

The loss from operations was $4.9 million. On the company earnings call Chief Investment Officer Andrew Thut said , “Our adjusted EBITDA in the second quarter was a loss of $400,000, as compared to a loss of $2.8 million in the first quarter and $5.8 million in the fourth quarter of last year.”

CEO Leo Gontmakher said, “Our strong business momentum leaving the second quarter will be aided by significant tailwinds as we enter the second half of this year.  We welcomed the first adult-use sales in Massachusetts at our Georgetown facility on August 12th and anticipate final approvals for adult use sales at our Worcester facility imminently.  Our cultivation/processing facility expansions in Massachusetts and Illinois as well as our second Illinois retail location are on-track for end of year completion.  We continue to execute on our plans to flip to cash flow positive during the third quarter and have set the stage to exit this year in a position to drive meaningful operating leverage in our business.”

Washington

The company established itself in Washington state and has since been expanding into other states. With regards to Washington, 4Front said it is seeing a phenomenal market turnaround from where the industry was a year and a half ago. “We had record months back to back in July and August, with the July being the first month we’ve had over $4 million in wholesale revenue. Flower prices are still trending up over the last 8 to 10 months, and we’re currently selling packages delivered flower for $900 a pound on average as compared to $650 a pounds just 12 months ago.” The company also noted that it has record sales for vapes and edibles across the board without having to lower prices in any of those categories.

Massachusetts

The company said that its Georgetown, Massachusetts location began serving the adult-use market on August 14. Its first location to be approved in the state. 4Front said it is pleased with the steady progression of the sales ramps since launch, punctuated by a record weekend leaving the month of August. “We expect to be able to make an announcement about our Worcester location entering the adult use markets in the very near future as well, which provides a further tailwind to growth in the space.” The Worcester location for adult use and the third location in Brookline are expected to open in early 2021.

Illinois

The company was offline in Illinois in June and July as the stores were closed for looting during the protests. The company noted that Joe Epperson, who formerly led the flower team in Washington, moved to Illinois and took over leadership of the grow facilities in January, and since that time, they’ve seen the yield in Elk Grove improved from 250 grams per square foot to right around 350 grams per square foot.

4Front said it is on track with the reopening of our South Chicago dispensary. The Calumet City dispensary is also on track to open in the fourth quarter of this year. “This together with our project that’s currently underway to expand our Illinois cultivation facility, tripling our production capacity is expected to strengthen our foothold in the state and pave the way for both top-line and bottom-line growth.”

Looking Ahead

The company said it is in progressive discussions to strengthen its balance sheet through a financing/sale leaseback of its affiliated facilities in Washington state. It also expects to finalize the divestiture activities of non-core assets with the closing of Maryland in early September.

 

 

 


Debra BorchardtDebra BorchardtJuly 10, 2020
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5min5730

Law 360 reported that the Massachusetts’ Cannabis Control Commission handed down hefty fines to three cannabis companies doing business in the state. 4Front Ventures Corp. (FFNTF) and Garden remedies were fined for using pesticides on plants, while Acreage Holdings Inc. (OTC:ACRGF) was fined for failing to disclose its relationship with two license holders.

4Front Ventures

4Front Ventures fined $350,000 settlement over pesticides used at its Georgetown, Massachusetts, facility. According to Law360, the settlement included a statement that 4Front Ventures admitted hydrogen peroxide, baking soda, and other pesticides were used at the facility, which is not approved for use on marijuana. The commission reportedly said that the company received test results that showed the plants contained a banned pesticide in June or July 2019 but didn’t alert the commission until August. Company CEO Leo Gontmakher said the company has made changes to ensure the violations do not happen again. “Patients were protected and no one was harmed,” Gontmakher said.

Garden Remedies

A $200,000 settlement was reached with cannabis company Garden Remedies over its Fitchburg, Massachusetts, facility. Like 4Front, Garden Remedies also noted in its settlement that it acknowledged using unapproved pesticides and altering its financial records to hide the purchase.

Company CEO Karen Munkacy said in a statement that the company has fired the employees involved in the falsified documents and ended its relationship with the vendor that provided the pesticides in question.

“While the product we used is permitted to be used in cannabis cultivation in many other states and is not an externally applied pesticide that puts anyone in danger, it is not permitted in Massachusetts and the situation was mishandled,” Munkacy said. “The company and I will continue to strive to ensure that ethical and regulatory violations never again occur.”

Acreage Holdings

Law360 also reported that The Botanist, an Acreage Holdings subsidiary agreed to pay a $250,000 fine for failing to disclose its parent company’s controlling relationship with two medical marijuana licensees. Massachusetts had passed a law when its program was established that limited license holders to just three so that there would be no monopolies and more companies would share in the industry.

Acreage Holdings came under fire for bragging that it had numerous licenses in the state. The commission’s investigation found that Acreage’s contracts with two affiliate medical marijuana treatment centers in the Bay State gave it a controlling relationship over them. Despite the ruling, the commission can approve two provisional retail licenses for The Botanist Inc.

“We want to express our thanks to the CCC for their professional approach as we worked through today’s resolution,” Acreage general counsel James Doherty said in a statement. “We’re looking forward to focusing all of our energies on what we do best, which is deliver great products to the citizens of Massachusetts.”

It seems the original agreements had been entered into while Massachusetts had a medical-only program and the regulations at the time were not so specific about control and ownership. The commission went on to clarify the rules about ownership limits at which time the commission said Acreage should have realized it had too many.

The commission did state that The Botanist “cooperated with the commission’s investigation into ownership and control interests and engaged in good-faith efforts to comply with the regulations after being notified of possible control issues.”

 


Debra BorchardtDebra BorchardtJune 15, 2020
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4min4950

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 BorchardtDebra BorchardtSeptember 24, 2019
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4min22330

At a press conference on Tuesday, Massachusetts Governor Baker said that he is banning all vaping products in the state until Jan 25, 2020. Across the country, consumers have reported vaping-related illnesses. 530 people said they have have been affected, and nine people have died. Massachusetts’ Department of Public Health said this month that all physicians must report any vaping-related pulmonary disease to the department, and the state is now tallying 61 possible cases.

Mission Dispensaries, has two current locations in Massachusetts (Georgetown and Worcester) and a third coming soon. The company’s Kris Krane, President of 4Front Ventures, which owns the dispensaries said, “The governor’s decision to ban the sale of vape products in Massachusetts is an unfortunate reaction to a genuine public health concern. Evidence suggests the overwhelming majority of vape-related illnesses have resulted from the use of unlicensed and unregulated vape cartridges obtained from the illicit market. Though he may have the best intentions, banning the sale of legal vape products produced in a heavily regulated industry will only serve to drive consumers and medical patients to the illicit market, possibly exacerbating these public health concerns rather than alleviating them. We stand behind our products and are confident the legal and highly regulated market is capable of protecting consumers.”

Many feel that banning all vape products is like throwing out the baby with the bathwater. Most of the illnesses have resulted from consumers using non-regulated and black market products.

“While the life-saving potential of nicotine vaping devices has been recognized by many public health authorities, several recent high-profile hospitalizations and illnesses have put vaping on trial, inviting scrutiny and calls for outright bans on the technology,” said Yaël Ossowski, deputy director of the Consumer Choice Center. “Contrary to the sensationalistic media reports, adults who use vaping and e-cigarettes as a means to quit smoking are vastly improving their chances of living long, healthy, and productive lives.

Canaccord Genuity analyst Bobby Burleson said, “In our view, recent reports of acute respiratory illness linked by regulators to THC vaping (and e-cigarettes) should ultimately accelerate the shift away from the black market for cannabis products in the US. The sell-off for stocks with heavy vape exposure has been severe with coverage names GNLN, KSHB, SLNG, and TILT meaningfully underperforming.”

He added, “While we are likely early days in resolving these industry challenges, longer term we expect associated revenue and EBITDA impact to our vape related coverage names to be more modest than the selloff suggests – vape is a lower margin business and THC vaping illnesses have largely been a black market phenomenon (with the exception of one case). It follows that supply chains and customer spending are likely to respond by shifting more dramatically to the tier one products and legal channels served by our coverage names.”


Debra BorchardtDebra BorchardtApril 23, 2018
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6min20370

Aphria Inc. (APHQF) announced that its subsidiary, Broken Coast Cannabis received a license amendment from Health Canada that provides Broken Coast with an additional 18,000 square feet of production space as part of its Phase III expansion, bringing total production space to 44,000 square feet. As a result of the amendment, Broken Coast’s production capacity will nearly double to 4,500 kg annually.

“We’re pleased to receive Health Canada approval on our Phase III expansion, which will enable us to quickly ramp up production of our small-batch, premium, high-quality B.C. bud,” said John Moeller, Co-founder and President of Broken Coast. “We expect the first crop cultivated and produced at the expansion to be available for sale by the end of July.” Vic Neufeld, CEO of Aphria added, “This is an important milestone for Broken Coast and for Aphria as we continue to bring online more capacity to meet the anticipated demand in the Canadian market.”

In addition to Broken Coast, Maricann Group Inc. (MRRCF) announced that it received all of the necessary approvals from Health Canada to commence cultivation in Phase One of the company’s new facility in Langton, Ontario, Canada. This is Maricann’s third license issued by Health Canada. Maricann is currently undertaking an expansion of its cultivation and support facilities in Canada in a 942,000 sq. ft.  build out, with a designed expected capacity of producing 95,000 kg (based on conservative estimates) of dry cannabis flower per year to support existing and future patient growth.

Kris Krane of 4Front Ventures worries that it is too much cannabis being grown for the market. “There’s a ton of capacity being built, but the Canadian market will only be so big and the international market they are banking on is an unknown,” Krane noted that Canada is a terrible place for large-scale cultivation. “There is not a lot of sun and labor costs are high,” he added.

The big argument for these massive expansions is that Canada will be legalizing adult-use marijuana and sales are expected to begin later in 2018. Krane points out that Canada’s entire population is roughly 36 million, which is smaller than the state of California. The California marijuana market is estimated to be $5 billion by 2019 according to BDS Analytics, but Canada is pricing these companies and their expansions as if the market will be larger.

This is why many of these companies crowing about enormous cultivation facilities are courting foreign countries for their product. Krane though believes that relationship won’t last. “The European markets will eventually buy their cannabis from countries like the Balkans, Turkey or even North Africa,” said Krane.  He thinks these companies may make money in the short term, but in the long term, he doesn’t think its sustainable.

Krane even believes that ultimately cannabis will end up being grown in Latin American countries where other commodities are grown due to the abundance of sun and cheap labor. That’s assuming countries allow imported cannabis. “I still believe Columbia or Mexico will embrace growing cannabis and take market share,” Krane said.

This dynamic is already being played out in Oregon where the Willamette Weekly reported that the state grew more cannabis than there was demand causing prices to plunge. Marijuana farmers grew 3x more than the residents could consume. It is expected that the summer months will bring even more marijuana into the market regardless of the demand. There are rumors that some of the Oregon cannabis is making it way down to California dispensaries, even though that diversion is illegal.

Some small cultivators can’t make it with prices getting cut in half and are selling at low-ball offers to out-of-state players according to the story. The story also claims that many farmers are left with pounds of product that they can’t sell. Of course, every new market goes through a period of boom and bust. Krane believes he is seeing the boom of Canada’s cannabis expansion and expects the bust isn’t too far away.



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