Many companies dealt with significant one-time writedowns in 2022.
Many companies dealt with significant one-time writedowns in 2022.
New cannabis strategies have emerged as Q1 2023 earnings roll in and age-old business sentiments remain.
4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) is buying New England Cannabis Corporation (NECC) in a deal valued at $55 million. NECC was founded by luxury home developer Kenneth Stevens of Weston and is a cannabis cultivator based in Holliston, Massachusetts. 4Front said that NECC is expected to be significantly accretive to the its EBITDA expectations for 2022 and will immediately scale 4Front’s presence as a dominant wholesaler and producer in the state.
“The acquisition of New England Cannabis reinforces our core thesis of bringing scaled, low-cost production and operational depth to attractive, nascent, adult-use cannabis markets” said Leo Gontmakher, Chief Executive Officer of 4Front. “The addition of NECC’s impressive operations will increase our canopy, kitchen capacity, and add to our extraction capabilities overnight, greatly bolstering our position in the Massachusetts market to become a leading wholesaler of our full suite of products and brands. This acquisition firmly anchors our foothold in the Northeast, and NECC’s state-of-the-art facility will help to drive our growth in the years ahead as we execute on our goal of achieving dominant market share in every geography we operate. I look forward to working with NECC’s seasoned team and leveraging their extensive operational experience as we continue to scale.”
NECC has a fully operational 55,000 sq. ft. licensed cultivation facility that will strengthen 4Front’s expanding footprint in the limited-license state. The acquisition is said to more than double 4Front’s total flower canopy in Massachusetts to over 30,000 sq. ft, with further expansion potential for up to an additional 10,000 sq. ft. of canopy, and will approximately triple 4Front’s kitchen, processing, and distribution space. The NECC facility will supplement the products sold through 4Front’s existing “Mission” dispensaries and will further strengthen the its presence in the Massachusetts wholesale market.
4Front said that the purchase price will be funded through the issuance to the seller of 25 million subordinate voting shares of the company and $25 million of cash. The cash portion will be funded through proceeds raised from a $15 million convertible notes offering, led by Navy Capital, a vendor take back note, and balance sheet cash.
Recently 4Front received its Certificate of Occupancy and approval to operate from the Town of Brookline and received a commencement letter and unanimous approval from the Massachusetts Cannabis Control Commission to operate in the State. The company’s new storefront is located in one of the largest towns in New England that is also a highly desirable place to live, due to its proximity to job opportunities, public transportation, school systems, and livable neighborhoods that balance green space, historic preservation and outstanding commercial services. Mission Brookline in August selling its products such as Funky Monkey, Legends, Marmas, Crystal Clear and Hi-Burst.
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.”
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.
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.
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.”
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.
Cannex Capital Holdings Inc. (CSE: CNNX)(OTCQX: CNXXF) moved beyond the interim agreement from November and as of March 1, 2019 officially agreed with 4Front Holdings, LLC to merge the two companies. The new company will initially trade under Cannex’s symbol “CNNX”, although the company said it expected to receive a new ticker in connection with the transaction.
The deal is subject to CSE approval, approval of the 4Front members and approval of at least 66 2/3% of the votes cast by Cannex shareholders at a special meeting expected to take place on April 18, 2019. The company said it has commitments from 68% to vote in favor.
The number of Cannex Consideration Shares was determined by way of a previously agreed ratio such that the shareholder ratio will proportionally equal 1:1.75 Cannex shareholders to 4Front shareholders on the closing of the Transaction. The Exchange Ratio was determined when the parties entered into the interim agreement (announced on November 26, 2018). The pre-agreed ratio provides for a pre-Transaction value to 4Front shareholders of approximately C$321.5 million calculated using a Cannex share price of C$1.125 per share.
“Since starting 4Front with Kris Krane in early 2011, we’ve focused on building a company the right way, navigating the evolving landscape and trying to work with people we respect and trust. We’ve known Leo since late 2016 and have great respect for what he and his team built in Washington,” said Josh Rosen, CEO of 4Front. “I believe Cannex is the perfect match for 4Front and that our merger is representative of our belief that the industry is evolving from a game of Monopoly, where it’s about the perceived value of assets, to the game of Risk, where it’s about the combination of assets, strategy, and execution. Cannex is all about execution and I’m already seeing the impact of the Cannex culture on our 4Front team and I look forward to closing this transaction and the full integration.”
The new company will feature Joshua Rosen as the CEO & Director, David Daily, Director, Eric Rey, Director, Leo Gontmakher, COO & Director and Anthony Dutton, Director. The board of directors of the new company will be comprised of five directors, with one executive director from each of Cannex and 4Front and three mutually agreed upon directors. Cannex and 4Front have agreed to a $10 million termination fee.
“Success in the cannabis market is directly related to a company’s ability to profitably scale operations, access and efficiently allocate growth capital all being driven by an experienced management team,” said Leo Gontmakher, COO of Cannex. “With 4Front, we have a partnership across all elements of the combined company with a shared management philosophy of driving best practices throughout all our operations. I am very excited,” continued Gontmakher, “to immediately take the operational leadership we have developed in Washington State to five new states.”
The merger will create a strong operator with expertise across the cannabis value chain, including cultivation, manufacturing, workflow, packaging, distribution, and retail at scale, led by a team with longstanding industry credibility and strategic M&A capabilities. The initial collaboration in Massachusetts and Illinois is
“This is a transformational event for Cannex as we will immediately become operational in six US states with a platform that can be replicated and leveraged into additional jurisdictions,” said Anthony Dutton, CEO of Cannex. “Since our original formation, Cannex has been strategically focused on building vertically integrated operations in multiple states and, upon closing the business combination with 4Front, we expect to become one of the largest multi-state operators in North America with room for continued growth.”
Cannex Capital Holdings Inc. (CSE: CNNX) (OTCQX: CNXXF) and 4Front Holdings signed a binding letter agreement to combine in an all-stock deal. The combined company will continue to trade on the CSE under Cannex’s existing name and the ticker symbol CNNX. The stock fell over 10% on the news to lately trade at C$0.98.
According to the company statement, the new combined company will own, operate or manage six existing cultivation and production facilities in Washington, Illinois and Massachusetts and five retail operations in Illinois, Massachusetts, Maryland, and Pennsylvania. 4Front also has licenses or licensing agreements in place that will enable it to open and operate several more dispensaries in Massachusetts, Maryland, and Pennsylvania under the Mission brand, which should bring the total number of related operations to 20 by year-end 2019 within the combined company’s existing asset base.
4Front Co-founder and CEO Josh Rosen will become CEO of the combined company while Cannex’s CEO Anthony Dutton will take on the senior capital markets and business development role. Leo Gontmakher, COO of Cannex, is expected to assume the same role in the combined company.
“This is an exciting and transformational step as 4Front and Cannex come together to realize our common objective of building a premier cannabis business focused on operational excellence and integrity across the value chain,” said Rosen. “The operations and leadership that Cannex has demonstrated in Washington, one of the most competitive cannabis markets in the world, are unlike anything I’ve seen in the industry. Leo and his team have developed an amazing set of skills and capabilities that we look forward to transferring to 4Front’s existing portfolio, as well as using to capitalize on new opportunities we develop together.”
The merger agreement follows Cannex’s November 21, 2018 announcement that Gotham Green Partners’ (GGP) invested $32 million into Cannex. Jason Adler, Managing Member of GGP, noted, “We are excited by the proposed Cannex and 4Front business combination, which is expected to accelerate the deployment of Cannex’s operational capabilities across a broad suite of unique licensed assets. We expect cannabis investors to ascribe increasing value to operational productivity and efficiencies. We believe that 4Front and Cannex have very complementary assets and skill sets, and we look forward to working with them to accelerate their growth.”
Cannex owns two large-scale indoor cultivation facilities and a production and logistics facility in Washington State. Its strategic operating tenant, Northwest Cannabis Solutions, boasts strong cultivation yields and produces some of the top-selling flower and infused-product brands in Washington. It has managed to capture approximately 8% share of the wholesale market in one of the most competitive markets in the country. NWCS employs more than 190 people and currently has an annual revenue run rate of approximately US$40 million.
“Cannex has been evaluating the best platforms to extend our production capabilities into new markets and 4Front is a natural fit given their complementary capabilities, existing portfolio and pipeline, and strong culture,” said Gontmakher.
4Front operates most of its dispensaries under the Mission brand. It has developed a national platform that consists of a multi-state footprint and a far-reaching network of partnership relationships.
Unpack the industry with the daily cannabis newsletter for business leaders.
Unpack the industry with the daily cannabis newsletter for business leaders.