Le Lézard
Classified in: Business
Subjects: ERN, MAT

4Front Ventures Reports Third Quarter 2023 Financial Results


Ceased California operations and associated cash burn with profitability improvements expected immediately

Grew Illinois wholesale revenue by 178% year-over-year and 40% sequentially

On target for yearend launch of ~250,000 sq ft flagship facility in Matteson, IL

Ongoing retail network expansion in Illinois: secured funding and strategic storefront locations, on track to have five operational stores by fall 2024 and targeting the maximum allowable number of stores in the state

PHOENIX, Ariz., Nov. 20, 2023 /PRNewswire/ - 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 third quarter ended September 30, 2023 ("Q3 2023"). All financial information is presented in U.S. dollars unless otherwise indicated.

Q3 2023 Highlights

*Systemwide Pro Forma Revenue and Adjusted EBITDA are non-GAAP measures. See "Note Regarding Non-GAAP Measures, Reconciliation, and Discussion."

Management Commentary

"The third quarter marked the beginning of a transitional period for our business, which we firmly believe will positively impact our future performance and the long-term success of 4Front," said Leo Gontmakher, Chief Executive Officer of 4Front. "The strategic realignment of our state footprint was crucial to mitigate the continued losses and challenges we experienced from the demanding California market. With the drag on our profitability now behind us, we can place greater focus on our core markets of Illinois, Massachusetts, and Washington, where we are generating positive operating cash flow and anticipate the most promising growth opportunities."

"In Illinois, our wholesale revenue nearly tripled year-over-year and grew by a robust 40% over the quarter, underscoring the demand for our wider variety of products and brands and our deepening presence as a trusted supplier in the state. Complementing our operational footprint, our flagship facility in Matteson, IL is on track to power up by the end of the year, following the implementation of best-in-class, automated production equipment relocated from our closed facility in California. Additionally, we are actively advancing our retail expansion strategy with secured funding to support our efforts. We are on track to have a total of five operational stores in Illinois by fall 2024, starting with the first new store in Q1 and planning to inaugurate an additional store roughly every two months thereafter. Locations for two of the three additional stores have already been selected for build-out."

"Despite a challenging operating environment in Massachusetts over the summer, partially due to liquidation sales near two of our store locations, our brands remain both popular and profitable, particularly with Island flower and pre-roll sales growing sequentially by nearly 30%. In Washington, enhanced flower quality and brand refreshments have doubled our sales, marking a significant milestone with our first million-dollar flower month since 2021. Our targeted marketing efforts are beginning to show results across our footprint, with our top-selling brands of Island, Crystal Clear, and Legends increasing in both revenue and market share in various regions, following continued innovative launches and quality upgrades throughout our portfolio."

"Looking ahead, we are confident that the significant and necessary operational changes that we have made will help drive our underlying strategy of generating sustainable growth in the near term. By adhering to strict financial discipline and pursuing our targeted expansion plans, we anticipate the Illinois opportunity to be a pivotal factor in our growth, expecting it to potentially double the size of our Company. We are dedicated to leveraging this opportunity to expand our reach and solidify our position in the market."           

Q3 2023 and Recent Operational Highlights

Q3 2023 Financial Overview       

Systemwide Pro Forma Revenue from continuing operations was $28.0 million for Q3 2023 compared to $31.38 million for the second quarter of 2023 ("Q2 2023"). GAAP revenue attributed to continuing operations was $23.0 million in the third quarter of 2023. The revenue decrease was primarily attributable to lower pricing coupled with transitory pressures from competitors liquidating inventory before leaving the market.

Adjusted EBITDA was approximately $3.5 million, which was an increase of approximately 75% as compared to the second quarter of 2023.

As of September 30, 2023, the Company held cash of $2.8 million and has since secured $10 million in funding to build additional retail locations in Illinois. The Company has 668,243,141 subordinate voting shares outstanding as of November 20, 2023.

Conference Call

The Company will host a conference call and webcast today, Monday, November 20, 2023, at 5:00 p.m. ET to review its financial and operating results and provide an update on current business trends.

Date:

Monday, November 20, 2023



Time:

5:00 p.m. Eastern Time



Webcast:

Register



Dial-in:

1-888-664-6392 (North America Toll-Free)

The conference call will be available for replay by phone until December 4, 2023, at 1-888-390-0541, replay code: 409525#. Additionally, the webcast will be archived for approximately 90 days following the call and can be accessed via 4Front's Investor Relations website. For assistance, please contact [email protected].

About 4Front Ventures Corp.   

4Front Ventures Corp. ("4Front" or the "Company") (CSE: FFNT) (OTCQX: FFNTF) is a national, vertically integrated multi-state cannabis operator that owns or manages operations and facilities in Illinois, Massachusetts, 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 1800 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/.

4FRONT VENTURES CORP.
Consolidated Balance Sheets

(Amounts expressed in thousands of U.S. dollars except for share and per share data)



September 30, 2023


December 31, 2022

ASSETS





Current assets:





Cash


$2,765


$14,271

Accounts receivable, net


4,208


5,448

Other receivables


222


93

Current portion of lease receivables


3,945


3,810

Inventory


17,162


18,888

Prepaid expenses and other assets


2,536


1,015

Assets related to discontinued operations


2,918


9,742

Total current assets


33,756


53,267

Property, plant, and equipment, net


39,286


34,414

Lease receivables


4,436


5,611

Intangible assets, net


27,351


29,240

Goodwill


41,807


41,807

Right-of-use assets


120,219


121,929

Deposits


2,419


4,996

Long term assets related to discontinued operations


?


53,468

TOTAL ASSETS


$269,274


$344,732

LIABILITIES AND SHAREHOLDERS' EQUITY





LIABILITIES





Current liabilities:





Accounts payable


$12,305


$11,101

Accrued expenses and other current liabilities


8,958


9,101

Taxes payable


38,539


36,577

Derivative liability


16,096


?

Current portion of lease liability


1,990


2,767

Current portion of notes payable and accrued interest


8,248


9,059

Current liabilities related to discontinued operations


11,807


8,845

Total current liabilities


97,943


77,450

Convertible notes


15,677


14,843

Notes payable and accrued interest from related party


46,827


49,807

Long term notes payable


10,908


10,456

Long term accounts payable


977


962

Construction finance liability


16,000


16,000

Deferred tax liability


7,293


6,097

Lease liability


124,241


120,672

Long term liabilities related to discontinued operations


?


20,094

TOTAL LIABILITIES


319,866


316,381

SHAREHOLDERS' EQUITY (DEFICIT)





Subordinate Voting Shares (no par value, unlimited shares authorized, 659,159,977 and 643,416,275 shares issued and outstanding as of September 30, 2023 and December 31, 2022, respectively)


306,561


304,602

Additional paid-in capital


63,461


59,411

Deficit


(420,722)


(335,755)

Equity attributable to 4Front Ventures Corp.


(50,700)


28,258

Non-controlling interest


108


93

TOTAL SHAREHOLDERS' EQUITY (DEFICIT)


(50,592)


28,351

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY (DEFICIT)


$269,274


$344,732

4FRONT VENTURES CORP.
Consolidated Statements of Operations

Amounts expressed in thousands of U.S. dollars except for share and per share data)



Three Months Ended
September 30,


Nine Months Ended
September 30,



2023


2022


2023


2022

REVENUE









Revenue from sale of goods


$20,110


$25,035


$67,709


$70,847

Real estate income


2,892


3,065


8,747


8,981

Total revenues


23,002


28,100


76,456


79,828

Cost of goods sold


(13,722)


(11,039)


(38,884)


(35,680)

Gross profit


9,280


17,061


37,572


44,148

OPERATING EXPENSES









Selling, general and administrative expenses


18,729


12,938


44,511


35,371

Depreciation and amortization


817


859


2,406


2,474

Share-based compensation


3,678


863


4,912


2,291

Transaction and restructuring related expenses


195


60


212


734

Total operating expenses


23,419


14,720


52,041


40,870

Income (loss) from continuing operations


(14,139)


2,341


(14,469)


3,278

Other income (expense)









Interest income


(21)


6


?


8

Interest expense


(3,322)


(3,642)


(9,561)


(9,066)

Change in fair value of derivative liability


(11,931)


420


(11,931)


3,494

Loss on disposal


(160)


?


(160)


?

Gain on contingent consideration payable


?


?


?


2,393

Loss on litigation settlement


?


(250)


(3)


(250)

Other


(1,054)


456


(2,621)


352

Total other expense, net


(16,488)


(3,010)


(24,276)


(3,069)

Net income (loss) from continuing operations before income taxes


(30,627)


(669)


(38,745)


209

Income tax benefit (expense)


4,199


(3,321)


(818)


(9,801)

Net loss from continuing operations


(26,428)


(3,990)


(39,563)


(9,592)

Net loss from discontinued operations, net of taxes


(35,668)


(4,611)


(45,389)


(11,449)

Net loss


(62,096)


(8,601)


(84,952)


(21,041)

Net income attributable to non-controlling interest


5


5


15


15

Net loss attributable to shareholders


$(62,101)


$(8,606)


$(84,967)


$(21,056)

Basic and diluted loss per share - continuing operations


$(0.04)


$(0.01)


$(0.06)


$(0.02)

Basic and diluted loss per share - discontinued operations


$(0.05)


$(0.01)


$(0.07)


$(0.02)

Weighted average number of shares outstanding, basic and diluted


653,080,343


639,624,851


647,329,688


632,048,250

Note Regarding Non-GAAP Measures, Reconciliation, and Discussion

In this press release, 4Front refers to certain non-GAAP financial measures such as 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 consulting contract or effectively similar relationship (net of any consulting 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 these measures to be an important indicator of the financial strength and performance of our business.
Systemwide Pro Forma Revenue from Continuing Operations Reconciliation for the Third Quarter Ended September 30, 2023

($ in 000's)

Revenue from Continuing Ops (GAAP)

$23,002

Less: Managed Asset Income

$2,848

Plus: Systemwide Revenue Adjustment

$7,842

Systemwide Pro Forma Revenue from Continuing Ops (non-GAAP)

$27,966

Forward-Looking Statements

Statements in this news release that are forward-looking statements are subject to various risks and uncertainties concerning the specific factors disclosed here and elsewhere in 4Front's' periodic filings with securities regulators. When used in this news release, words such as "will, could, plan, estimate, expect, intend, may, potential, believe, should," and similar expressions, are forward-looking statements.

Forward-looking statements may include, without limitation, statements related to future developments and the business and operations of 4Front, statements regarding when or if transactions will close or if and when required conditions to closing are attained, the completion of construction projects, the Company's ability to increase revenue and market share and become cash-flow positive, the impact of transactions on the business of 4Front, and other statements regarding future developments of the business. Although 4Front has attempted to identify important factors that could cause actual results, performance, or achievements to differ materially from those contained in the forward-looking statements, there may be other factors that could cause results, performance, or achievements not to be as anticipated, estimated, or intended, including but not limited to closing conditions, regulatory and permitting approvals, performance of third-party vendors, changes in laws or enforcement of existing laws, limited operating history, reliance on management, requirements for additional financing, competition, limits on market growth and state adoption due to inconsistent public opinion and perception of the medical-use and adult-use marijuana industry, and political change.

There can be no assurance that such information will prove to be accurate or that management's expectations or estimates of future developments, circumstances, or results will materialize. As a result of these risks and uncertainties, the results or events predicted in these forward-looking statements may differ materially from actual results or events.

Accordingly, readers should not place undue reliance on forward-looking statements. The forward-looking statements in this news release are made as of the date of this release. 4Front disclaims any intention or obligation to update or revise such information, except as required by applicable law.

SOURCE 4Front Ventures Corp.


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