4Front Ventures (FFNTF) 15 Aug 232023 Q2 Earnings call transcript

Good afternoon and welcome to the 4Front Ventures Second Quarter 2023 Earnings Conference Call. Today's call is being recorded. At this time, all lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be question-and-answer session.

As a reminder, during the course of this conference call, 4Front's management may make forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. in disclosure Factors materials. outlined company's of are and filings results the section Risk the These Any light of statements these forward-looking should factors. be considered in speaks XFront that of any any forward-looking note the the Harbor, revise outlook Please future. in Safe obligation to today, does management presented and statements not undertake any as

the to Ventures. now Leo ahead. go I Please Executive Chief turn will Gontmakher, call over XFront Officer of

Ehmke. our on Nicole Chief Chief you Thank Officer, for and joining and today's Brandon and Good call Ray I'm today. Financial of Massachusetts operator. Consulting by you, Thut; Mills; Illinois Operations, thank our joined Investment Interim Andrew President Brian President, Frederick; afternoon, us Chowscano; of of Director Landgraf; Operations, California everyone, Karl President Officer, Finance,

will overview expand the will update give quarter business follow-ups. call, trends hand into on an then will what's will today's for and then our I in our call of over available Andrew, XXXX. management store On current the an remainder and with financial any question-and-answer results highlights. I for the to session, year second on be We'll who team where and conclude a of provide the

guided product Since range we and on a focus our by strategy XFront, basis. operational our winning low-cost excellence. of efficiency are At centered around replicating also while our expanding thoughtfully of primary our enhancement inception, our has the production capacities, state-by-state

Illinois flow Massachusetts, cash At operational and present, we actively are in Washington. generating

Illinois the scheduled year. current our and Additionally, in become to upcoming cultivation within operational facility is processing Matteson,

next to cash generating double company Illinois margins expanding plan stores the XX positions effectively months, to to additional with establish XX our while the eight in In our conjunction size within of flow. retail this us development, and more

continue enhancements Massachusetts. in Illinois and by additional we are Building implemented Washington. Moreover, genetics across see now flower starting strategy in markets led introduction and and XXXX, the of success and to quality key improved our advantages our this the of complemented platform, products to reap from in upon which new to operational the we benefits

combination further share. flower and the branding of our market poised fresh to With quality elevated is improve

in Furthermore, size structures California to we in swift taken market. that cost have the measures right

sustain in XFront market As we is in to which on any last profitless revenue our we call, unwilling prolonged operate. said

As sit our scale cash here back drag on operations longer to a those today, resulted California operations we in generation. moves aggressive being company's the has no

market Going operations forward, California largely conditions that our tight are continue remain a due state current range in regulation. in atrocious very to challenged, as in to

human like executing both in now the our that much we Illinois. on way in our we overall plans and is Our monetary, laser-focused facilities. business incremental same our growth I'd capital, to oversee underscore manage

we Throughout With in leading circumstances. position evolving in product focus that producing to an affordable, adjust adapt to on we factors maintained response unwavering can and mix demand, cannabis process, a scale. this our large the products market on economic of trends have meet various high-quality a

our that evolves, landscape toward highest return portfolio. investment within promise needed, to the on the flexibility attention directing the we As the opportunities our adapt retain

to generating dedicated company. for efficiency placing emphasis remain flow strong implementing a long-term we improvement mind, in on strategy the our self-sustainability purpose upholding this With core a while operational as cash plan,

operating footprint. and processing this exploring cultivation across potential retail, are have commitment, the to California entire our of part we As and our actively consolidate in optimized operations assets our

to our a model cultivate self-sustainability business and ingraining years to as thriving flourish can independently a goal fundamental come. is resilient By asset, that for

and top for the the annualized reduction million our we resulted of in cost-cutting This measures focus position has us Our $X in profitability execution profitable line remainder year. for on improvements approximately our put structure. achievement and as business have on solid cost further alone growth ground generating

on is our that point of XXXX growth. profitable I the want to reiterate through focus remainder the

of Island's cultivation the During branded increased the us in QX, the in consumer further expansion into products building launch and activities and This categories, first Illinois demand. to of entry category the dozens including major base already products prompted optimal time. vape to meet reached manufacturing an our new upon strong all levels, product for

Our product and market from high-quality to of by overall steady flower, share expanded and these particularly footprint, and consumer The benefited in where Illinois interest across has products our anchored presence Massachusetts aggressively differentiate business we grow a with in increase X% continue in for of drove QX to Illinois Massachusetts growing markets. launches Matteson, an Illinois our wholesale menu XXXX. our new

have improvements over cultivation packaged production than in process cannabinoids QX. XX% in more up flower increases that In active flower Massachusetts, resulted testing in with continual our of XX% total

of the Illinois catering complex was in experience [indiscernible] value completed products. to residents pursued The largely Matteson, seek facility intricate a customers products products, more like vape April. to who expansion also live of close We our production introducing by distillate richer that and in our cultivation more and construction

consistent remarkable, from best-of-breed seamlessly systems truly each and is quality, and extremely facility of have technologies low integrating which facilities, products. other cost our The high process yielded

event. line as in and as laying get necessary we're ongoing, a this the facility a easements the is on expectation We ComEd and is power With place push can in to time current is this we hard set achievable. that being lines powered continue to now fall of confident the by timeline XXXX

in growth the Washington majority look business when our come we and existing assets our We've to to online. the function Massachusetts. of demonstrated step Illinois forward our our With replicate when brought operational SOPs markets in generating flow, mature market XXXX ability our the stable Way cash we

to market three store state average market prices expansion by and can we NECC XX%. declining retail the roughly but proven not third-party works footprint, of 'XX. early We've that our model SOPs integration and in only in and those acquisition of And shown through improving the in as our ability with we've evidenced fly, exceeds Massachusetts adapt our on despite share that our over the maintain the learn

upon incredibly of to production Matteson expansion It fully and our of that the is we're this blueprint retail excited footprint. opening Illinois our facility bring to

As months. as XX for coming avenue Illinois XX our stands to previously we most growth highlighted, the substantial over

our the complete anticipating nation's capabilities markets. eagerly showcase promising opportunity one of most We're the in to

pass that, for discuss our Andrew? over our now to as results call well trends With our and Andrew financial markets in key performance I'll the QX. to as

Thanks, Leo. a will first I provide of breakdown before performance our state second overview of earnings. an giving by quarter state our

Massachusetts. in Starting

significant achievements consistent in our in market, to a Our Illinois. of within pricing successes confidence ability encountered instilled the replicate this we've challenges despite have our level

products, remains introduction offer. of adaptable continual our involves approach of This with innovative and through underscores regardless an our market refinement along conditions platform the confidence new capacity that enhancement of steadfast existing strengthen broader to our and

of terms performance, previous declined revenue the In our quarter. financial our Massachusetts to X% compared

a is For overall more period increase that significantly the outperforming XXXX, the we impressive in same more increase noteworthy achieved of market of just XX%, compared X%. to

face declines We Worcester in in year-over-year liquidation truly and XX% state. as achieved this market the pricing portfolio with despite of they a the of and static asset products the exited

any to Pretty impressive our retail. speaks products, experience measure, by our innovation at customer quality of performance and the which

to and the While environment from the sustain that pricing fact new at products enabled share us we exhibited exceptional of have flowers vulnerability introducing the our in the innovation market our in position. our quality year, Massachusetts encouragement draw initially beginning

stabilization a flower there has prices, reason recent optimism. offers which of for noticeable been in months, Furthermore,

customer right is Quality terrific room will at this for no resting forte. the innovative on In price, nascent laurels. industry, evolving the this and and there long-term and carry a experience is products rapidly our day

Clear Island, development the renowned Crystal our three across have On flagship comprehensive XFront's brands extended introducing product front, a Massachusetts by we and of in offerings suite product Marmas.

a This Mission now eagerly newly products stores of live bites and at dispensaries edition and and the variety disposable marmalade Crystal products are anticipated Those partner vapes, Clear vapes. throughout Island encompasses all-in-one lineup gummy limited cartridges launched cartridges pack accessible state. and Marmas resin,

unveiled burning Illinois. showcase of tobacco-free, XXXX introduces Massachusetts our tobacco-free brand. Mission dispensaries This proudly premium our we five and and available these strains Initially, a that brand blunt on one cones Furthermore, flower. in made slow gram in partner innovative filterless, were flavored robust collection blunt

one range now infused initial new in infused impressive Following and performance gram of have product are blunts we the brand's exclusive expanded introducing Massachusetts. in offered dispensaries the pre-rolls. by XXXX Mission These strains launch, four

market capacity base. the still respond to innovate to demonstrating attuned to stay and continue preferences modern developing consumer a We cannabis our of demand changing to swiftly

driver X% in of which will the the company's Illinois, anticipate we growth observed to previous Illinois compared represent biggest our growth. of operations In single Next, our sequential QX, a quarter. we

total Specifically, Clear approximately were the of our stores significantly Moreover, extended accounting XX% vape sales. at this for category retail boosted sales momentum popularity our market. of in wholesale the to by Illinois, Crystal has

of the outlets our foothold Despite with robust presence the as we alongside share. Island XXX-plus flower brands excitement the locations Illinois current in retail of among flower premium grown, effectively of instilled market. and retail launch two have the all in steadily only a out across maintained improvements have number market our brand, third-party in buyers confidence wholesale retail and approximately The

Notably, Illinois through incremental in revenue potential expansion the margin, our primarily This vertically want impressive operations. presents exceptional average our holds QX. to the an locations emphasize to contribute by locations I an retail line for XX% integrated retail sales to outperformed during increased of avenue store gross addition growth. top and more market both that the and

and completed as production facility. concise have strategy, new that, previously the a retail our significant alignment Illinois. and with Matteson parallel stride with our In let in facility of we our Matteson, In XFront's a in in on construction presence state-of-the-art operational provide successfully cultivation deepening me update expansion marking announced,

additional feet with encompasses XXX,XXX to facilities the an and of facility of feet. the XX,XXX feet impressive flowering total square around XX,XXX canopy feet of square XX,XXX around allocated manufacturing This square an square overall

incremental operators establish cultivation quickly to is complete the a additional facility we will expands. increase at the as our low our efficiently capacity our capacity and flowering complement canopy while demand stores With additional Tier come market. flower as to ability for into cost have keeping X low we as The retail our costs accordion designed license, very

according early year, are the new the proceeding with the required development underway to anticipate initiate forthcoming Matteson its our is retail and setup. year. store on of preparations close for Simultaneously, The the we along our arrangements before outlined time to launch construction of in line,

Illinois in middle efforts to have of are to of the funding facilitate by We the stages securing expansion opened XXXX. final stores currently and also five additional plan

industry of will operators plans licenses the complete the our contribute the the in Regarding acquisitions equity months. further or to in that in in engaging growth partnerships funds the state, license by social scarcity additional coming holders anticipate of we larger for

the Given holders simultaneously many in creating in these operators distinctive are the lasting immediate offer limits are our set that to by license to benefits position we the confident of value the us while already XFront. of that for will run constrained enable by major region location short regulations, XX shareholders

Plant. members talented announce exceptionally also We a and of track To of Mark the launching, optimizing enhancing are to successful in with experience Matteson, Head Illinois actively most large-scale Illinois cannabis at adding facilities Matteson Mark thrilled are holistic, President and a wealth AYR. operations of of the and and scaling flourish XFront the we Vice as to cultivation and record joined end, recently, operations our hiring of team. by Operations that manufacturing Maze

Prior engineer science as in project high-quality, and a cannabis manager to nearly to progressively cultural to automotive industry, as the boundaries a low-cost an XFront spent the push mechanical and technical of State production. Mark and decade working bachelor packaging Mark holds engineering in the Penn DNA and the excellent of from continue presents industries, in a we respectively. fit plant and advancing roles

We both XXXX. eagerly our capabilities growth footprint to retail and our are material anticipate and processing and forward in in and cultivation footprint expanding looking actively XXXX Illinois

have to In transitioning we Massachusetts a landscape, pricing facility, integrating mediums our our techniques. operation, higher been amid innovative and Washington for drying including techniques performing additional grow demanding

team. to into our as operating We of evolve practices platform, of view is SOPs Washington as Massachusetts of and from of other the from our Washington we believe continues which was this improve We national the strength a strength built markets. intro entire on integrate this original best proudly indicator procedures strong

brand brands, strain Our launch of the alongside introduction a market, thorough of the revitalization. into and strategy novel packaging revitalized fresh the encompasses

injecting our into sales. momentum Concurrently, our we brand unveiled flower Island new category, the for flower

refresh improvements in Our our category, and extended both packaging also aesthetics. hardware to vape involving

with the in As we progress the delighted reception through market. we the are positive summer,

Finally, California. moving to

is are our earlier, in and through mind. the growth, strategy As that year California Leo of the stated our we focus adjusting with rest profitable

business lines. we've quarter, our our focusing without understand cost that an tightening laser-focused growth. environment not structure This overhead on where profit and profitable we and growth is are in been most on And sustainable we

for for promise. The of growth. profitable terms of sheer been market us in it California the disappointing has showed opportunity size the great Yet,

allocating For and funds industry of market, of legal the to not to justify those and serving of us rapidly that regulation are enforcement enough only there. has progressed lack cannabis constrained the reasonable resources California's additional

first half $XX.X No million losses approximately this year, the operating In of we California. incurred of in more.

three is no the aggressive as taken steps in on last California state here longer that meaningful flow regard to cost we Over drag sit the to cash the structure we've months, our today. extent a

deemphasize to expand EBITDA will margin gross in our future state our as quarters positively the decision margins impact and Illinois to The normalize XXXX. continues come in online the will coming and

in QX Now will million QX to XXXX, pro XXXX. X% Systemwide from million $X compared for $XX.X up California. to financials. QX to GAAP from in XXXX, XXXX, revenue revenue X% XXXX. million review second was up $XX.X the EBITDA Adjusted million conclude, $X.X quarter losses for for I our QX was XXXX QX was attributable forma of QX

are attributed to as focus adjusted on Illinois Looking benefits declined, from California increase earn. and future grow revenue cost-saving ahead quarters, to stemming starts initiatives EBITDA we to in and profitable and the our an projecting heightened revenue revenue

emphasize we significant a expect improvement the current by important and be an that anomaly, It's EBITDA we consider to QX. to

structure, a I as are on cost As we few where liquidity to a company standpoint the we want conclude, from and spend self-sustainability. minutes of

First structure. on the cost

earlier, finish reduce approximately the as cash measures the annual cost decisive year. half months, of in past of company The second and taken three As mentioned has operating to manifest by will flow themselves benefit reductions $X expenses we in profitability the these million. the

availability limited cannabis importance the self-sustained. the be utmost businesses it in of current industry, to capital of the is Given for

the rollout we have our of ensure us self-sustaining have structures, launch California streamlined cost keeping always of keen the to compelled Matteson facility While backdrop. a steps the market of make market company's on to disappointment eye the delayed independent our in and capital necessary

we business, continue year. we to the today grow our balances here for we that sit move look cash have to While self-sustainability we as expect efficiencies achieved in confident and throughout

our hit gross a million to leverage a adjusted this and margins combined operating the disproportionately quarter. about tune California. with by have of When Second, of been depressed produce to exposure our lack SG&A, to EBITDA $X compounded

online this lift launched and Matteson to Illinois. into profitable proceed to remainder and retail we we through with year the revenues As coming California of the on revenue more gets XXXX, as expect decline EBITDA as comes in P&L

$XXX Illinois in scale summer, five complement be the with full we XX production retail locations to assets. and By revenue that Recall view retail operational be opportunity of a we in to operational $XXX million million Illinois. least next expect to at

have XXXX. years XXXX, as Thirdly, to an June long-term two negotiated in party of amounting that debt held company month, we senior million. cash we of $X.X our Last extension by note million in lenders May additional related XX, $XX.X successfully maturity now an announced due of had the and

allowing additional high financing senior to regarding in strategically, us Importantly, in announcement immediate upcoming this Illinois the an to this making extension and weeks. project us security us This amendment positions includes access to anticipate concessions secure on enabling We regions. opportunities secured other ROI related to financing. capitalize

XX, outstanding. the of approximately XXX.X XXXX, As million subordinated shares company has August voting

up to As today, a points. reiterate we like few wrap I'd

of Our for predominant centers growth. and the focus sustainable year this on profitable remainder

are on channeling select entail significant investment, cash highest We exclusively while commitment. growth resolute for longer-term return resources short-term projects reserving in with into that prospects capital the

our efficiencies essence in of successful them resilient and price been delivering at face prices. cannabis in operations the integration replicate affordable value Massachusetts, proposition, A of enhance to share Our through has considerable high-quality declines, capacity mature acquisition, in the and markets underscores market substantiated. products even

facility extend offers full our that our Illinois. position. move very with outreach capital to we footprint, strategic expansion broaden in order opportunity incremental maximize With solidify most growth are and to market our to our This the to XX of one eager the little of significant the capabilities excited retail in are we production and the our Matteson inauguration upcoming need, months

turn open now to lines for Q&A. With operator the that, the I call will over the to

your go Haywood now from Ladies Gilmer session. question-and-answer and comes the [Operator the of Please we Neal Securities. you. from gentlemen line will first Instructions] Thank begin ahead. question And

Hey, Neal. doing? you How are

Good. How you doing? are

Happy summer.

with Same a of maybe where the wanted April last start to conference optimistic the call little tone on you're I A from California. you. to sales. of bit pretty change

feel detail bit off feel presence guess just small California I from unfolded And sounds maybe there. exit maintaining can the like your the on looking So you like such but I'm sort facility that a a trying presence that completely you're to little there. profitable? you of what revenues more you can to have are California, understand a comments, still cover it of or Can you cost still in just you a you structure remain elaborate, have your

Karl Ray let handle Thanks. I'll and that. Sure.

let California Hey, the Neal, get latter since I'll detail to it's into since as the our the or that and answer half of Karl. in call. last Ray changes April

decision terms lose -- environment is $X.X can and In quarter. our of not million, the of kind continue to market you $X.X direction, capital our where million a this market

$XX operations. after like, of. very very, make loss made a So year, million first that that the and going half a of we them. it's make in have of proud We're to the are into we just at operations They the okay, very didn't the decisions, market were proud superior concept which of reward made cost or we internally we legal products notwithstanding and

So that more cannot have yes, we decided any move we money.

to controlled so the in losing significant approach the California. cutting significant in operations a Illinois no in was to speak, that get got obviously, and to point cost So longer Washington and money. Massachusetts front of the back opportunity And And us, cash in better and some for we've California we very flowing. foot, downsizing we're on undertook where

we stop and stop stopped bleed have decided bleed, the we bleeds. to to we So the have and have

In losing yes, go-forward terms in still we not right of and money. we're California are decisions, now,

I honest we to a to continuously this here? is it. us losing to -- that more but and We not looking or road are further on think be with way around. that's from obviously, turn at go going money describe what market that money the going to best dream take available aspirational we investing the any an you, options to are Where what's are,

day and the in at think we're just any celebrating more So take we point it this time, we're California, not day. that in losing I fact money by

So are that's now. the on we where

fill obstacles that Ray little pass like in met to in the we kind I'm to bit you'd on If to of it a of California. happy him.

Sure. Thank you. Yes.

So we focused in that that lines really operations. structure the believe respects, of terms in our towards, a we in that on continue and little on pre-roll played of edibles and allocated trimmed heavily were on and We QX, cost the of were but fixed down and number the specifically growth. flower in categories capabilities of categories we advantage growth margin that bit we profitable production have lower unfair then an where to eliminating product we focusing along focusing and categories vape some and

-- reduce side, the to structure cost sublease were we overhead. drastically reallocated those fixed structure we the from other the were as to fixed had we cost of and able space and On of that able resources some we categories, away some

Andrew, of these your that. California. in changes now for in one done sort comments you of referred thanks to, you've Okay,

here. you been gross around obviously the margins. more few past was normalized return of language the It's to bouncing quarters sort think I used for

of forward? once that sort expectation, sort of see that there in see you're as I with range the we of set think normalized some going you guys So we consider that, QX -- you far once reflected as sort what you've comfortable is

Yes.

XXs. California operating margins I in on when are high be margin XXs, business of that the our we you low And neighborhood. x side, in out we gross to gross that, think expect

as becomes move XXXX pretty margin we gross we that coming we and 'XX Matteson So the and a as significant and into year retail California new expect deemphasized coming in with move throughout margin. EBITDA into rebound online online,

have costs will so where QX. still you impact. if probably there's clear, in decision some still California, QX then And associated this be made in to some Obviously,

of more As a growing QX a result forward story. of that, it's

that's the that's measures Matteson QX at Like QX, of Neal. Yes, got with opening we've I cost-cutting see and into up to those these fair, into we as think when head XXXX, margins some deemphasizing into levels. more you're bled think and going both normalized and of I

much. Thanks it right. All Okay. pass I'll on. very

Thank you.

question Instructions] Genuity. line the Canaccord next comes Bottomley of And your from Please Matt from go [Operator ahead.

question. Hi. This Matt is Good Bottomley. the Yewon on Kang for afternoon. Thanks for

are How you? there. Hey,

Good. Thanks. How you? are

a well. We well. are wood of chopping been Doing doing We've lot

Good to hear.

I I the a the to just question yes, of on little pick more. up wanted part just this kind drag margins ask So quarter. about a bit

on EBITDA, operating the margins especially gross In what of called provide I few the these and because margins terms quarters both the being caused wondering more during now. if you color was out California's could been have adjusted a sequential in inefficiencies decline for any the on period, drag past

EBITDA California coming adjusted the just into out forward QX inefficiencies I operations I are these any function in Massachusetts, of operational to is So was drag of the achieve Thanks. normal for lot kind wondering a hoping QX, margins guys on if scaling and Or of a the like you and a inefficiencies level just And as pulling of result back terms guess, if were that of there. of of what of there again going the California? instance? coming was out sequential out

Karl, do a to you want crack? take

California. so And markets. Nicole. as major Yes. that Yes, do the of those to you some I to drain been But all there's any left, know, I mean, both if Brian, of been just extent declines, the inefficiency or I've the please has a we California. It's want yes, in can. of gap fill continuation all in pricing

that But we the my the I improved Andrew in to could the XXs low to we the of clarify running fact already we've in asking QX and wait knowledge, eventually And to there's the sitting. and truth quarter. but going high where on on that more into we Matteson by He We nothing facility that expect some efficiencies where are mean for place some made grow get a have rebound. in particularly we're be in think but Neal's basically until be. been question. that, about California. may to Massachusetts actually considerably are decisions There we where has we're was Illinois something kind Just to bring as to that's I retail, XXs that's that -- cash

In the terms to you -- of look don't answered normalized running. want and that don't $X you we're up range when really but guiding, be EBITDA, that well, to if we you're want take million we're or you one we due where why away definitely where adjusted we are. question, see each no guide, -- we $X.X able once our can be -- I to if particular due obviously, million, can you and that to to say, your particular get state and not of losing million reason let's to I'm north one exceed but it? do state, get hoping is see to it's add quarter, we're $X.X million, to of $X.X stores hoping and to, where you get it sure north see at would shouldn't we

Yes, that was helpful.

there much I Massachusetts, is added? anything Brian, that -- pretty was anything directionally point? on Illinois on on think should Nicole, or I be the Or

much pretty point, were you think I Karl. on

just one And if I more could question. have

Illinois. there the in that regarding amending $XX a available Is options available of LI as funding became Lending the about growth the financing additional million spoke just financing that the secured result the additional to you You agreement? that in future? additional Or have guys is fund

Karl?

that. towards secured, moving said And Andrew are I I speak -- yes, speak Yes, I to think can Saying securing. to at we can that.

definitely path it. not have this, secured feeling -- of is source shows are moving and reasonable us financing, that we good the we a that yet but along So we're about

to renegotiation was the and that at. Lending granted through that window we'd XX the financing security within facility, In would be be within looking super by LI terms us the that And renegotiation. was this -- secured senior definitely provided that of the the of room

I'm additional sight which the had So while. it, clear haven't definitely for but not we've got have financing, we of saying a line a towards we

So we're moving direction. in that

into so jump much. I’ll back you Thank the queue.

you. Thank

Great.

Mr. time. at proceed. Gontmakher, this Please further are questions no there

you in come. we Thank update you all joining to Take months care. to look the for giving an us forward and

and gentlemen, you conclude that Thank Thank you. Ladies does for all conference today. our participating. for

may You all disconnect.