FFNTF - Earnings call transcript Q2 2021

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Operator

Greetings, and welcome to the 4Front Ventures Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question and answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host 4Front Ventures Interim Chief Financial Officer and Chief Investment Officer, Mr. Thut. Andrew you. Thank

begin. You may

Andrew Thut

President, operator, call and joined XFront you, EVP Leo everyone, on and Joe Jake Wooten, welcome, the second earnings our Gontmakher; CEO, for our I'm Finance. call Ventures Chowscano; quarter COO, the Feltham; Thank of by to Karl of today XXXX.

expectations factors. outlined forward-looking outlook conference to management materials. obligated that in statements to in be may does making These number forward-looking statements as should present today, of Before everyone and our may during Risk management these I I'm a uncertainties begin revise subject obligation any the section are considered is results to the and Any cause also harbor, call, safe that in based and filings on of Please and risks we of actual note current any are forward-looking remind not Factors expectations. a our today, differ be to any future. disclosure course of statements undertake the are of this light that from materially some results

So quick of call the me way, with today. overview the a you that out give of very let

to developments get the to a we're have share growth and to recent for stage We lot strong results to the into as future. excited continues company setting our through, produce while continue well

the build achieved milestones management as continue team business. be we the along for more conclude to with will thesis significant on across question-and-answer the strategy. in and the detailed a available Leo, over will start review our business. made Then to reiterating into momentum update going quarter second and go quarter then trends, our session, color the follow-ups. to our results provide we've a who hand going operational with in scale any We'll As the some always, entire and with some highlighting call we I'm progress I'll on I'm of to an

start, broad-based industry entering like is reforms law me We a on reforms with appear the the that let we a we're of with the leading state pace golden cost down in the and the I this of cannabis be commercial sweet banks pure It eventually growth increasingly still game At a U.S. be is anticipated the banking the emergence legalization industry. thesis of for much value whole. come industry. continue cannabis It's and very a XFront, we believe investment growth industry its So a federal chain the in as of goods. on and age U.S. from witnessed secular high-quality production accelerates institutional start the of usually in firmly standpoint, access massive should way in to and and changer, to as the to inevitable. capital distribution cost, nascent robust financing consumer packaged low stages. level remain industry. to spot The for fundamentals believe ownership From exchanges cannabis

line position in have retail of XFront distributed month For Washington the XXX established across with state. which past full a are a locations products, years, State dominant given facilities the over to X in any

the Washington, most and flower competitive the share profitability. very while the and markets maintaining of two world. XXX attractive market manufacturer number facilities achieved one overall outperforming in edibles number producer Our with margins All holders two one are the license in cannabis number in over

both million of pleased nascent an the large developments deliver addressable business, execution really Our carried production into and continues people. capabilities, on our QX we model our important the always investment setting core to thesis. recreational is strong and from our performance our the Momentum to focus and thesis, stage and in replicating business QX, We're Illinois, currently say, current this One, increasing into robust as of on products. We're future. today Massachusetts, for as tried Michigan take XX over we consumer response in growth of in markets all further serve in our terms these market to in, and California. I true conviction share And hold both simple.

our have operations market scaled execute could being incredible Our in every as goods and everything teams control construction a we job done of we finished controlling an that producer they of on enter. strategy

under we've and In California Illinois These ground state. As XXXX Illinois. lay been break result, and consumer and XXXX, prepared critical continued step two third into and project, have on the Big and a beyond. growth completed will what calling in budget time, on demand Daddy that dramatic we Mass to tomorrow with for retail projects, were meaningful we milestones that licenses increase the in in foundation a

Saturday, While is licensing pleased Massachusetts of opening Boston and weekend terrific are of a we world, building on to or heart in there the cannabis always the this our third timing unpredictability anticipated final the University the corridor. in opening -- dispensary be

production that two to While on enter hurdle with are get automated Navis, market final licensure, we and excited to detail further a in will be relationship pleased we Leo deepened clearing fully that state. distributor production progress more the share the the number couldn't our California, disruptive in facility and to into with in our Commerce much low-cost is

have in QX of over agreement the million, $XX.X will us relationship allows California. additional working proven square XX,XXX bring partner. products in further were to an pro lower and year-over-year. XX% with next growth of wait to growth the space inventory We to locations cost, where across into facility, show strong of our system-wide in which we see a retail quickly All and to only to once sufficient well, sales in as thrilled forma Navis particularly opening ground perform Daddy trend not supply signed increase project, feet continues but this to on continue XX% has state with our will the of a our producer and to continued our our sub sales QX. sequentially expectations, two, Big Illinois above continue Kelacity trends sales officially an with the We're our commerce in first that market the location. portfolio lease incredibly 'XX quarter our our tomorrow. to Brookline. of break can't have brands Recreational 'XX Massachusetts which split we strong Point leg scaled switch We will be

Canopy, recently in snapback margins our EBITDA existing in through will expanded the of posting as the margin, adjusted continue which we in marked positive business. QX results and expectation quarter-over-quarter. state consecutive phase have feet of flower from our in experienced production. $X.X The square to in adjusted or wholesale first QX Point the XX,XXX sales of meantime, three, XX% our fourth in In contribute as growth. square of feet will XX,XXX We XX% which Illinois our to dial million quarter, adjusted a with expected expanded EBITDA facility flowed grew our in

leading to XXXX. for line. meaningfully in fine-tune is expand as begin We was efficiencies This and continue and this solid margin we into facilities Point California our we to and shape. we online expect positioned exit our business to sheet expansion step QX as leveraging leverage function SG&A comes as our we costs, balance margins four, year continue those

of of a was thrilled As has May until doesn't by capital access progress providing $XX.X around operations come term from its priced inventory long-term offsets apparent key that CapEx, of a had about markets construction Navis end, strengthen Capital mostly facility this million in proposed XXXX. we consolidation never us with disappointment packaging the continued June due flow banking support our availability growth acquisitions lead related our for of are up. of and party I've of reasonably pace position which despite million sheet in To the to in of from positive capital. market debt, the of the around XX, finishing the felt building picks and the as start we accretive of Cash our that of reforms cash to year, in Commerce $X.X with the $XX billion industry anticipation up financing And a in better lack in to California.

would fifth agreement, while like you fair, to minimally aren't EBITDA. have markets point I of this the the operators my be equity once smart in now, our signing Strong possibly and towards As and access paying brings we from closed, important position cannabis to scaled we to a And the accretive markets public much this to takeaways right call. market dilutive one accretive fund meaningfully that to most would attention would the can move to better are, definitive me looking and which solidify you core had U.S. private this acquisitions capital. acquisition never have assure

the X-plus of cusp one seen the think industry. active we're environments my the I in I've in M&A on that of most years

inevitability the doesn't it the be. of is federal of seem on the side to timing While movement for up debate,

We will hive story U.S. themselves The folks ahead of properly reiterate continues a cannabis activity our remains a and to bee legalization rule that to of move that position is industry deliver. as federal state-led changes.

we that to be a stated company. consistently aim have We larger

presence. acquisitions our continuing we maximize our very accretive As management stakeholders a opportunities term, platform. part a agnostic to the team, near a tuck-in to or are with see we growth augment we of accretive acquisitions, value being somewhat by larger ample for our for whether bolster market by In about

look the just we As with assets we currently have. beyond

in a operations California, proven -- us a Massachusetts, in add potential which Illinois, a all puzzle. license make with larger would Washington, valuable scaled to of in have will we year, Jersey, New piece de in Next strategic the puzzle more novo a

at and these looking we We them are opportunities, seeing all. are

have Lastly, our teams operations and construction phenomenal. been

effectively Massachusetts critical market, projects speak and location. entrants on for projects, with is and growth. exciting as to all budget along retail imminent our and with will the future are stage Leo expansion set time these We the of into third our specifically California opening the our under this

cultivation also to that feet that exponentially us manufacturing presence one flowering We licenses for bringing in and expanded in XX on square announced and plan We're Illinois. scaled upwards our capabilities cultivation of cultivation break canopy. the our state to of allow of ground production our XXX,XXX

on break are XX,XXX We production. online canopy Phase foot of project officially square with XX,XXX tomorrow square feet come flowering feet of for XXX,XXX and ground winter square ready building, and I to next will the with

thesis So our proving out. is

we've the and gotten entrance successfully brands, in on California, are our market Washington and in products We our has largest from embark customers The from now into And Mass cannabis we markets. feedback best-in-class been much Illinois into the the world. fantastic. SOPs new operational anticipated introducing

additional us turn as who We Gontmakher, will how are through is leverage up near- and assets over build set us medium-term step XXXX for plans. our operating on Leo that call CEO, continue our XXXX. I'll stage, our function we by deeper into Leo? and state a Having color our provide into now business and the pleased with setting performing, to bit

Leo Gontmakher

you, we the in the for industry. updating business and on our Andrew, Thank us strength see in

strong to our As employees. mentioned, in result hard the in quarter, really all momentum the early work XXXX dedication continued That build second direct and saw focus, QX. a of momentum we began is the we and in of on

execution showing already results. Our maniacal intended third focus to on start to excellent the is as great off initial is quarter. We're an working and

business, We our cost advantages our streamlining packaged portfolio. to spot around the consumer the in continue scale in and Washington production make license to structural that cost industry low-cost, the and the that tremendous high-quality in sweet outsized reiterate, facilities progress profitability is other structure thesis of leveraging value our states the this developed company, goods. distribution as within To states cannabis investment creation our for improving

just and excellent replicating the that low-cost the started. show attractive QX getting our of in country, scale markets steady growth rapidly most our production in strategy results we're quarter-over-quarter can methods and Our

happy report sales continued initiation following Massachusetts. with in adult in to We're the in begin profitability late and Let's of state Massachusetts success the the XXXX.

thank this weekend. being sales delays, Mission climb. from a and the of Georgetown in job of will see rapidly in-house a the Wester like dispensary to were we our on be seeing on reception Massachusetts the pattern forward control. our our their of to great third for and being I'd fantastic permitting top are brands brands team opening our the everything outpacing under positive once sold again locations. of After sign, continue project out and Brookline, adult-use previous pushing are minor our and ground that the We is customers This

methodologies As pace. and we Mission expect Massachusetts increase aim further scale our our efficient we in call XXXX. our our and online attractive come footprint that tomorrow in of Illinois officially Brookline production strong by X of will cultivation and production wait of cultivation but recent Illinois. challenging to build-out Big standards, as to performance QX Daddy market. to expand Best high the up, the thrilled highlighted on phase Matson, Project low-cost begin to of the We're announcement ramps continues highly and begin closing first its this facility, can't anticipated Phase construction in of

branded be up break continued flowering producing is XX% The of confidence of XFront foot. cultivation cultivation be tremendous local we expect due become brief the Commerce more techniques to our this on a head-to-head California, validation process. high-quality funded the have later we XXX Illinois existing with is competitive complete, and recent our only and our Washington And some team this to largest yet per to Phase and our operations, canopy will at that closer manufacturer X that and Big with will efficiencies. low-cost operational, efficient expected compete fully operations square regulatory we scaled line and a facility, ground Massachusetts excited to Once products and than expect in production commence to As I multiproduct in will its XXX,XXX of bring in not facilities and MSOs production manufacturing will larger in of square to our now we suite amount more premier facility market. Commerce travel cultivation Big foot grams are throughout well, XXX,XXX more yields this delay significant Daddy it and soon the foot and over following our manufacturing country could dispensers combined. a facility the in a provide state, have thesis. in state-of-the-art another scaled to Daddy month In the square scale Matson the facility our license approval our be of

Marmous, available tinctures, including fruit Chewy's, suite and include Hybris, juice, products brand Pebbles, first pre-rolls, hard mint, will like gummies, perpsticks. and candy, Our infused of vapes Rider caramels, favorites

stores of cannabis excited products the dedicated NORCAL Our SOCAL at East. involved in state have budget. get We've so us have year, whom California completed come. and dozens facility products base on on X ongoing to coverage time had our on signed very been positive conversations Everyone The to partnership of facility toured the response chopping retailers of in the the injured In legal more department far, was This, blast firefighters. to over the statewide day last of XX Commerce. a our Navis, the already ground saw at this gives XX% incredibly of locations as and in going. XXX in County certificate to leading contacted retail we facility the of provide our that But several vein, delay legal confidence to multiple fully of sales over by a extracted the explosions rounds than comments mile that production. XXXX to occupancy scale the what's including been of because Department. with leverage issuance L.A. agreement Fire of retail in distributor This in licensed mentioned, a our full X in of XXX years, about person seen boots of team our dispensaries, addition the has multiple on since beginning that has is including and covering

a fire construction, the within So optimistic department of and of from and it's fifth to round close. Commerce of expect is building other the back that their facility All X days signed taken size are certificate We off to have department's on inspection with scale we our and approvals. coming on Commerce. the occupancy extreme of departments deferment understandable comments they've has caution the submitted August our that the

hiring of Josh of Yoplait been complicated leadership to extremely previously in unprecedented of team With with industry's an the the relocated thrilled we're complemented by the date. on VP the and from our far that's Washington, most the from of experienced Crane, hailing the kitchen thus made additional team combination California, progress Operations line

rebounded with prices XXXX. from wholesale relatively on Washington. Moving Washington stable having lows in remains their to

in continue pleased the made Our the the relationships of price. in Availability Arbor look robust, don't of and retailers however. power not team we we've of Downtown forward due September. no serve, pass increased which a competition. beyond. the the has were for purchasing in us College Even navigated into up hold carry team chain Ann been on over campus, in our feeling state, Michigan how to a to XXXX we with same of consistent swing for in though to this to causing very weekends Washington. years and good business, and back remained outdoor mightily to and despite the as X the because In as the pause back products And other products stocky hopefully, the the some last and last more improved have Demand intake years to facilities same testament the market Michigan, first have the have able our the as year. product back closures downtown COVID-XX reception about us over has market we're year ramping we having focus has students seen though, year, being football since we supply was for us is University of fall very full on being most in sales adult use. performance of head time students team

all to of As return many. a that management we time of ensure resources, team, our have highest money our we and opportunities, are focus, we allocating strive into which

is on us is of our It around all at swift focusing this counting we our lost meaningful our appropriate business not this time. and becoming project to energy increasingly any profit money myriad business no for took CBD ensure noncore we and higher that to of on were action we this year. returns, decisive clear While ratio pure

earlier in M&A for all now it's mentioned cannabis. things very a Andrew his As market attractive remarks, right

capabilities near-term think To our large discussion continually more I XXXX, date on business Ratios plan. our focus assume and We to portfolio a refine that low-cost our to since production shareholders. it'd large-scale, into as worked to Pure appropriate in on is executing that recreational of to efforts replicating conclude, our we we be be for cultivation returns have and our pleased model nascent part M&A maximize early markets. couldn't

as year part our the drive we in or XFront to confident footprint our years the continued with ability to place, be of add of to every excited and growth a to eventful sustainable market standalone a openings, enter. increasingly Brookline of bigger establishing capture in an We market a we California in a major capabilities for think We're cannabis With positioned presence as our for putting key core either we is very well and landscape new a be strong states. platform. our the going significant are in our business share part company. to come and of end momentum it's other improvements to our and are

provided As $XX to $XXX range EBITDA of pro loaded. of forma million of a and which million million to revenues adjusted system-wide million, $XX today. for be that We're back-end we this reiterating range guidance knew $XXX year, would we

$XXX in ramp to playing remind estimates. Additionally, investors a although we already And in our the now opportunity we're turn XXXX, for. We in deeper we have the seems into we guiding of least to you With EBITDA continuing are a confidence previous it the revenue million million opportunity the for believe that adjusted our over following close to stronger good of to pleased what Q&A. our a even currently we to and efficiencies continued I 'XX for have We And scalable up, we report call QX. we're with at we're time the with that, $XXX not ramp will projects lines wait have. can't share taking than states to the open which our operator licensed progress operate. a markets

Operator

today Instructions] with comes Kreindler first from Graeme Our question Eight [Operator Capital.

Graeme Kreindler

a on back a quarter guidance to the half here. ramp. reiterating Leo comments Congrats question, and ask made wanted the stronger about I having

respect average and the X back understanding just like next that some here, what at math pin higher looking looks about modeling than going guidance ramp over the hit it XX% a in got be what on growth to But saw quarter. just sequential and here to to that to we with you're in quarters So range guidance. you it's

split on specific the about the curious levers. Just

hitting Brookline in? How sits what and the You already online continuing portfolio. the new versus more dialed much portfolio to of more get really that Commerce you have coming in assets online, along coming have coming is and versus existing stride the line

Andrew Thut

I'll over Wooten. Jake that to turn

Jake Wooten

still assets existing we answering Graeme, as strong is we've growth stable Illinois, do so expect from in to. in alluded question, Massachusetts, that Washington our relatively

Brookline as think I -- growth is the you're dispensary the as function location. the as looking there step of introduction However, from California into well and anticipated onlining the

guidance weekend in I'd near-term run to it So confident end largely of index where it tracking, kind where of Brookline those very the is between -- openings, But gap online. on dependent tend California and does the with assets. of numbers feel lining particularly assets those into rate additional the -- next today's to does is the is say, and year We coming those it and they're imminently. the the

Graeme Kreindler

appreciate the I here, there. pivot Understood. M&A. just remarks Then made question for the comments regarding to Okay.

the and the going in to as appreciated markets something that's in perhaps chain all to idea you've of secured to a it deepen core any where that get a you transaction, on is extent that get as its that in expand an better transaction here the want portfolio details announcement some little And the if the would to guys? of on value the of stage -- is here? geographies, imminent disclose you broader scale some business can I a financing. of where congratulations of or well that So for it how sense be the that's

Andrew Thut

are on for I'm consolidation M&A, been specifically in very what's what of Thanks, talk that come? players the trying to would in players this it industry happening lot U.S. who will general the comment Karl legalization themselves to seeing, going in this over to are to years there Graeme. And when we've Yes. nontraditional are turn from near talking term. even the I we're position for a coming about about say, the But and

So from MSOs, there, think Canada. would out the of of some but the types players including that not just other you LPs

I'm very to Karl over So there? the But broader, Karl, it from consolidation. turn conversations to for near-term going live the specific bigger picture opportunity. you

Karl Chowscano

Sorry, can afraid be guys. was now? I'm me my bad. connection I wondering, you hear might

Andrew Thut

We can.

Karl Chowscano

Graeme, Okay. Great. question. most Apologies the for heard delay. I your of

I some getting through very hesitant execution for it are are Some get -- assumed off, so and too detail. not we of executed all details ourselves the close to ourselves but the to of have broke you're asking diligence I but can what for around definitive into say meat opportunity. we bone on And to definitives, the current yet we much due this is of go into

I what you. tell Here's can

I QX year, we the how we've of built think kind engine. last since end our been excitement of about identifying some

desire 'XX it. way And are traction I our that strategic be in think our for guess, in and our products markets. license the our best getting put I limited fuel, to find to to the to add markets the engine is to able

any excited into in that an be an and detail, a we've we're we'll of half homework And It's transaction of transaction. provide a been running first getting opportunity getting towards tires we're definitive, doing a details. see the our ourselves is we of over us, are It's kicking when more able been about we about. excited year. pretty accretive front the lot without So and great lot of to striving to full an and speed which execution have we

portion see the all maybe that you excited particular, investors, as significant the how financing us our cash close of I in long-term have we're arrangements basically the that to stock much the real shown lead I equally committing the financing addition announcement -- think Navis minimally dilutive anything anticipate can financing tell executed of that's through everything we're lead dilutive support a on and the in about of transaction. Navis is pretty financing of lead over or and could the cash definitives, weeks, and traditional you we're the not that after being more to to we've transactions diligence portion that cash, change. in the X going within and be us had positive. due in left lead, And probably really type X in the very I to to estate is a deal. maybe the to

don't know but you. that's if all almost detail it's can probably I I enough you, for So give

Graeme Kreindler

that, just Okay. one the hop Then Karl. Understood. before Appreciate last queue I back in here.

some respect with position, capital say, you're back capital the of as plans wrapping here wondering year half CapEx the the could as Just you outline to the for you if major projects. up

Andrew Thut

I'll as that turn over to Jake well.

Jake Wooten

Sure, Graeme.

to manifest from That's maintenance year. money, in but up and spend itself of cultivation So of the nominal in relative I lease as project should substantially but the out the that's up of basically statement. I will in front-loaded cash of We'll the QX caveat CapEx cash meaningful CapEx down start really commerce that that's our was half in our year. stated to first Getting nothing QX in showing kind have our CapEx some bit show we think lot XXXX in the the and form completed the to previously on this Illinois balance The going in half draw nothing is will a done. facilities -- of from be cash typical of showed won't Getting portions of kind as same. off completed year. calls, quite of investing flow Massachusetts a into Brookline what we our with of -- we sheet XFront it most first standpoint flow payments for occurring the flow plans

Operator

are there this more coming we like question one no At actually Securities. Instruction] looks from time, from Haywood Colin have George questions. [Operator further It

Unidentified Analyst

quick guys, quarter, the have just in one here. Neal question today. for on I Congrats feeling Gilmer just

that continue comment expect a materially you optimize ups about would Commerce made the on any or in the that short goes to the be of sort to have margins Or You term you online? some how term? bring as step new up as expand to in actually long Do the -- it and and to there facility in you volatility downs drag future? in is expect

Andrew Thut

Jake?

Jake Wooten

that Yes, take I can one.

a Commerce That smaller period So California contributions will that by outweighed be do there margins Massachusetts. Commerce, be further expect facility to slightly comes from ramp lower we said, slight have it online, -- when margins will any from associated than with maturity.

and up and we get both profit. will a and As third percentage our meaningfully of contribute start to revenue location more Massachusetts higher running, gross

well outweigh should the margins higher those as rollout as Illinois of growth facilities. our Commerce, So continued of

answers that the if question. yes, So

Unidentified Analyst

Help And definitely me on the growth that's other the again, I prior. were here half No, think looking congrats get that. understanding the there of answered year. and quarter the a my of to Once in Yes. forward helpful. better questions second

Andrew Thut

you. Thank

Leo Gontmakher

Thanks.

Operator

I'm this further at showing And questions. no time,

So call would back for to comments. turn Gontmakher over Leo I closing to like the

Leo Gontmakher

We're extremely of all of a what's move to forward and the you excited thank for joining. I'd great Have ahead to day. company us. like

Operator

for conference today's The presentation. Thank now you has attending concluded.

may You now disconnect.

4Front Ventures (FFNTF) 17 Aug 212021 Q2 Earnings call transcript