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Edited Transcript of FFNT.CD earnings conference call or presentation 15-Aug-22 9:00pm GMT

·32 min read

Q2 2022 4Front Ventures Corp Earnings Call Aug 16, 2022 (Thomson StreetEvents) -- Edited Transcript of 4Front Ventures Corp earnings conference call or presentation Monday, August 15, 2022 at 9:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Andrew Fisher Thut 4Front Ventures Corp. - CIO & Corporate Secretary * Karl Chowscano 4Front Ventures Corp. - President * Keith Adams 4Front Ventures Corp. - CFO * Leonid Gontmakher 4Front Ventures Corp. - CEO & Non Independent Director * Raymond Landgraf 4Front Ventures Corp. - President of California Operations ================================================================================ Conference Call Participants ================================================================================ * Colin George Haywood Securities Inc., Research Division - Analyst * Howard Wells Penney Hedgeye Risk Management LLC - MD & Sector Head of Restaurants ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good afternoon, and welcome to 4Front Ventures Second Quarter Financial Results Conference Call. Today's conference is being recorded. (Operator Instructions) I would now like to turn the conference over to your host, 4Front Ventures Chief Executive Officer, Leo Gontmakher. Please go ahead, sir. -------------------------------------------------------------------------------- Leonid Gontmakher, 4Front Ventures Corp. - CEO & Non Independent Director [2] -------------------------------------------------------------------------------- Thank you. As a reminder, during the course of this conference call, 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. These results are outlined in the Risk Factors section of the company's filings and disclosures materials. Any forward-looking statements should be considered in light of these factors. Please note the safe harbor any outlook presented is as of today, and management does not undertake any obligation to revise any forward-looking statements in the future. I'm joined on today's call by our Chief Investment Officer, Andrew Thut; Interim President, Karl Chowscano; CFO, Keith Adams; Executive Vice President, Brandon Mills; President of California Operations, Ray Landgraf; and our EVP of Finance, Jake Wooten. I will begin today's call with a quick review of our thesis and strategy before providing color on the top level operational trends and milestones we achieved during the quarter. I'll then hand the call over to Andrew, who will give a deeper look into our Q2 results and provide an update on our active start to the second half of the year before looking ahead to what we have in store moving into early 2023. We'll conclude with a question-and-answer session, where the entire management team will be available for any follow-ups. At 4Front, we are guided by our simple thesis. After perfecting our high-quality, high-margin production capabilities in Washington State, we're replicating that operational excellence by implementing those SOPs in large cornerstone adult-use markets like California, Illinois, Massachusetts and Michigan. Our belief is that the sweet spot in the cannabis supply chain is manufacturing low-cost, high-quality production of cannabis consumer packaged goods at scale. As with any CPG company, 4Front stands to benefit as the cost of our ingredients, in this case, cannabis, decline and margins become more accretive. As we sit here today, we couldn't be more excited for how our company is positioned in this emerging industry. Our retail operations are performing at or above expectations across the board with additional customer counts as we continue to raise the bar with product innovation and quality improvements. We believe we're poised to meaningfully accelerate the trajectory of our growth as we leverage our investment in the state-of-the-art automation and scale of manufacturing, processing facilities in California, Illinois and Massachusetts. Through this approach, we're poised to triple or quadruple in revenues of our company within our existing geographic footprint over the next 3 years. Our thesis is playing out in real time. While we've made great strides in the second quarter, we've seen an acceleration in business trends in our growth markets as we reach the midway point of the third quarter, particularly in Massachusetts and California. The cannabis industry's unique challenges have not deterred our confidence in this enormous opportunity. In fact, the obstacles that many other companies are facing only serves to strengthen our conviction and our unique positioning in the U.S. cannabis landscape. With automation and scale in our manufacturing facilities, we can drive efficiencies and savings that nobody else can match. The existing $100 billion U.S. cannabis market is shifting from the eliciting gray markets to state-licensed operators, and despite inconsistent capital markets and an onerous state tax system and lumpy stay rollouts, that trend should continue as customers demand safety and consistency in their branded products and states look to maximize tax revenues. While we're increasingly optimistic, we will see incremental cannabis reform this year. We remain focused on what we can control and perfecting what we do best, manufacturing and cultivating high-quality products at scale and owning our strategy to significantly cut costs while enhancing product quality. This has resulted in one of the most nimble and diverse product lineups in the industry, further insulating us against pricing pressures and ultimately benefiting our customers with the variety and price points they deserve. As a management team, we've been incredibly busy during Q2, overseeing the growth of our existing operations and advancing significant discussions with a number of potential partners and strategically attractive businesses. In California, confidence in our strategy continues to grow as we're seeing a ramp in sales and an expansion of the opportunity set we are seeing in the state. As a reminder, we're pursuing a 4-part strategy in California: direct sales of our award-winning and proven product suite; third-party processing and manufacturing; select brand acquisitions; and opening of retail locations. Before I address each of those individually, let me share a few observations on the California market. First, most legacy brands in the state continue to suffer as pricing for both flower and ancillary products remains challenged. New operations have the low-cost production capabilities or the capital to compete over time. In the near term, struggling operators are selling their products at severely discounted prices in an effort to stay alive. This is unsustainable and, over time, will allow us to opportunistically tuck in the brands we desire with advantageous economics. Second, retailers are actively trying to expand the percentage of shelf space dedicated to their private label products, and they need quality third-party processing and manufacturing to achieve that goal. Not only is our facility a one-stop shop allowing customers to achieve other savings such as fuel costs, but nobody can beat us on price. Third, no capital is coming into California right now, which not only ensures that no one will replicate what we have built, but also adds a sense of urgency for operators to use our services as they look to cut costs and maximize profitability. The momentum of our Commerce facility continues to build. We see steady month-over-month growth in our direct sales efforts as the quality and pricing of our products is driving deeper penetration in the existing accounts and we continue to add new accounts on a weekly basis. On the brand front, we closed our first acquisition in April of Island Cannabis Co., California mainstay with incredibly high-quality products, including flower in both classic and infused pre-rolls. We were able to seamlessly integrate their production into our model in a matter of weeks, giving us even more confidence in our ability to buttress our growth with simple accretive acquisitions. Since introducing and folding Island into our California product suite, the brand has been well received, and our sales force has loved having established branded flower in their sales decks. Island is back in growth mode and selling through flower about as fast as it hits the menu. We're very excited to bring the successful Island brand to our Massachusetts consumers this quarter, the first of many brand expansions to come. Along with Island, our popular award-winning brands are more than holding their own in California. Our Crystal Clear bay product has become the fastest-growing brand in our California portfolio and nearly crossed $300,000 in revenue in monthly sales for the first time during the quarter. Our Hi-Burst fruit juice and Marmas gummy continue to gain traction, and we continue to innovate with the recently added CBM SKU that became a top performer in its first month. We will continue to explore new ways to further diversify our product offerings. As a function of where we sit in the supply chain and the automation and scale in which we operate, we have a multitude of levers, dials and knobs we can adjust as market conditions and preferences dictate. We're always actively reviewing and tweaking our portfolio to optimize results and drive future growth. We're also pleased to announce this afternoon we've signed an agreement to acquire Balloon Farms, a California cannabis company known for bringing safe and enjoyable products to consumers in the form of vapes and tinctures. We believe that by integrating Bloom suite of products under the 4Front platform, we'll achieve a reduction in manufacturing costs, while simultaneously increasing sales of the successful Bloom Farm brands, which include popular variety that concentrates, flower, hemp, CBD and vape products. We look forward to completing the transaction with Bloom soon and expect to announce similar acquisitions in the coming months. On the private label side, we now have active partnerships with 5 of the leading retailers in the state, including several large region-leading operators with numerous dispensary locations, a leading statewide delivery service and even a national publicly traded operator. We're now producing and packaging dummies, vapes, infused pre-rolls, distillate, diamonds, you name it, and we're making it for these major operators significantly cheaper and more profitable while continuing to provide competitive margins with little to no comparably scaled competitive operations in the state. We have a robust private label pipeline in California with a strategic focus on top retail partners, where we can secure shelf space within their retail footprint; large strategic partners where there is material revenue and growth opportunity, combined with other strategic alignment like toll processing. We've not yet been beaten on price for these deals, and we're looking at, at least 40% gross margin lines of business in today's market. Private label partnerships in California typically start with small batch orders and test runs to establish future reorders. Over time, we believe we can move some of these partnerships to more former private label contracts, but this is not yet standard practice in California outside of toll processing and supply contract deals. This is a solid business as the switching costs are high once partners are on the 4Front platform. So we believe we can land and expand with many of these partners to grow revenue over time while minimizing churn and maximizing the value of our assets. I said before that we view California as the flywheel for our business, and as we progress through the end of the year and into '23, we expect to see a steady expansion of our private label pipeline. We're also in the final stages of securing growth opportunities through new accretive cash flow positive brand and retail expansions, which we hope to announce over the coming months. Moving on to Massachusetts. We continue to capture market share in the state by implementing improvements to our product quality in both prices. Quality of our flower in Massachusetts has improved dramatically due to no small part to our acquisition of NECC and its Holliston facility in Q1 of this year and our company's focus on always finding ways to offer even better products at a market-leading price point. Tweaked store growing techniques and post-production procedures have supplemented our already leading industry-leading yields. In fact, we've already incorporated these meaningful methodologies from Holliston across Massachusetts and Illinois, and are currently in the process of adding them to our Washington facilities as well. When prices soften in this spring, we were able to meet the challenge head on, and we're now seeing great sell-through rates at our retail locations due to new wholesale pricing and product innovations. For example, we've been able to successfully drive a lot more sales of our popular Mini Budz line, allowing us to make room for the excellent new product coming on to the shelves from our Holliston facility. In July, we saw an 80% jump in flower sold in Massachusetts, and that momentum is carried in August. In Illinois, we continue to see improved product quality and sales volume. Due to the methodologies obtained from NECC and other refinements to our production process, we made notable improvements to the quality of our flower during Q1 and Q2 this year. After recently introducing our premium infused pre-rolled Terp Stix 2-packs to Illinois, they've quickly become the fastest-growing product line in our history and they're flying off the shelves. Continue to see strong performance from our 2 retail locations, and we haven't even rolled out our ancillary product yet. So we're seeing tremendous unrealized upside already. Our near-term plan includes an increased focus on expanding our retail footprint in the coming months as our cultivation and production facility in Madison or Big Daddy wraps up Phase 1 of construction and prepares to commence operations in '23. Lastly, I'd be remiss if I didn't mention the fabulous additions we've made to our senior management team in the first half of the year. Q2, 4Front added Keith Adams as Chief Financial Officer; Chris Wimmer as General Counsel; Island founders Ray Landgraf and Brandon Mills as President of California Operations and Executive Vice President, respectively, as well as new appointments to our Board, Rob Hunt and Amit Patel. These senior management and Board appointments strengthen our leadership team and are in line with our action-centered approach to ensure the best position for long-time growth. I, once again, welcome our new team members, and I look forward to working closely alongside. With that, I'll now hand the call over to our CIO, Andrew Thut, for a deeper look into our Q2 performance. Andrew? -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [3] -------------------------------------------------------------------------------- Thanks, Leo. As discussed, our belief is that the sweet spot in the cannabis value chain lies in the low-cost, high-quality production of cannabis consumer packaged goods at scale. That's precisely what we've positioned 4Front for as a company. And as a result, we are now witnessing the start of a significant leg of growth that will play out over the next 12 months, augmented by strategic and accretive M&A. Our retail locations platform-wide continue to outperform, maintaining or gaining share with increased transactions and in many cases, net sales despite anticipated pricing headwinds. In California, we're demonstrating our ability to enter the market with our proven and award-winning portfolio of products, price as much as 50% lower than the leading incumbents. We are doing this while maintaining very healthy margins, which we expect to improve as fixed costs are leveraged, and our competitors' product dumping comes to an inevitable end. Because we started the year with a revenue base of 0 in California, the pricing pressures haven't created a grow-over problem for us. And in fact, we're bringing our scaled low-cost production to bear in a market where commoditization has largely already happened. California is the largest cannabis market in the world and the land of brand. While other operators are shifting operations away from the state, we are leaning in, building brand and taking share. As our statewide routes continue to grow, there are emerging and encouraging signs that the California legal cannabis industry itself will soon find some relief. A combination of factors, including the repeal of the cultivation tax, a crackdown on illicit grows and water usage and the significant expansion of retail licenses, all proved to be tailwinds. And this is all before interstate commerce allows our regional hubs to service neighboring states at some point in the future. Recent research indicates that there are currently about 1,045 active licensed retail locations as of the end of June. That's up from 750 in June of 2021 in Cali. The pace of new license issuing in the state finished the quarter at a blistering pace, with 111 new retail licenses issued in June alone. Prior to June, the previous record for a month in California has been a mere 31. If that pace continues or even comes close, it would make a previous estimate of 1,200 locations by the end of '22 and 1,600 locations by the end of '23 looking quite conservative. We're already seeing more and more repeat buy-in from our retail customers, improving our monthly and 90-day average branded repeat customers each month since March. All the while, our 90-day average wholesale customer count has grown 50% since the end of Q1 to 277 locations. This month, we're already seeing net sales growth of 50% over July, and 39% over the prior 3-month average, and it's already our highest month of private label and bulk biomass sales. In Massachusetts, as Leo said, we're feeling great about how our business is performing despite price softness in that market. As a management team, we acted swiftly to improve quality, freshen the product assortment and be creative with promotions. The result has been a business that rebounded nicely into the end of the second quarter and has shown nice momentum into Q3. Let me throw out a few noteworthy stats from last month to help us illustrate our accelerated progress. In July, we saw the highest transactions per day of 2022 so far. July also saw the highest average ticket for all of '22 so far, and that's continued into August. And by weight, our flowers sold -- our flower sales increased 80% in July, and those -- over June, and those strong sales trends has continued into August. With the ever-improving quality of our flower that is still working itself onto the menus, we're very optimistic about our continued progress as we enter the second half of the year. I'll reiterate that our model is a stepwise process adopted from our success in Washington. We are always analyzing what is selling and what isn't and adjusting accordingly. For instance, we recently retired the underperforming Pebbles hard candy brand in Massachusetts, while outperforming SKUs like Mini Budz shake are providing to be -- are proving to be a sizable component of our growth in the quarter and in the most recent months. We're adapting in real time to the ever shifting consumer demand. And in each iteration, we further improve our efficiency and our bottom line. In Illinois, construction of our Madison cultivation and production facility remains on schedule. As we approach the final stages of construction of Phase 1, we're experiencing some nominal challenges regarding the timing of electrical supply to the facility, but our teams there have identified contingency options for temporary power and scope phasing in the event that we need it. These challenges are not expected to influence the on-time completion of Phase 1 construction still expected in Q4 of this year. Meanwhile, we have great market penetration as it is and are already selling into 90% of the retailers in Illinois. With the recent 185 new retail licenses coming on board, we are excited to expand those wholesale relationships even further. We project about 80 or so of those 185 licenses to come online within the next year, which is great growth for the market and holds promise that the growth can be sustained over the coming years. On Illinois, let me reiterate a point I made on last quarter's call. With only 2 open dispensaries out of an allowable 10, we have enormous room for growth as we expand our retail footprint in addition to expanding our wholesale presence. Let me take a minute to underscore the growth engine that Illinois can be to our story. In Q2, we run rated about $42 million out of Illinois between 2 retail locations and a small 9,000 square foot grower. Quickly eyeballing some of the other MSOs in Illinois with large cultivation and production capacity and a full complement of 10 retail locations, I estimate that they were doing about $275 million to $300 million in revenue. With Madison coming online, the first box for achieving this kind of scale will be checked. The second box is buttressing our wholesale capabilities and capturing the upside by adding additional retail. So stay tuned there as we have a lot of unrealized potential in the state, and we're just getting started. Now let me review the numbers for Q2. Systemwide pro forma revenue for Q2 '22 was $34.5 million, up 6% from the prior quarter and flat year-over-year. GAAP revenue for Q2 was $28.4 million, up 5% over last year, and 9% sequentially. The increase is due to the increased revenue of the California's wholesale revenue as it ramps and portions of wholesale growth in Massachusetts as well. Q2 adjusted EBITDA was $9.2 million, up 23% from last year, representing an adjusted margin of 27%. Continued growth of adjusted EBITDA and margins is expected to persist through '23 as the company's operations drive increased production and higher sales volume without material increases to overhead. Our balance sheet leaving the quarter is in solid shape. As of June 30, '22, we had $6 million of cash on hand and $49.5 million of related-party long-term debt, which doesn't come due until May of '24. Cash balance was down about 2.5% sequentially due to anticipated closing and integration costs associated with Island, and an investment in inventory as we look -- as we set the stage for our next phase of growth here. We continue to feel very good about our access to additional capital, given our long-standing partners, unique market position and ability to produce results. As we execute on our strategy, our thesis continues to flex. We're continuously improving and actively introducing our brands, products and best-in-class SOPs into markets and growing scale successfully. We're adding new SKUs on a monthly basis, having developed and launched more than a dozen new products and product varieties in Q2 alone, which brings me to my final point. Our goal has always been to become a larger company. By design, how our model operates the best. While we are, of course, open to the right opportunity to be part of a larger enterprise, we will not compromise to do so. We will remain heavily invested in the continued creation of shareholder value by perfecting our low-cost production and manufacturing engine, improving our thesis time again. Everything we are doing today builds our company and grows our value in the marketplace while also positioning us to be the ideal merger partner as the standard bearers of automation and efficiency of scale. With now -- with that, I'll turn it back to Leo for some final commentary before we turn it over to Q&A. -------------------------------------------------------------------------------- Leonid Gontmakher, 4Front Ventures Corp. - CEO & Non Independent Director [4] -------------------------------------------------------------------------------- Thanks, Andrew. To sum things up, we believe we found the sweet spot for outsized value creation via the low-cost, high-quality production of cannabis consumer packaged goods. We reiterate our belief that our current assets represent an opportunity for $650 million in revenue and $250 million in adjusted EBITDA. And we are confident we can drive sustained growth and capture a significant share of every market we enter. We are proving ourselves to be a major piece of the cannabis landscape and some of the most exciting cannabis markets in the country, and we can't wait to share in our continued success as we move forward. We're excited about our brands. And as always, I'm incredibly proud of our team and their dedication to providing consumers with a terrific user experience at a great price. I'm convinced that the next 12 months will demonstrate the power of our model at scale, paving the way for a robust, sustained growth in the long term and value for our shareholders. With that, I'll now turn the call over to the operator to open the lines for Q&A. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions) Your first question will come from Sean Meyer of Canaccord. -------------------------------------------------------------------------------- Unidentified Analyst, [2] -------------------------------------------------------------------------------- Congratulations on the quarter. I'll be quick here. But the first one, I was just hoping you could unpack the gross margin movement this quarter a bit. It looks as though it was down sequentially by quite a notable amount. So I'd assume this is at least in part due to the onboarding of the California facility, which isn't at scale yet, so there's likely some growing pains there. So if there's just anything that you could provide on what impacted the margin this quarter and how we should be thinking about it going from here? Is this kind of the new baseline? Or do you anticipate sequential increases? -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [3] -------------------------------------------------------------------------------- Perfect. Yes. I'll turn this over to our new CFO, Keith Adams, and Jake Wooten, our EVP of Finance, can tag team this one. Keith, are you on? -------------------------------------------------------------------------------- Keith Adams, 4Front Ventures Corp. - CFO [4] -------------------------------------------------------------------------------- Sorry, I was on mute. Sean, Keith Adams. As you stated, part of the margin pressure was bringing on the acquisition of Island but also pricing pressure across the states, but we see margin improving back to where it was before with increased spending on automation, higher yields that we talked about. And as we start to get operations at higher scale will absorb more of the fixed cost overhead. And so again, we expect the margins to resume to what you've seen previously or better. -------------------------------------------------------------------------------- Unidentified Analyst, [5] -------------------------------------------------------------------------------- Okay. And then just my next question is on the Illinois operations. So in Illinois, they announced the 185 new dispensary licenses a few weeks back. I was just wondering what you think or anticipate for the cadence of the new store openings? And how that timing will compare to you bringing on the Matson facility? And then if you could just add if you've already started reaching out to some of those licensees to establish relationships or any sort of efforts that are underway to kind of get your brands in front of those new store operators. Just anything that you could provide on how you're preparing for this new wave of store openings in Illinois? -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [6] -------------------------------------------------------------------------------- Leo and Karl, do you want to take that one? Leo, you just want to start? -------------------------------------------------------------------------------- Leonid Gontmakher, 4Front Ventures Corp. - CEO & Non Independent Director [7] -------------------------------------------------------------------------------- Sure, absolutely. I'll take a first kick at the can here. It's been a slow process getting these retail locations open in Illinois. We're doing the best we can to keep our ear to the ground on a local and on a national level to try to gauge when some of these stores will be opening. Our sales team, wholesale on the ground there is constantly in contact with new potential locations as they come up and contact information comes available, and we feel very confident that we're going to grow significant wholesale once Big Daddy comes online. As far as how many stores are going to open this year or next, it's just really hard to tell with the regulatory. But I can definitely say with confidence that we're all over the stores that are open. And as things come around, we have full new packages to provide to the retailers, the buyers and the budtenders to make sure that we get the full product suite on the shelf as quick as possible. Karl, I missed anything there? -------------------------------------------------------------------------------- Karl Chowscano, 4Front Ventures Corp. - President [8] -------------------------------------------------------------------------------- Yes. Not really, Leo. I'll just add to it. We are actively pursuing not only arrangements where we can have a fair amount of shelf space for the new-to-open facilities, but we are also actively looking to acquire our own retail outlets, plus the way in which Matson has been designed, we have built in the infrastructure so that we have great flexibility in order to turn on or turn off canopy depending upon what the wholesale market looks like. But at this point in time, as we look towards the end of the year, we're very confident we're going to be able to have relationships or -- and/or new acquisitions in terms of Illinois retail. It's still going well with the Matson. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- (Operator Instructions) Your next question will come from Colin George of Haywood Securities. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [10] -------------------------------------------------------------------------------- I'm asking the questions on behalf of Neil since it's a busy post market here. I want to dive back into the gross profit and gross margin for a second here. If I'm looking at it on a dollar basis, it looks like the gross profit came down by roughly about $1 million during the quarter. EBITDA was relatively flat, and SG&A was relatively flat. Are there some onetime items that might have been in the cost of sales that would have been backed out of EBITDA that could be a bit of a drag on it during the quarter? Or is it coming out of OpEx? Just trying to get a better idea of what the normalized levels were in this quarter? -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [11] -------------------------------------------------------------------------------- Keith. -------------------------------------------------------------------------------- Keith Adams, 4Front Ventures Corp. - CFO [12] -------------------------------------------------------------------------------- Yes. I'll take that -- we -- I'll jump in. Yes, as you said, we had onetime both transaction and integration costs with the Island acquisition, and just some of the other financing and M&A activity that we're doing. So when you back those out of the spending, it will normalize back out to, again, where we think we -- where we were before in gross margin and hopefully start to increase the EBITDA, the adjusted EBITDA also. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [13] -------------------------------------------------------------------------------- Okay. So some of those onetime costs would have been in the cost of goods impacting gross margin in the quarter and then the SG&A level right now flat quarter-over-quarter is pretty much the normalized level? -------------------------------------------------------------------------------- Keith Adams, 4Front Ventures Corp. - CFO [14] -------------------------------------------------------------------------------- Yes. And then gross margin getting to scale in the operations, specifically in California and getting the higher yields will help us significantly, too. So. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [15] -------------------------------------------------------------------------------- Yes. Makes sense. Just trying to reconcile back down to our EBITDA number. That's helpful. And then maybe just 1 more from me. Diving a bit more into the Bloom acquisition. It sounds like another nice good brand to add to your portfolio there. Is it essentially just the brand and the IP that you guys are acquiring? And do they have some facilities and outdoor cultivation or anything like that in the state already? -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [16] -------------------------------------------------------------------------------- I'll turn it over to Ray Landgraf and Leo to answer that question. Ray, do you want to start? -------------------------------------------------------------------------------- Raymond Landgraf, 4Front Ventures Corp. - President of California Operations [17] -------------------------------------------------------------------------------- Sure. The Bloom acquisition is an asset deal. And in addition to the assets of Bloom, we're picking on some equipment, some staff, some team and look forward to folding that into the portfolio here in the next coming months. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [18] -------------------------------------------------------------------------------- Okay. Yes. So there is some sort of facility attached to that. And then I guess maybe just 1 last for me before I pass along. -------------------------------------------------------------------------------- Raymond Landgraf, 4Front Ventures Corp. - President of California Operations [19] -------------------------------------------------------------------------------- There's no facilities or fixed overhead attached to it. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [20] -------------------------------------------------------------------------------- There are no facilities attached to it? -------------------------------------------------------------------------------- Raymond Landgraf, 4Front Ventures Corp. - President of California Operations [21] -------------------------------------------------------------------------------- No facilities or fixed overhead, no. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [22] -------------------------------------------------------------------------------- Okay. Sorry, I broke up there. -------------------------------------------------------------------------------- Raymond Landgraf, 4Front Ventures Corp. - President of California Operations [23] -------------------------------------------------------------------------------- Go ahead. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [24] -------------------------------------------------------------------------------- Okay. And then the last 1 for me just has been pretty topical in the sector over the last little bit. Were there any cash -- taxes paid during the quarter there that might have impacted cash flow or that was just kind of getting deferred out into further periods right now? -------------------------------------------------------------------------------- Keith Adams, 4Front Ventures Corp. - CFO [25] -------------------------------------------------------------------------------- This is Keith. We made a payment against one of the -- we made a payment against a Q1 tax liability, and the rest is being deferred at this time. -------------------------------------------------------------------------------- Colin George, Haywood Securities Inc., Research Division - Analyst [26] -------------------------------------------------------------------------------- Okay. -------------------------------------------------------------------------------- Keith Adams, 4Front Ventures Corp. - CFO [27] -------------------------------------------------------------------------------- And just to quantify that, $1 million to like estimated federal tax liability and a little over $1.1 million in Massachusetts taxes as well. So a little over $2 million in cash taxes paid out in the quarter. -------------------------------------------------------------------------------- Operator [28] -------------------------------------------------------------------------------- Your next question comes from Howard Penney of Hedgeye. -------------------------------------------------------------------------------- Howard Wells Penney, Hedgeye Risk Management LLC - MD & Sector Head of Restaurants [29] -------------------------------------------------------------------------------- I was hoping that you could speak to -- I know you said you have access to capital. I was wondering if you could speak to what your needs are in Illinois that complete the manufacturing facility? And then what you think it might take for you to get -- how much capital do you think it might take for you to get to the full suite of dispensaries? -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [30] -------------------------------------------------------------------------------- So Karl -- well, so Karl, on the -- well, on the Matson dispensary -- on the Matson build-out, we are -- that is fully financed by IIP, and we will have some equipment financing here as we move into the end of the year. So that is all accounted for. In terms of new retail locations that we're looking at, Howard, a lot of those are likely to be stock deals or small license or license acquisitions, where we use a small amount of cash and maybe a little bit of stock. So our stock is something that people are -- acquisition partners are very interested in, given our level of operational capabilities and what they view is the upside in the industry and our company given our growth opportunities. So when we think of the main currency for all M&A is going to be stock. And we are highly confident that we can do accretive acquisitions here as we move into the end of the year. -------------------------------------------------------------------------------- Howard Wells Penney, Hedgeye Risk Management LLC - MD & Sector Head of Restaurants [31] -------------------------------------------------------------------------------- If I can ask just... -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [32] -------------------------------------------------------------------------------- Did I answer your question, Howard? -------------------------------------------------------------------------------- Howard Wells Penney, Hedgeye Risk Management LLC - MD & Sector Head of Restaurants [33] -------------------------------------------------------------------------------- You did. And if I could actually ask the kind of the same question again, I guess, but in a different way. You -- I think Leo, you said you tripled or quadrupled your revenues under the existing asset base, if I've got those words correctly, I didn't write them down. And that doesn't require any capital to get there, so you could triple or quadruple your revenues with no additional capital, just if you could clarify that? -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [34] -------------------------------------------------------------------------------- Did someone jump in there? No. We have -- we're looking at -- Howard, our feet are always moving. We've been very vocal about our desire to be acquiring, getting them both in retail in Illinois, and we're very desirous to be in California as a retailer. And so to the extent that we do need any additional capital, we are feeling very good about the ability of our capital partners to expand our cash available through some debt instruments. But we don't think we need very much. And we also are at a point in our business where California is ready to flip cash flow positive this fall, and we think that we're going to be free cash flow generative as we leave Q4. So we have a lot of stuff that we want to do in this business. I think that our capital partners are very onboard with what we're trying to achieve and love what we're trying to achieve, and they are there to be supportive and opportunistic as needed. -------------------------------------------------------------------------------- Operator [35] -------------------------------------------------------------------------------- There are no further questions at this time. I'll turn the conference back to Leo Gontmakher for closing remarks. -------------------------------------------------------------------------------- Leonid Gontmakher, 4Front Ventures Corp. - CEO & Non Independent Director [36] -------------------------------------------------------------------------------- Thanks, everyone, for joining, and we look forward to keeping you up-to-date on the progress of our growing business. Take care. -------------------------------------------------------------------------------- Andrew Fisher Thut, 4Front Ventures Corp. - CIO & Corporate Secretary [37] -------------------------------------------------------------------------------- All right. Thanks, everyone. -------------------------------------------------------------------------------- Leonid Gontmakher, 4Front Ventures Corp. - CEO & Non Independent Director [38] -------------------------------------------------------------------------------- Thanks all. -------------------------------------------------------------------------------- Operator [39] -------------------------------------------------------------------------------- Ladies and gentlemen, this concludes your conference call for this afternoon. We would like to thank everyone for participating and ask you to please disconnect your lines.