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4Front Announces Third Quarter 2019 Financial Results

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The company will hold a conference call with management on Monday, December 2

VANCOUVER and PHOENIX, AZ, Nov. 29, 2019 /CNW/ - 4Front Ventures Corp. (CSE:FFNT) (OTCQX:FFNTF) ("4Front" or the "Company"), an operator of strategically aligned cannabis-related businesses, including cultivation, production and retail operations, today released its unaudited financial results for the quarter ended September 30, 2019 ("Q3 2019").

4Front (CNW Group/4Front)

The Company's Q3 2019 financial statements are the first to consolidate results from 4Front Holdings LLC ("4Front Holdings") and Cannex Capital Holdings, Inc. ("Cannex"), which completed a merger on July 31, 2019. Q3 2019 includes Cannex operations from July 31, 2019, through September 30, 2019.

All dollar amounts herein are references to U.S. dollars.

Q3 2019 Financial Results Highlights

  • As previously reported, Systemwide Pro Forma Revenue*, a non-IFRS measure, of $16,902,029, an increase of more than 20% over the previous quarter's $14,058,442
  • As previously reported, IFRS Revenue of $7,517,621
  • Adjusted EBITDA*, a non-IFRS measure, was a loss of $4,610,917
  • Net Income was a loss of $6,864,420**
  • The Company ended the quarter with $12.4 million of cash and anticipates ending November with approximately $13 million in available cash and undrawn loan commitments.

(*Please see Note Regarding Non-IFRS Measures, Reconciliation, and Discussion below.)
(**Please see the Financial Statement section below, and the Company's Q3 2019 Unaudited Condensed Interim Financial Statements and Management Discussion and Analysis, available under the Company's SEDAR profile at www.sedar.com, for more information.)

"These reported results reflect the initial consolidation of 4Front and Cannex operations and I'm proud of our collective teams' efforts to support the integration of our two organizations and navigate the inherent changes that come with mergers. I couldn't be more pleased with how the team has come together and has us prepared to capitalize on the opportunities in our dynamic industry," said Josh Rosen, CEO of 4Front. "We have been, and intend to continue to be, aggressive, but prudent. As our President, Kris Krane, and I have noted in the past, our perspective is that we view the industry more like the game of Risk rather than Monopoly. In this capital markets environment, this means an even greater emphasis on strategic capital allocation, tighter spending controls, and prioritization of projects. We're built for this."

Q3 Operational Milestones and Updates

  • The integration of 4Front and Cannex is complete. Operational leadership and accountability have been streamlined across all three business divisions—Brightleaf, Mission, and Pure Ratios—positioning the Company to support the anticipated acceleration of growth in 2020
  • Brightleaf, 4Front's cultivation and production division, introduced the first set of Cannex brands into the Massachusetts market
  • First harvest in Brightleaf's Worcester, Mass., cultivation facility post-Cannex merger
  • Mission opened a dispensary in Catonsville, Maryland, the fourth Mission dispensary in the state
  • Pure Ratios' THC-enhanced product line re-introduced into the California market in partnership with Caliva
  • The Company continued to progress on its key infrastructure projects, including its manufacturing facility in Commerce, California, the optimization of its vertically integrated facility in Georgetown, Massachusetts, and the adult-use preparations for Mission retail in Massachusetts, Illinois, and Michigan
  • 4Front expanded its executive team with the hiring of Brad Kotansky as Chief Financial Officer and Alicia Mandel as Chief Human Performance Officer. In addition, it strengthened its finance team with the addition of Nicolle Dorsey as EVP of Finance.

Key Projects and Financial Guidance
"After a review of our existing license portfolio, capital spending plans and, importantly, the respective anticipated returns on invested capital, we have optimized our near-term plans to focus on driving revenue and profitability in 2020 without sacrificing the most attractive additional opportunities that support our long-term vision," said CFO Brad Kotansky. "We're fortunate to have an agile platform that didn't overextend, which allows us to prioritize our spending, leaving only modest capital requirements to demonstrate meaningful growth and performance. We've set achievable expectations and should the access to and cost of capital improve, we have numerous opportunities in hand to accelerate our growth beyond our guidance."

Mr. Rosen added: "While we see strong growth opportunities across our portfolio and we remain confident in our access to capital, we are less enthusiastic about the current cost of capital. As meaningful shareholders ourselves, we believe a more measured approach to near-term capital spending is in our shareholders' best interest. Our financial guidance for 2020 and 2021 assumes we raise $30 million of external funding to support the completion of our infrastructure and near-term optimization plans in California, Massachusetts, and Illinois, and ongoing working capital. This should allow us, with some cushion, to achieve positive cash flow in the second half of 2020. We have a strong, supportive and aligned core stakeholder base, which gives us a high degree of confidence in our ability to support our capital needs and I look forward to providing updates on our progress over the coming months."

4Front is providing the following guidance for 2020 and 2021:


2020

2021

Systemwide Pro Forma Revenue

$140-180M

$250-300M

IFRS Revenue

$100-140M

$200-250M

Adjusted EBITDA

$10-15M

$45-50M

 

  • Adjusted EBITDA is anticipated to inflect positive in the second half of 2020 due to an increase in sales volumes, primarily in Massachusetts and California.

The Company believes the foregoing guidance is reasonable given the current developments in the Company's businesses and accelerating growth in cannabis markets in which the Company operates. However, the foregoing guidance is subject to the following assumptions and risks:

  • The Company's ability to raise up to $30 million in capital;
  • The timing of completion of the Company's infrastructure projects, including those ongoing at Georgetown, Massachusetts and Commerce, California, within budgeted cost;
  • Certain pricing assumptions for cannabis products in California, Massachusetts, and other markets in which the Company operates;
  • The Company's ability to continue to develop wholesale sales relationships in markets in which it is introducing products, such as California and Massachusetts;
  • The Company's subsidiaries, or entities with which the Company has managed services agreements or effectively similar arrangements, ability to attain and retain recreational cannabis licensing.*

(*Please see the Cautionary Note Regarding Forward Looking Statements below for more information regarding risks to the Company's business.)

Additional Details
As of close of business today, 4Front would have a basic total of 530,852,417 shares outstanding, when calculated as if all share classes were converted to Subordinate Voting Shares, and a fully diluted total of 536,475,4371 shares when calculated on the same basis. The total outstanding share count does not include shares to be issued pursuant to the Non-Brokered Private Placement described below. For further details regarding 4Front's share structure, please see the its profile at www.thecse.com.

Conference Call
The Company will host a conference call with CEO Josh Rosen, CFO Brad Kotansky, and President Kris Krane on Monday, December 2, at 9 a.m. EST. Join by dialing 1-877-407-0792 toll free from the United States or Canada or 1-201-689-8263 if dialing from outside those countries.














1

Using the treasury stock method as of November 29, 2019.                                

The call will be available for replay if you're unable to join. To access the replay, which will be available until December 9, dial 1-844-512-2921 toll free from the United States and Canada, or 1-412-317-6671 if dialing from outside those countries, and using this replay pin number: 13696657.

Non-Brokered Private Placement
The Company further announces the completion of a non-brokered private placement (the "Private Placement") of Subordinate Voting Shares of the Company to two principals of Bayfront Capital Holdings Limited and AHS Inc. (collectively "Bayfront") as settlement for previously outstanding service fees owed to Bayfront related to services provided in 2018. The Company will issue under the Private Placement 517,728 Subordinate Voting Shares to each of the two principals at a price of CAD 0.59 per share, representing in aggregate under 0.2% of total shares outstanding of the Company.    

Financial Statements
The condensed consolidated interim financial statements for the nine months ended September 30, 2019, have been prepared in accordance with IAS 34 – Interim Financial Reporting. These statements have not been reviewed by an auditor.

4FRONT VENTURES CORP.

Condensed Interim Consolidated Statements of Financial Position

For the Periods Ended September 30, 2019 and December 31, 2018

(Unaudited - Amounts Expressed in United States Dollars Unless Otherwise Stated)








 September 30, 


 December 31, 



2019


2018

ASSETS





Current Assets:





Cash 


$

5,993,571


$

1,262,733

Restricted Cash 


6,400,286


-

Accounts Receivable


1,527,911


-

Other Receivables


316,101


3,920,000

Inventory


8,745,482


4,028,506

Biological Assets

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