4Front Earnings + Call Notes
High quality, low cost producer winning in wholesale market.
Q2 2024 Revenue of $18.7 Million, Excluding Discontinued Operations
Q2 Adjusted EBITDA of $2.6 Million
Wholesale Revenue Growth in Massachusetts and Illinois: 31% and 10% QoQ
Matteson, Illinois Facility Now Fully Operational
Norridge, Illinois Retail Store Now Open
"As I look back on our second quarter, I am incredibly proud of our team's execution against our 2024 priorities. Despite increased competition and inconsistent foot traffic, our disciplined strategy has kept revenue steady, and our concerted efforts to strengthen our wholesale strategy are paying off with a 10% increase in Illinois and a substantial 31% growth in Massachusetts.
Our Matteson facility in Illinois is now operational with 12,000 sq ft of flowering canopy and we’re on track to triple this capacity by mid-Q4. The strong demand for our flower, evidenced by substantial pre-sale interest and long-term supply contracts, underscores market confidence in our high-quality products. We anticipate a notable rise in wholesale revenue as we ramp up our harvest schedule starting in early September.
Since I assumed the role of CEO in January, we’ve made considerable strides. We completed a strategic reset of our Massachusetts grow facilities, optimizing production capabilities, and successfully launched the Matteson facility. Our wholesale channel has seen a strong resurgence, bolstered by a revitalized marketing strategy and an enhanced product lineup. Additionally, we have improved our retail menus and continue to strengthen our market presence.
As we move into the second half of the year, our focus remains on driving innovation and maintaining high standards of quality. We are well-positioned to capitalize on emerging regulatory changes and continue delivering value to our shareholders while offering exceptional products to our customers." Andrew Thut, Chief Executive Officer
Call Notes
Executing well against priorities.
Returning to growth + profitability.
In MA IL WA, enhancements beginning to bear fruit.
Q2 revs in line w expectations.
Stability supported by increase in avg basket size.
Strengthening wholesale strategy, for the quarter.
^ 10% increase in wholesale in IL.
^ 31% increase in MA wholesale.
WA licenses returned to ATH.
Significant interest in pre-sale + LT supply contracts for new IL Matteson facility.
In advance discussions w/ several large strategic partners.
^ bulk sales / strategic partnerships.
Over 12,000 sq ft online in Matteson, nearly 2x’ing footprint.
By aug, will 3x capacity in state, full capacity by November.
Matteson will lead to a substantial increase in wholesale revenue.
Matteson supply increase will additionally benefit IL retail offerings.
Allowing more FFNT brands + third party products.
In MA IL, introduced several new products / SKUs.
Renewed focus on budtender education to boost sales.
Investing in training / resources.
Feedback from loyalty program has been crucial in adjusting.
^ budtender education / menu strategy.
4/20 promo deals saw best business days in the past 6mo.
^ surpassing green Wednesday / black Friday sales.
Processed over 3,400 transactions in 2 days, highest sales to date this year.
MA IL record customer acquisitions, sales volume, customer transactions on 4/20.
Introduced revamped website + ecommerce experience this month.
Engaged leading national brand / digital marketing firm.
^ to expand brand presence + customer engagement.
Prioritizing innovation / consumer insights.
Key hires in Q2, especially for Matteson, IL facility.
More experts joining in Aug + Sept.
Insights already making grows more productive, increasing yields.
In Q2 opened Norridge in IL.
Well received and consistent average week over week customer growth/ basket size.
Sales up 10-18% WoW since launch.
Operational breakeven in Q4, then a net contributor of cash monthly.
Norridge in a high traffic area near other popular retail doors.
Exploring opportunities to add more dispensaries in IL.
High capacity locations.
Focused on driving CF + forward growth.
Focused on operational excellence + delivering top-notch products at a great price.
Introducing thoughtful, innovative, consumer-centric products.
Seeing strong results from wholesale expansion efforts.
In IL, BDSA notes market grew over 4% QoQ.
Flower pricing remained flat QoQ.
^ down 11% YoY.
Not aware of any significant supply coming online in IL.
Matteson launching into a supply constrained market.
IL needs biomass and FFNT bringing it online at the right time.
Retail revenue by over 10% at Calumet and 6% at South Chicago.
Similar to what other MSOs are reporting in the quarter.
^ retail compression.
Avg basket remained consistent at Calumet and up 2.5% at South Chicago.
Reduced discounting at both locations as product assortment improves.
Sold into 148 dispensaries in IL during the quarter, of 210.
^ 75% penetration.
Revenue up 10% QoQ, from $1.87m to $2.1m.
^ driven by introduction of new in-demand genetics, new product launches.
^ and third-party retail network expansion.
Product launches in IL MA are bearing fruit.
Recently introduced Mission flower brand is now a best seller across all locations.
Launched 0.35g mini pre-roll multi-pack.
Previously unserved product.
Bringing extraction online in Matteson.
Soon a full suite of extraction capabilities.
IL Matteson sq ft up 50% to 18,000 sq ft at end of month.
Will produce over 3Klbs of cured biomass + 2Klbs of sellable flower/month by EOY.
MA saw 3% growth QoQ.
Flower pricing remained relatively stable.
^ down 3% QoQ.
^ settling at $5.24/gram at A/U retail.
MA retail challenges seen due to price compression + increased competition.
Seeing decline in foot traffic due to more retail locations.
Seeing stabilization in Q2 at other locations; monitoring all options for Brookline store.
Avg ticket up 5% QoQ at all 3 retail locations in MA.
Double digit decrease in discounting QoQ.
MA wholesale up QoQ from $975k to $1.245m.
Reducing verticalized % sales at owned retail and increasing wholesale strategy.
Strongest wholesale menu ever available for MA.
Expect continued wholesale growth in MA (+ IL) wholesale channels.
Enhancements made at both MA cult/manu facilities.
Leading to increased quality, yields, and reduced failure rates.
Expert Worcester to contribute 350-400lbs/mo going forward.
Q3 test results averaging at 33.5% in some strains, peaking at 37.7%.
^ vs Q1/Q2 averages of low-to-mid 20% range.
MA + IL now equipped w/ automated trimming + sorting machines.
Reducing labor + operating costs, + increasing quality.
Trialing new nutrient blend.
Could reduce nutrient costs by 40-50% by the end of next quarter.
WA licensee revenue exceeded $3.3m in monthly sales in May.
^ highest month since Jan ’22.
From Q1 to Q2, WA saw a revenue increase of approx.
9%, with revenue rising from $8.35m to $9.1m.
WA sq ft stable, but number of cultivars increasing from 34 to 41.
$18.7m revenue vs. $18.8m in Q1.
Incl WA revenue, total product sales revenue increased to $27.8m.
^ up from $27.2m in Q1.
aEBITDA up to $2.6m.
IL revs of $8.2m, slightly down from $8.5m in Q1.
Decrease driven by increased local competition at retail, decreasing store traffic.
MA revs up to $8.2m, from $8m in Q1.
Increase driven by strong wholesale demand, supply chain stability, improve assortment of in-house + third-party brands.
$2.4m cash ; total debt of $67.4m, future debt maturities totaling $40.3m.
New IL growth largely driven by wholesale.
Unlocking doors on a weekly basis.
IL Flower pricing flattening out.
Not seeing a vibrant wholesale + bulk supply chain, particularly in biomass.
Working to line up IL supply contracts, opportunities to help bring more brands to market.
IL 2nd to last beside AZ for # of active brands in market.
Largely driven by lack of consistent supply.
As FFNT brings more supply into the market, see ability to meet demand at current market pricing.
At premium side, bulk wholesale $1,000/lb or $20/8th as packaged.
By end of Aug, will increase IL capacity by 3x.
Allocating strongest genetics.
Believe Matteson will be flagship 2.0 facility.
Seeing stabilization at retail outside of Brookline location.
Much work done w/ menu configuration.
Part of issue in ’23 was cutting out more third-party SKUs.
^ fixed that and expanded third-party this year.
Only get 3 shots at A/U in MA.
Need to maximize each dispensary.
Temporarily shut down Brookline and looking at options.
Transferring license could be an option.
Looking at Brookline to see what the next steps are.
Think can grow existing wholesale business in IL by 3-4x.
Previously supply constrained / selling everything grown.
See the demand, mapping to it.
Need to have a balanced assortment for IL.
Every brand may not be a 4Front brand.
Opportunities for third-party brands to come in and perform strongly.
On bulk wholesale, IL one of the least mature markets for wholesale + bulk.
Great opportunity to find stability, get contracts in place, supply relationships, increased shelf space opening for 4Front brands.
Migrated CA lab over to IL.
Lab is quite a beast of production equipment.
Have done several pilot runs, seeing the same results/yields as CA.
Believe this gives 4Front a competitive advantage in IL.
Better equipment than most of what is seen in the market.
^ ex. 2x pass distillate equipment vs. 1x pass in IL market currently.
Currently on hemp-derived side, no plans mentioned yet to enter that space.
Matteson is a facility that will be a centralized production hub, ample space to do anything hemp if wanted to do so, but no strategy currently.
Reducing risk associated with facility by focusing on wholesale.
^ even bulk wholesale, vs prioritizing 4Front brands / products-only.
Looking at both sides of the market, seeing a lot of demand on bulk wholesale side.
A lot of existing canopy in IL is not performing well.
Increasing demand for bulk/biomass arrangements in IL.
Expect to have balance sheet cleaned up as soon as possible to allow 4Front to take advantage of IL retail capture opportunity.
/end
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