FFNTF is a LONG
We continue to believe that FFNTF will be one of the better performing small-cap companies in the emerging massive secular growth cannabis industry. At 4Front, you get a combination of low-cost production and distribution in limited license states and mature states too. The company has honed its trade over the past six years in Washington State. It has established a dominant market position in Washington State, with a full line of products distributed to over 260 retail locations. The company claims the #1 edibles manufacturer and the #2 flower producer with the state's overall #2 market share. The company's future state is to take these production capabilities to the recreational markets of Illinois, Massachusetts, Michigan, and California. All in, FFNTF serves an addressable market of over 76 million people.
The company posted solid top-line momentum in Q1 and has carried that into Q2, and is now set up to outperform in 2H21. The company is getting ready to launch two crucial projects in 2Q21 - Commerce, California production center and the opening of its Brookline, Massachusetts retail location. The company reported 1Q21 system-wide pro forma sales of $31.4 million, increasing 26% sequentially over the fourth quarter of 2020. All retail locations performing the above plan should continue for the balance of the year. Recreational sales in Massachusetts showed 30% sequential growth in this state. In Illinois, the company posted over 100% sequential growth as Calumet City's location has exceeded expectations since December.
Importantly, 1Q21 was the third consecutive positive adjusted EBITDA quarter, posting $5.9 million in adjusted EBITDA, or 19% adjusted margins. The only slight negative in the quarter was EBITDA margin was negatively impacted by 200bps due to the ramp of the expanded growth facility in Illinois. The tripling of the Illinois cultivation facilities flowering cannabis was completed in 4Q20. The first harvest from the expanded facility was not complete until April, leading to a one-time higher-than-expected average cost per gram in the quarter. The harvest delay also resulted in a disproportionate amount of lower-margin third-party wholesale sales in the quarter at the Illinois dispensary. After the quarter end, FFNTF has already more than tripled the Illinois harvest output through the first month of Q2 and expect a meaningful rebound in margins in 2Q21. The company has announced plans to expand the cultivation and manufacturing presence in Illinois "exponentially" and has 20 cultivation licenses in the state that allow for 210,000 square feet of flowering cannabis. Construction on this project should begin in 3Q21, with Phase I to come online late next year, with roughly 65,000 square feet of flowering canopy and 70,000 square feet of production.
The big event for 2021 is the much-anticipated entrance into California, the largest cannabis market globally, setting up the company for step-function growth in operating leverage in 2021 and 2022. Compared to the 40,000 SQ FT Washington facility, the Commerce, CA facility is 170,000 square feet, with significant expansion in automation and efficiency. As the CEO said on the call, "We've put in automation as far and beyond anything we have in Washington. And far and beyond anything we've seen in the industry today. Those efficiencies, automation, and size combined, allow us for that 10x capacity." The company noted that the "edible machinery that we put in Commerce is our machinery that we're most proud of, and that's the most highly automated. So in Washington, in a single shift, we have 30 people working in the kitchen to produce about 3,500 finished ten packs of edibles. In that same single shift, the machinery in Commerce with five people working in line can produce 30,000 to 35,000 finished ten packs. Whether that's a Marmas, hard candy, or Chewee, just any edible that we produce."
As of March 31, the company had approximately $18 million of cash and $46 million of related party long-term debt, which doesn't come due until May 2024.
