There are several reasons why we continue to like FFNTF:
DOMINATING POSITION WASHINGTON STATE
4Front facilities have established a dominant position in Washington State, with a full line of products distributed to over 260 retail locations in any given month across the state. Their facilities are the #1 edibles manufacturer and the #2 flower producer with an overall #2 market share in Washington, outperforming over 600 license holders in one of the most competitive cannabis markets in the world all achieved while maintaining desirable margins and profitability.
TAKE SCALE PRODUCTION TO NEW MARKETS
FFNTF replicates these tried and true production capabilities in Illinois, Massachusetts, Michigan, and California's large and nascent recreational markets. And all in, the company's current addressable market is over 76 million people. Momentum from 1Q21 carried into 2Q21, with revenues of $34.4 Million, an increase of 10% sequentially and 85% YoY. The company had $7.5 Million in adjusted EBITDA, representing an EBITDA margin of 22%.
They reiterated their prior guidance for 2021 of $170-$180 Million in revenue and $40-$50 Million EBITDA(A). To hit this guidance, 4Front will need to do $110 Million in revenue 2H21, 68% higher than 1H21. All retail locations across the company's portfolio continue to perform above expectations, a trend that has continued into 3Q21. Recreational sales in Massachusetts continue to show strong growth. They have sufficient inventory to supply the next leg of growth with the opening of Brookline - FFNTF will be opening its third Massachusetts dispensary this Saturday in the heart of the Boston University corridor. As long as the California plant begins to produce revenue, this number should be achievable. In addition to the California facility, the third dispensary location in M.A. will likely do $25-$40 Million annually. Looking to the future, 4Front stated that their existing licensed projects at maturity would represent $650 Million in revenue and $250 Million in adjusted EBITDA. 2Q21 marked the 4th consecutive positive (A)EBITDA, with $7.5 million in (A)EBITDA or 22% adjusted margin, which grew 27% quarter-over-quarter. 2Q21 saw improved margins as expected, with sales from the expanded facility in Illinois. Margins should continue to expand meaningfully with improved facilities efficiencies, and as California comes online, they will leverage those costs. In addition, they should see leverage in the SG&A line.
As a result, FFNTF is positioned for step function margin expansion into 2022. Over the past year, the company has completed two critical projects in Massachusetts and California, under budget and on time. In addition, the company is going to break ground tomorrow on a third project, dubbed "Big Daddy" in Illinois, just in time to serve the dramatic increase in Illinois retail licenses and strong consumer demand. The first phase will have 65,000 square feet of flowering canopy and 70,000 square feet of production. In the meantime, the expectation of wholesale revenues will contribute to top-line results in I.L. All of this supports the bull thesis for FFNTF.
The company is in the final stages of its fully automated production facility in Commerce, Ca, and is clearing the final hurdle to licensure. Importantly, FFNTF has signed an additional agreement where Nabis will lease 20,000 square feet of space in their Commerce facility, which will not only lower the cost but allows them to further with a meaningful partner. The agreement with Nabis, a leading distributor of cannabis products in California covering 99% of licensed retailers in the state at more than 750 dispensaries, gives FFNTF statewide last-mile coverage to retail locations on day 1 of production.
THE BALANCE SHEET & OUTLOOK
As of June 30, FFNTF had $11.6 million of cash and $46 million of related party long-term debt, which doesn't come due until May 2024. In addition, the company generated cash flow from operations of $4.6 million. The company also announced that Navy Capital is providing the company with a term sheet to lead the financing of a proposed accretive acquisition to strengthen the company's position in a critical market as the pace of consolidation in the industry picks up.
It's notable on the call that the company said, "And while the public equity markets aren't paying much attention to U.S. cannabis right now, I can assure you that the private markets are, which brings me to my fifth point and possibly one of the most important takeaways we would like you to have from this call. I think that we're on the cusp of one of the most active M&A environments I've seen in my 7-plus years in the industry. While the timing of movement on the federal side is up for debate, the inevitability of it doesn't seem to be." Looking at 2022, FFNTF will have scaled, proven operations in Massachusetts, Washington, California, and Illinois, potentially adding a license in New Jersey, making the company an attractive asset.
While the company reiterated its guidance of $170 million to $180 million and adjusted EBITDA of $40 million to $50 million in 2021, they hinted at increased confidence in a more robust 2022 than previous estimates.
