4Front Ventures Stock: Pot Stock Near Record Lows Has 87% Upside

FFNTF Stocks Outlook Bullish on Solid Q3 Results

Shares of 4Front Ventures Corp (OTCMKTS:FFNTF) are doing as well as the rest of the cannabis stock market, which isn’t saying much. Marijuana stocks have been struggling with macroeconomic headwinds and the glacial moves in the U.S. toward the federal legalization of pot.

As of this writing, 4Front Ventures stock is down by 62% year-to-date and 61.5% year-over-year.

That’s even worse than ETFMG Alternative Harvest ETF (NYSEARCA:MJ), the world’s largest cannabis exchange-traded fund (ETF), which is down by 53% year-to-date and 54% year-over-year. FFNTF stock is trading pretty much in line with AdvisorShares Pure US Cannabis ETF (NYSEARCA:MSOS), which is down by 62% year-to-date and 62.5% year-over-year.

Those are grim numbers, but the big sell-off of pot stocks over the last two years—plus weak investor sentiment in general—means many cannabis companies have decent valuations. 4Front Ventures Corp has a forward price-to-earnings (P/E) ratio of about 11.0. In contrast, the S&P has a forward P/E ratio of 19.3, while the Nasdaq sits at 22.60.

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The bear market ending in 2023 would help cannabis stocks recover somewhat. The U.S. moving the needle on the federal legalization of marijuana would also help juice pot stocks.

4Front Ventures Corp, in spite of everything, has been doing pretty well. The multistate operator recently reported solid third-quarter financial results, which included record net sales in Massachusetts.

Thanks to the company’s operational improvements throughout 2022, management said it expects 4Front Ventures Corp to have positive operational cash flow by the end of December.

On top of that, the company has been busy diversifying its brand and product portfolio, making acquisitions, and expanding its business footprint.

Despite its raft of good news, there’s nothing 4Front Ventures Corp can do about macroeconomic headwinds and the legal status of marijuana, both of which have contributed to 4Front Ventures stock taking a hit.

The anticipated end of the bear market in 2023 has Wall Street analysts taking a bullish stance on FFNTF stock. Analysts have provided a 12-month share-price forecast of $0.58 to $0.73. This points to potential gains in the range of 48% to 87%.

Chart courtesy of StockCharts.com

4Front Ventures Corp Overview

4Front Ventures is a vertically integrated U.S. weed company operating in five of the most populous states in the country: California, Illinois, Massachusetts, Michigan, and Washington.

Together, these five states represent an addressable market of 76 million customers, or 23% of the total addressable market in the U.S. (Source: “Investor Presentation,” 4Front Ventures Corp, last accessed December 20, 2022.)

To date, 4Front Ventures has successfully taken to market more than 20 cannabis brands and more than 1,800 products, which are distributed through its fully owned and operated dispensaries and retail outlets. 

Since 2015, 4Front Ventures Corp has established a dominant position in the State of Washington, one of the most competitive and low-priced marijuana markets in the country. The company is currently the No. 1 edibles manufacturer, No. 2 cannabis flower producer, and No. 2 cannabis market-share holder in the state. Its products are sold in about 260 retail locations.

4Front Ventures Corp also has dominant positions in California, Illinois, Massachusetts, and Michigan. In Illinois, the company operates “Mission” dispensaries in South Chicago and Calumet City. It also has the ability to open eight more stores in Illinois.

Moreover, 4Front Ventures Corp is currently building a new cultivation and production facility to serve the rising needs of its retail stores, which are anticipated to massively increase in number over the next few years. When finished, the facility will be up to 558,000 square feet in size.

Management expects Phase 1 of the facility to be completed by the end of 2022 and come online in 2023. Phase 1 will total 250,000 square feet, including 65,000 square feet of flowering canopy and 70,000 square feet of manufacturing space.

4Front Ventures Corp has been operating in Michigan for over 10 years. In Massachusetts, it operates three cultivation and production facilities, plus dispensaries in Georgetown, Worcester, and Brookline.

In January, the company officially closed on its acquisition of New England Cannabis Corporation. This move more than doubles 4Front Ventures’ total marijuana flower canopy by adding a fully operational 55,000-square-foot cultivation facility to its assets.

4Front Ventures Corp’s facility in Commerce, CA is one of the largest, most efficient cannabis manufacturing facilities in the world. It has:

  • 170,000 square feet of manufacturing space
  • 8,000 square feet of distribution and warehouse space
  • More than 25,000 square feet of finished goods storage
  • About 4,000 square feet of dry flower storage

In April, 4Front Ventures Corp completed its acquisition of Island Cannabis Co., a popular California-based producer of marijuana pre-rolls, flower, concentrate products, and infused products.

In August, 4Front Ventures Corp completed its acquisition of Bloom Farms, another popular California cannabis company. 4Front Ventures began manufacturing “Bloom”-branded products at its Commerce, CA facility in the third quarter and is looking to sell those products outside California.

California is the largest legal medical and recreational cannabis market in the U.S., with a current market of $5.7 billion and a long-term total addressable market of $10.0 billion.

Third-Quarter Financial Results

For the third quarter ended September 30, 4Front Ventures announced total revenue of $32.5 million, up by 14% sequentially and 25% year-over-year. It posted record sales in Massachusetts, with a near-40% increase in market share from January 2021. (Source: “4Front Ventures Reports Third Quarter 2022 Financial Results,” 4Front Ventures Corp, November 14, 2022.)

The company’s pro forma revenue, which excludes financial information that the company believes obscures its finances, went up by nine percent quarter-over-quarter and 13% year-over-year to $37.3 million.

4Front Ventures Corp reported a third-quarter net loss of $8.6 million, or $0.01 per share, compared to a third-quarter 2021 net loss of $4.6 million, which also translated to $0.01 per share.

The company’s adjusted earnings before interest, taxes, depreciation, and amortization (EBITDA) went up in the third quarter by 24% year-over-year to $9.3 million. Management said it expects 4Front Ventures’ adjusted EBITDA to continue to grow throughout 2023 as the company drives up its production and sales volumes without a material increase to its overhead.

Analyst Take

As discussed above, 4Front Ventures Corp is a multistate marijuana operator with a presence in five of the biggest cannabis markets in the country. It has a strong presence in the State of Washington, it reported record revenues in Massachusetts, and its operations in California and Illinois are shaping up to be significant growth drivers.

Thanks to efficiencies, 4Front Ventures Corp expects to return to having positive operational cash flow by the end of 2022 and expects its momentum to continue in 2023.

Therefore, investors might want to keep an eye on 4Front Ventures stock.