In a tough market for cannabis stocks, Haywood Capital Markets analyst Neal Gilmer is sticking with US multi-state operator 4Front Ventures (4Front Ventures Stock Quote, Charts, News, Analysts, Financials CSE:FFNT), issuing on Tuesday a reiterated “Buy” rating on the stock and C$0.50 per share target price.
Phoenix-based 4Front, which has operations in California, Illinois, Massachusetts, Michigan and Washington, announced its first quarter 2023 financials on Monday. The company posted managed revenue up seven per cent year-over-year to $34.8 million and gross profit of $11.0 million compared to $13.5 million a year ago. The net loss for the quarter was $11.4 million compared to a loss of $5.9 million previously and adjusted EBITDA was $3.5 million compared to $7.4 million a year ago. (All figures in US dollars.)
Operationally over the Q1, 4Front completed construction of its cultivation and production facility at Matteson, Illinois, acquired its third retail dispensary license in Chicago, launched new products and increased its packaged flower production in Massachusetts by almost 50 per cent and debuted a new 1988 brand in the state.
“We ended the quarter with positive operational cash flow in all our core markets, with the exception of California,” said CEO Leo Gontmakher in a press release. “This achievement has put us on solid ground as we continue to invest additional working capital in key markets and prepare for our next phase of growth in Illinois, which we believe represents the largest market share opportunity over the next 18-24 months.”
Gilmer said 4Front’s revenue was in line with estimates but poor results in California dragged down earnings. The $34.8 million topline compared to his forecast at $34.7 million and the consensus at $31.8 million, while $3.5 million in adjusted EBITDA was under Gilmer’s estimate at $6.1 million as well as the Street at $6.7 million.
Gilmer’s outlook on FFNT was left mostly unchanged with a slight reduction in his EBITDA forecast for 2023. He noted that management made encouraging comments on California, however, where it said business has started to turn, with April reaching its highest month of sales to date and the company expecting CA to be cash flow positive in less than 60 days.
“4Front is now positioned to realize the investment in Illinois once the [new] facility comes online later this year to drive notable growth in that state,” Gilmer wrote. “Management has demonstrated solid progress increasing market share in Massachusetts while it waits for improvement in California.”
By the numbers, Gilmer is now forecasting 4Front’s GAAP revenue to go from $118.6 million in 2022 to $134.0 million in 2023 and to $163.0 million in 2024. EBITDA is expected to go from $27.7 million in 2022 to the same $27.7 million in 2023 and to $44.6 million in 2024. At press time, Gilmer’s retained C$0.50 target represented a projected return of 133 per cent.
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