4Front Ventures has announced that as part of its focus on continually increasing operational excellence, reducing capital and operating expenses, and achieving positive cash flow in the second half of 2020, a number of changes have been put in place. The Company also announced strong business trends, corporate overhead reductions and divestiture of non-core assets.
In order to further the focus on operational excellence, the Company's Board of Directors appointed Leo Gontmakher, previously Chief Operating Officer, to the position of Chief Executive Officer. Former CEO Josh Rosen, will transition to Executive Chairman of the Board of Directors. Nicolle Dorsey, former Executive Vice President of Finance will become the Company's Chief Financial Officer, replacing former CFO Brad Kotansky.
Aggressive Expense Reduction
Consistent with previously announced plans to drive revenue growth and profitability through a focus on core assets and to become cash flow positive in the second half of 2020, the Company began a series of material expense and overhead reduction initiatives.
"{Over the past four months, corporate headcount has been reduced by nearly 40%, and headcount related to overhead in the Mission stores has been reduced by 45%. These reductions are expected to yield annualized savings of between $7-8 million per year without impacting the Company's ability to meet previously stated financial goals," the team with the company explains.
"We continue to take considered and decisive measures to streamline our operational platform and think there are still more efficiencies to be achieved. While making difficult personnel decisions is never easy, a leaner headcount is consistent with our corporate philosophy of low-cost, efficient operations," said Mr. Gontmakher. "Particularly in uncertain times, maximizing the amount of revenue growth that translates directly to increased EBITDA and cash flow is a high priority."
Focus on Core Assets and Reduced Capital Requirements
Along with cost reductions, 4Front's path to achieve positive cash flow is predicated on its prioritization of driving performance in core assets.
"4Front's core assets are in adult-use markets and afford us the opportunity to meaningfully expand our cultivation and manufacturing capabilities, most notably in Illinois, Massachusetts and California in the future," Mr. Gontmakher said. "This focus allows us to allocate capital to core businesses that can achieve significant, near-term cash flow."
To that end, 4Front announced:
- Delaying projects that require significant capital expenditures with uncertain near-term benefits. Most notably, the Company is delaying the launch of its manufacturing facility in Commerce, CA as a result of the challenging conditions that impacted the California adult-use market roll out prior to the COVID-19 pandemic.
- The divestiture of its subsidiary, PHX Interactive LLC, which managed the Mission North Mountain dispensary in Phoenix, Arizona (non-core asset) for $6 million in cash.
Mr. Rosen added, "With the cost of capital remaining high, 4Front is prioritizing the demonstration of battle-tested operating capabilities and near-term cash flow generation, recognizing that a large part of the blue-sky growth opportunity in cannabis is the ability to scale consistent performance across geographies. To support growth and focus, 4Front has now divested interest in two non-core geographies and is considering divesting additional non-core assets."
The net effect of non-core asset sales and cost cutting measures is a significant reduction in new capital needed to achieve the Company's goal of positive cash flow in the second half of 2020. The Company estimates it needs an incremental $5 million to reach this goal. "We are in the process of finalizing a private placement to raise at least $5 million consisting mostly of insiders and existing shareholders," said Mr. Rosen.
For more information:
4Front
4frontventures.com