Another cannabis stock debuted on the Canadian Securities Exchange on Tuesday as 4Front Ventures Corp. (CSE:FFNT) became the latest U.S. multi-state cannabis operator to begin trading in Canada. The company, which is co-headquartered in Phoenix and Vancouver, is also working on being quoted on the over-the-counter market in the U.S., although it hasn’t set a date for an OTC launch yet.
Shares of 4Front dropped 10 per cent on its first day of trading, closing at $1.12 Tuesday.
— 4Front Ventures (@4FrontVentures) August 6, 2019
Recent merger with Cannex Capital sets up strong foundation
4Front merged with American cannabis company Cannex Capital Holdings Inc. in late July, which previously traded on the CSE since debuting in March last year under the ticker symbol ‘CNNX’ and was active up until the merger.
Cannex has developed a strong presence in Washington state holding the No. 2 market position for sales of dried cannabis flower. It also created strong brand recognition and manufacturers as many as 200,000 edible packs and 200,000 pre-rolled joints every quarter in the state.
With the Cannex merger, 4Front now owns, operates or manages six cultivation and production facilities and 11 retail stores across eight states, according to its website.
Consulting contracts give 4Front additional revenue stream
What makes 4Front unique is how it began in the industry in 2011 as an advisory company, providing consulting for cannabis companies, helping more than 60 operators obtain licenses in 10 different states. Through the consulting agreements, 4Front has been able to take a modest share (5 per cent) in revenue from the locations it assisted in getting licenses and helped setup their operations.
In a recent settlement, 4Front received a total amount of approximately $13 million in settled or arbitrated legacy contract awards.
I view these contract settlements as just rewards for our efforts in helping shape the cannabis industry during its formative years. While we consider legal avenues a last resort, we have an obligation to enforce these contracts.
– Josh Rosen, CEO of 4Front
The company has also acquired a controlling interest in three of its previous clients, which the CEO notes could be a way that the company continues to grow. With a strong knowledge of the industry and the regulations in many different U.S. jurisdictions, 4Front has the expertise and knowledge that can help ensure it doesn’t run afoul with regulators.
4Front also has a strong background in retail as well, as it has helped over 20 dispensaries hire staff and setup operations spanning nine different states.
Where the company is today
In 2015, 4Front evolved from an industry consultant to begin its own cannabis cultivation and retail operations. Along with its six cultivation and production facilities and 11 retail facilities across eight states, on its website the company notes that “merger and acquisition discussions are ongoing in California, Nevada, Connecticut, Arizona, and Ohio.”
The company’s business is broken down into three divisions: Brightleaf, which focuses on production; Mission, the aretail arm; and Pure Ratios, a wellness segment that includes a hemp-derived CBD product line.
As 4Front looks to continue growing its business across the country, competition in the U.S. is also ramping up, so the company has little time to waste. Curaleaf (CSE:CURA) has already developed a leading market position in the country, while Acreage Holdings (CSE:ACRG.U) is also active in 20 U.S. states, and Trulieve Cannabis (CSE:TRUL) has been dominating the Florida market.
For 4Front, it’s going to be a tall task to compete with some of the larger, more established U.S. companies in the cannabis industry. And as more states continue to legalize, it will inevitably draw more potential competitors.