Good afternoon, and welcome to the 4Front Ventures First Quarter 2023 Earnings Conference Call. Today's call is being recorded. At this time, all lines have been placed on mute to prevent any background noise. After the prepared remarks, there will be a question-and-answer session. As a reminder, during the course of this conference call, 4Front's management may make forward-looking statements that are based on current expectations and are subject to a number of risks and uncertainties that may cause actual results to differ materially from expectations. These results are outlined in the Risk Factors section of the Company's filings and disclosure materials. Any forward-looking statements should be considered in light of those factors. Please note as safe harbor, any outlook presented speaks as of today, and 4Front's management does not undertake any obligation to revise any looking-forward statement in the future. I will now turn the call over to Leo Gontmakher, Chief Executive Officer of 4Front Ventures. Please go ahead.

Thank you, operator. Good afternoon, everyone, and thank you for joining us today. I'm joined on today's call by our Chief Investment Officer, Andrew Thut; Consulting President, Karl Chowscano; Chief Financial Officer, Keith Adams; President of California Operations, Ray Landgraf; President of Illinois and Massachusetts Operations, Brandon Mills; and our EVP of Finance, Jake Wooten. On today's call, I'll provide an overview of our first quarter highlights. I will then hand the call over to Andrew, who will expand on our financial results and give an update on current business trends and what's in store for the rest of 2023 and into 2024. We'll then conclude with a question-and-answer session, where the entire management team will be available for any follow-ups. At 4Front, we are guided by our winning strategy of replicating operational excellence. Since our inception, 4Front has been an operations and results-driven company, focused on optimizing our low cost, scalable production capabilities and expanding our product portfolio state-by-state. The strategy has allowed us to enter even the most competitive states with our owned operational engine and expand market share, while generating cash flow from operations. As we stand here today, we are generating cash flow from our operations in Massachusetts, Illinois and Washington, and expect California to approach that status in the next 60 days. With our cultivation and processing facility in Matteson, Illinois coming online this year, combined with plans to build out eight additional retail stores in the state, we are poised to double the size of our company over the next 18 to 24 months. Leveraging the operational enhancements we made in 2022 to our flower quality, combined with new product launches across our platform, we continue to see our strategy yield positive results in our core markets of Illinois, Massachusetts and Washington as we optimize California to position for the longer term growth opportunity, while remaining unwilling to operate at a loss in any of our core markets. I would note that, we operate our overall business much the way we operate our facilities, with a constant eye on various levers, dials and knobs that we can manipulate to meet demand in our markets and shift our product mix as a function of market trends to economic conditions. We have also been at the forefront of producing low cost, high-quality cannabis products at scale. As the landscape shifts, we have the ability to adapt in times and focus on the highest ROI opportunities across our portfolio. We entered 2023 in a position to invest additional working capital in key markets and close out the first quarter with normalized positive operational cash flow. This achievement has put us on solid ground as we focus on generating profitable top-line growth and position our business for further execution and profitability improvements for the remainder of the year. I want to reiterate the point that our focus through the remainder of 2023 is on profitable growth. The scarcity of capital available to the industry dictates that we allocate capital to only the highest ROI projects, setting aside some longer-term growth opportunities that may be accretive in the end but also carry a meaningful short-term cash commitment. In Q1, our cultivation and manufacturing activity reached optimal levels to the increased customer demand, prompting us to launch dozens of new products in all major product categories, including further expansion of the Island brand and products, and the entry into the vape category in Illinois for the first time. Our market share has benefited from growing consumer interest across our footprint, with notable boosts particularly in Massachusetts and Illinois, where we continue to aggressively grow our presence and differentiate through steady launches and new products to these markets. The expanded product menu, anchored by a high-quality flower drove an overall increase in our wholesale business of 7% from Q4 2022. In Massachusetts, our cultivation process improvements have resulted in a nearly 50% increase in packaged flower production with over 80% of that flower testing above 25% THC, well above the Q1 Massachusetts average of 19.8%. In Q1, system-wide pro forma revenue was $34.8 million an increase of 7% for Q1 2022 and a decrease of 2% sequentially. The year-over-year increase is largely attributed to the development in our wholesale business, particularly in Massachusetts and California, offset by some softness in our Washington operations. The decrease quarter-over-quarter is not a surprise as we saw similar seasonal declines in the first quarter of 2022. In Q1, the company generated $3.5 million in adjusted EBITDA, which we anticipate to be the low point for the year. We ended the quarter with $4.6 million in cash on the balance sheet. Q1 saw a reduction in short-term liabilities, including the repayment of three short-term notes payable, which are non-recurring in nature. Additionally, the investment in working capital has positioned us with inventory to capitalize on brand launches across the platform. Though we expect to generate cash flow from operations on a quarterly basis going forward, we are pleased to have announced last week that we have agreed to terms with LI Lending to not only extend our senior debt two years to May 2026 but to also include concessions that give us flexibility to bring additional capital onto the balance sheet at lower rates should market conditions shift or regulatory relief arrives. The agreement provides an opportunity for our company to raise over $30 million of strategic senior security type financing, which opens the door that was once closed. It's worth noting that several members of our family including myself are part of LI Lending. Additionally, and perhaps more importantly, the renegotiation provides us with the opportunity to extend our debt to sufficiently capitalize our company and fund the expansion of our retail base in Illinois. We expect the first tranche of super senior secured debt could be funded imminently, and we are thrilled to be able to access these additional funds to further strengthen our financial position. The construction of our cultivation and production facility in Matteson, Illinois was completed in April. The facility is absolutely gorgeous, incorporating production techniques from Massachusetts that have resulted in highly efficient market leading THC concentration. We continue to push as hard as we can on the timeline to get power to the facility, and our current expectation is that this is a fall 2023 event although we remain hopeful it could be earlier. With our existing business stable and our operations generating cash flow, we look forward to the step function growth that starts later this year when our Illinois asset comes online. We have demonstrated the ability to replicate our mature market SOPs when we brought our Washington way to Massachusetts. We have shown that we can learn and adapt on the fly improving those SOPs through the acquisition and integration of NECC in early 2022. And we have proven that our model not only works but exceeds the market average as we increased our market share in Massachusetts in the base of a 40% pricing decline, despite opening no additional retail locations. It is this blueprint that we are incredibly excited to fully bring to Illinois on the opening of our Matteson production facility and expansion of our retail footprint. As we've discussed, Illinois represents our largest growth opportunity in the next 18 to 24 months and we are chomping at the beat to introduce our full capabilities in one of the best markets in the country. With that, I will now pass the call over to Andrew to discuss trends and our performance in our key markets as well as our financial results for Q1. Andrew?

Thanks, Leo. I will first provide a breakdown of our performance state-by-state before giving an overview of our first quarter earnings. First, Massachusetts. Reiterating a point we made on our annual earnings call 6 weeks ago, our continued success in the market instilled us with great confidence not only in our ability to replicate our achievements from Washington, but also in our capacity to reinforce our platform through an open-minded approach to constant iteration and improvement of existing products as well as innovation of new products. In Q1, we again saw seasonal declines in retail revenue from Q4, despite what amounted to an extremely mild winter in the New England -- by New England standards. While Q1 revenues declined 6% overall quarter-over-quarter, we saw an increase over Q1 '22 of nearly 25% despite materially lower prices. Our focus on leading with high-quality flower at market-leading price points has positioned us well, capturing outsized market share despite the headwinds the state has seen over the last 15 months. While pricing in Mass started the year weak, we're encouraged the quality of our flower and new product innovation has enabled us to hold serve, and that pricing decline seems to have abated in the last several weeks. On the product development side, we debuted our new 1988 brand, which is a line of flavored tobacco-free filter-less, slow burning, 1 gram blunt, featuring our premium flower. These tobacco-free blunt cones were initially available in five robust strains at Mission and partner dispensaries in Massachusetts. Following the strong performance of the brand's initial launch, we broadened 1988 product suite with a debut of infused pre-rolls. The 1 gram infused blunts are now available in four new exclusive strains, admission dispensaries in Massachusetts, and are expected to roll out the partner dispensaries in the state and to Illinois consumers in the coming weeks and months. We also expanded our offering under our Koko Gemz brand with the premiere of cannabis infused chocolate variety pack, which features four premium award-winning flavors made by our master chocolatiers using handcrafted Belgian chocolate. The variety pack contains an assortment of 20 Koko Gemz and is available at Mission dispensaries in Massachusetts. We continue to innovate, showcasing our ability to quickly adapt to market demand and keep up with the evolving tastes of what is still a relatively immature modern cannabis consumer. Next, Illinois, which as Leo said, we anticipate will represent the single biggest driver of our company's growth in the near to intermediate term. In Q1, our Illinois revenue was down just 1% quarter-over-quarter, as the seasonal retail declines were offset by growth in our wholesale channel. Despite having only two of the approximately 120 plus retail locations today, our retail market share is 2.2%, and our locations outperformed a market average by 23% in Q1. I want to reiterate that adding additional retail locations in Illinois represents a tremendous opportunity for growth, both as a means to add top line revenue and incremental gross margin through increasing vertically integrated sales. As discussed on the annual earnings call, we executed definitive documents on our third Illinois retail location. We are currently on track to complete buildout and open the stores as early as late Q4 of this year. Furthermore, we expect the general lack of capital to only add to the number of social equity license holders who explore partnerships or outright sales to larger operators in the month to come. With most of the large operators in the state at the statutory 10 location cap, we believe we're uniquely positioned to bring short-term value to these license holders while generating long-term value to 4Front shareholders. Paralleling our retail expansion strategy, we are proud to announce that near the end of Q1 we set the stage to deepen our operational footprint in Illinois with the completion of construction, 4Front's cultivation and production facility in Matteson. This cutting edge facility will provide access to about 43,000 square feet of initial flowering canopy and 70,000 square feet of manufacturing space. Operations are expected to commence in the second half of '23 upon activation of facility power. Finally, in Q1, we materially expanded and diversified our products portfolio in Illinois with the entry into the vape category, which represents over 25% of cannabis sales in the state. The initial launch included both 0.5 gram cartridges and disposables under the Crystal Clear brand, and some of our most popular strains and flavors already in market in Washington, Massachusetts and California. Within 4 weeks of launch, both 0.5 gram SKUs reached the #1 position in the vape category by both units sold and revenue across the state's Mission retail network. Subsequent launches have included 1 gram carts and disposables and will ultimately include additional brand launches including Island and formulations including live resin. With the close of the LI deal, we look forward to aggressively building out Illinois retail. We are now free to close on additional debt funding, and are actively doing just that. We are looking forward to material growth in both our retail footprint and cultivation and production capabilities over the next 2 years. In Washington, after a soft Q1 we are excited to be introducing the Island brand and revamp Legends brand to the market. All upgrades to our growth have been completed incorporating SOPs from our Massachusetts NECC facility, which has meaningfully improved the quality of our flower. Further, we have introduced new Marmas SKUs and packaging this month along with new hardware technology and packaging for Crystal Clear vapes, which are hitting the shelves this week. Market pricing is stabilizing and we expect flower pricing to go up in the June, July timeframe. New product introduction, along with stabilizing flower pricing, gives us confidence in sales momentum in the important Q2 and Q3 periods. Finally, moving to California. As Leo stated earlier, our focus through the rest of this year is profitable growth and we are optimizing our Commerce facility with that in mind. We are big time believers in the California market as the land of the brand. In fact, April was our best sales month to-date in the state. We are actively managing that business to ensure we achieve positive cash flow, while continuing to explore opportunities that are emerging from the current California distress. Tightening our cost structure and overhead and focusing on our most profitable business lines, combined with a robust rebound in pricing for flower and oil in the state, will all contribute to this goal, as we secure our spot in the long-term California solution, one that we believe will eventually feed sun-drenched cannabis brands to the rest of the country. Still, we understand that we are in an environment where growth without profit is not tenable growth. Our management team, all of whom are large equity shareholders, have prioritized cash flow above all else. We began taking those measures in Q3 of '22, limiting wholesale sales to only the most creditworthy customers and focusing on cash conversion. We are pleased to report the positive momentum we have made on that front. As we have done in all of our core markets, we will cash flow in California. And we anticipate approaching this in less than 60 days. Now to conclude, I will review our Q1 financials. System wide pro forma revenue was $34.8 million for Q1 '23, up 7% over Q1 2022. GAAP revenues was $30.4 million for Q1 '23, up 50% over the same quarter in 2022. The growth in revenue was primarily driven by expanded sales in California due to the increased production at 4Front's Commerce California facility in addition to increased retail and wholesale activity in Massachusetts. Revenue growth was offset by price compression in various markets. Adjusted EBITDA was $3.5 million for Q1 '23 compared to $7.4 apples-to-apples in Q1 '22, representing adjusted EBITDA margin of 10.1%. We view this decline as a separate -- a temporary setback related almost exclusively to the final months of California losses. As our California business turns the corner in '22 and joins the rest of our operations as a positive contributor to EBITDA, we expect to return to a point of mid to high 20% adjusted EBITDA margins this year. As of March 31, 2023, the company had $4.6 million in cash and $50.1 million of related party long-term debt, not due until May of 2024. As previously mentioned, we have now reached terms with our senior lender to extend the maturity of their note by an additional 2 years to May of '26. Most importantly, to provide concessions on security to allow senior secured financing. This amendment will allow us to obtain strategic high ROI project financing to take advantage of the opportunities to present themselves immediately in Illinois and elsewhere. As of March 30, 2023, the company had 649 million subordinated voting shares outstanding. So as we wrap up today, I'd like to reiterate a few points. The effort and hard work we put into enhancing our operations in 2022 are now showing promising results in our primary markets located in Illinois and Massachusetts. At the same time, we are also optimizing our longer-term growth opportunities in California. As we enter 2023, we have strengthened our platform and footprint and we continue to innovate, keeping up with the evolving pace of what is still a relatively immature modern cannabis consumer. Our primary focus for the remainder of the year is on profitable growth and we are committed to allocating capital only to the highest ROI projects, while setting aside some longer-term growth opportunities that carry a meaningful short-term cash commitment. We have proven our ability to replicate our successful operations in mature markets, and improve them through acquisitions, integration and efficiencies. A rising market share in Massachusetts in the face of price decline speaks to the thrust of our value proposition, high quality cannabis products at affordable prices. With the opening of our Matteson production facility and expansion of our retail footprint, we are thrilled to bring our complete capabilities to Illinois. The strategic move presents our most significant growth opportunity in the next 18 to 24 months, which we aim to leverage fully to expand our reach and strengthen our position in the market. With that, I'll now turn the call over to the operator for Q&A. Thank you.

Thank you. . Your first question comes from Neal Gilmer from Haywood Securities. Please go ahead.

Well, thanks for taking the questions. Just maybe wanted to start on California. In some of your prepared remarks and language in the press release that have gone through, commenting on April being the best month year-to-date and getting to cash positive in fewer than 60 days. I know you touched on a little bit, but I'm just trying to better understand some of the dynamics. I think when we spoke on the year end call, you talked about sort of limiting your sales there to only the ones that you feel that you're actually going to get actually paid from and so forth. So, how have you seen the dynamic change in the California market that's led to that strong April? And is the ability to achieve the cash flow positive both the combination of that revenue increase and reduction of expenses in the state?

No, that's a terrific question and one that we are delighted to dig deeper into. So, I'll turn that over to Karl and Ray. Do you guys want to take a crack at that?

Yes. Hi Neal, it's Karl. Let's Ray take the first shot and then I'll fill in the gap.

So we have three business units in California that contribute to the P&L, private label branded sales and bulk wholesale. And the last couple months, we've actually had highest levels of performance across all three segments. At the beginning of this year, we really started focusing and becoming extremely disciplined on the different margin profiles and success factors of each segment. And so as we continue to optimize our business in California, we'll be making decisions about where we'll trade growth for stability and more importantly where we'll trade growth for margin and profitability. And as California continues to develop throughout the year, we see big opportunities, particularly in the bulk wholesale side where we can get COD, don't have to take any credit risk at retail and have a much more condensed cash conversion cycle. And so we've been really focused on growing that segment of the business, which continues to grow by leaps and bounds month over month. And we anticipate similar growth helping carry that trajectory forward.

Thanks. And Karl...?

Well, the only thing I'd add to that is, and Ray did mention it briefly, is our commitment to keep our costs down and we are going to be reducing costs in our facility. We are hopefully going to be able to utilize some down space that's in the facility as well to help contribute to the cash flow status of our operations in California. So our cost -- our eye is on our cost as well and cash conversion. So those two things I think are also amply contributing to our confidence that we're going to be approaching that cash flow positive status within 60 days. About it.

And I think, the last thing that we want to hit on Ray as sort of the increase in the flower pricing and oil in the state, right?

Sure, yes. We've seen large growth in not only the bulk flower market, but ancillary products as well, like distillates, diamonds, other concentrates in some cases up several hundred percent year-over-year from this time.

Turning to Illinois, apologies if we've covered this before. I'm just saying it's not on the top of my head right now. So, just the connection to the power to the facility, sort of what are the gatekeepers there? I know you said you're hoping it to be early in the second half I think is what your comments were, but hopefully sooner. What sort of risks are there that exist that could push that out or you feel fairly confident that that's the outside date?

Yes, I'll turn that over to Brandon Mills for comment.

So I guess just a quick update. We -- the facility at Matteson was largely construction fleet in March, April. The remaining component is what's called a powerline extension from the local utility provider, which ComEd in Illinois out to the building. It spans several miles along several roadsides. But it's a pretty fairly routine project, generally speaking. We have been under construction on that line extension since early January of this year. So roughly four months, let's say, with crews working and construction crews actually breaking ground. Right now, the current estimates that we are roughly 40% to 45% complete with the run of conduit to the building and about 65% complete with the run of manholes that are necessary to get power to the building. So overall, roughly a 50% completion rate to-date. So I think the target date that we communicated last call was Q3 and we still believe that we are roughly on-track for that. The power line extension construction has been completed under the purview of ComEd. And so we're working closely with ComEd on a weekly basis. We've also got involvement from the Governor's office. We have the City of Matteson that's now involved as well as they are clearly an interested party in getting power to the building for the job creation and all the downstream economic benefit comes with getting that facility online. So we believe we have got the right players at the table and the right level of support, and we are continuing to push every day. So we are making great progress.

Perfect. Thank you. One small one just on the income statement. Sales and marketing ticked up a little bit in the press release you comment about investment in some new products and brands. How should we look at that line item going forward? Does that taper off or are you going to need to continue to invest through the balance of the year?

Keith, do you want to take that one?

Sure. And then I think Leo maybe too. Yes. It is an increase as we have the new products come into market, bringing some sales and marketing power behind those products, as we introduce them into the market. There is also a little bit of shifting in sales expense, as we try to optimize inside some of the dispensaries to just get more sell through.

Keith, how do you see that line item extending into the year though? Do you think it has hit a high point and it will decrease? Do you think it will be kind of steady throughout the year? What's your thinking?

Yes. I mean, I do think -- it's a good question. I do think of it as a percent of sales. I mean, we as a company have not traditionally spent a lot of money in sales and marketing on the branding, corporate branding and product marketing. And if pricing starts to come back and we have the ability to raise money, I could see us spending some more money on helping push sell through and product awareness of our brands.

Okay. Well, thanks very much for taking my questions. I'll pass the line.

. Your next question comes from Yewon Kang from Canaccord Genuity. Please go ahead.

Good afternoon, guys. So starting with the -- what was telegraphed in the press release, there is a comment about returning to the mid-20% range towards the end of the year for adjusted EBITDA. I was wondering if you could comment on any kind of milestones or any events that would need to happen in order for this too in order for the margins to be pushed back to that point, apart from the improvements in California that was mentioned.

Keith and Karl?

Yes. I think you hit on it. I mean, Massachusetts and Illinois both generate substantial margin or EBITDA margins inside the state. California has been the negative toll on EBITDA and gross margins and cash. And as we optimize in there, as we talked about on cost tightening and SKU rationalization and then add on top of that the price increases that we are experiencing, I believe it's California that will help to push us back to that mark, because that's been the anchor we have been dragging with you last year.

And I think I'd just add to that, Keith, that, in Q1, as you mentioned, we did make significant investment in working capital and creating inventory to be able to bring these new SKUs to market and outside of California, I think that should also contribute to our EBITDA, as we transition through the year, working through that inventory.

Okay. That was great. Thank you so much. And then just my second question, if I could just shift gears back to Illinois. In terms of the planned M&A in Illinois related to the retail expansion, just wanted to gauge the kind of conversations that you guys have been having with these retail operators. Could you be able to comment on how the valuations and considerations required have been looking like in these conversations?

Karl, Brandon?

Sure. It's Karl -- no, no. Go ahead, Brandon. I'll fill the gaps.

I was just going to say our focus has been almost entirely on acquiring licenses, not on acquiring existing operators. And so as you know, there have been a number of those license that were issued, very few of them have come -- have been able to come online. Large contributing factor to that is simply the lack capital that's being allocated to space. And so a lot of these license holders that were awarded the licenses are having a really difficult time standing them up. The result of that is that, prices that we saw in the $4 million to $6 million range for license 9 to 12 months ago have come down drastically, that sometimes near half those levels. And I think it's turning from a seller's market to a buyer's market, right now. We are still very encouraged that there are a number of active conversations that we are having out there not only with the license holders but also with real estate locations that we are very bullish about. So we think we've got a handful of great massive in our pocket right now and we're looking forward to making capital behind those to bring them online and consummate those transactions.

Yes. I think I would add to that, Brandon. I think I would add to it that, as we focus on ensuring that we are cash flowing as a company, we wanted to make sure that any licensed acquisition in Illinois that we undertook would -- we'd be able to build it out and still maintain our cash flow status with the renegotiating of our senior secured debt that has provided us an amazing opportunity to be able to project finance the acquisition of all 7 to 8 stores. We are excited now to go back out into the market and start looking at these licenses again and move forward on them once we have secured the financing for the additions. So that's where we sit.

Leo, there are no further questions at this time. Please proceed with your closing remarks.

Thank you all so much for joining us, and we look forward to giving you an update in the next few months. Take care.

Ladies and gentlemen, this concludes your conference call for today. We thank you for joining and you may now disconnect your lines.