Q4 2022 4Front Ventures Corp Earnings Call

Speaker 1: The.

Speaker 2: Good afternoon and welcome to the Forefront Ventures 4th Quarter and full year 2022 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.

Speaker 2: As a reminder, during the course of this conference call, forefronts 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.

Speaker 2: These results are outlined in the risk factors section of the company's filings and disclosure materials.

Speaker 2: Any forward-looking statements should be considered in light of these factors. Please note that a safe harbor and any outlook presented speaks as of today.

Speaker 2: And Forefront's management does not undertake any obligation to revise any forward-looking statements in the future. I will now turn the call over to Leo Gontmakker, Chief Executive Officer of Forefront Ventures. Please go ahead.

Speaker 3: 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 Tewk.

Speaker 3: President Carl Choscano, Chief Financial Officer Keith Adams, President of California Operations Ray Langraff, President of Illinois and Massachusetts Operations Brandon Mills and our EVP of Finance Jake Lewton.

Speaker 3: On today's call, I'll provide an overview of our fourth quarter and four-year 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. Andrew

Speaker 3: We'll then conclude with a question and answer session where the entire management team will be available for any follow-up.

Speaker 3: At Forefront, we are guided by our winning strategy of replicating operational excellence.

Speaker 3: Since our inception, Forefront has been an operations and results-driven company.

Speaker 3: focused on optimizing our low-cost, scalable production capabilities and expanding our product portfolios state by state.

Speaker 3: Our belief is that the sweet spot in the cannabis supply chain is manufacturing low-cost, high-quality cannabis consumer packaged goods at scale.

Speaker 3: Over the course of 2022, significant enhancements were made to our platform to maintain our leadership position as one of the largest and lowest cost manufacturers of cannabis products in the U.S. and trusted third-party partners to some of the industry's biggest operators, distributors, and retailers.

Speaker 3: First, we strengthened our core competencies and perfected our operating model through key learnings and best practices in each of our cornerstone markets.

Speaker 3: Through this, we believe we've created unrivaled efficiencies that can be replicated across our geographical footprint. We believe we've created unrivaled efficiencies that can be replicated across our geographical

Speaker 3: Next, we scaled within our focus footprint with the addition of high-quality cultivation assets in Massachusetts.

Speaker 3: enabling us to secure a leadership position in that market with unmatched quality.

Speaker 3: Those methods have been exported to the rest of our footprint.

Speaker 3: In Illinois, continued progress was made on the build-out of our matting facility, the largest cultivation facility in the state with full-scale manufacturing capabilities.

Speaker 3: Additionally, we added two new brands to our portfolio, including the beloved Island brand.

Speaker 3: With our strong distribution network, we debuted this California-born brand in Massachusetts and have plans to launch its high-quality flower lines in other state markets. Hundreds of other products were launched across our brand portfolio in a wide variety of form factors, which when combined with improved flower quality, led to meaningful market share gains in many of our corner states.

Speaker 3: to achieve positive operational cash flow as of this month.

Speaker 3: We're thrilled with the progress we've made strengthening our disruptive manufacturing platform, and as the U.S. cannabis industry continues to mature and prices normalize, we're gaining market share and solidifying our position as a cannabis CPG powerhouse as the focus turns to operational efficiencies and core strengths in competitive markets. The pricing pressures the industry is experiencing in limited...

Speaker 3: quarter and full year, I'd like to acknowledge that our financial results do not reflect the growth opportunity we are uniquely positioned to capture with our differentiated operatingores, capital.

Speaker 3: With our platform now in a solid position, we're focused on executing through this challenging industry and economic climate to grow our top line and generate cash flow.

Speaker 3: In Q4, system-wide revenues were $35.6 million, representing a decline of 5% sequentially from Q3 2022 and growth of 6% year over year.

Speaker 3: Systemwide revenue for the year was $139.4 million.

Speaker 3: representing 6% growth over full year 2021.

Speaker 3: The growth in revenue was primarily driven by a 10x year-over-year increase in wholesale revenue as the company continues to ramp up that segment of the business in California, Illinois and Massachusetts.

Speaker 3: For the year, the company generated $27.7 million and adjusted EVB down from $34 million in 2021.

Speaker 3: While we were not pleased with the year-over-year decline, we are pleased that our business outside of California, namely in Illinois and Massachusetts, improved year-over-year.

Speaker 3: We will discuss the California market dynamics in more detail later on the call, but as a reminder, in California we're ramping up a business that launched in January 2022 and managed through tumultuous market headwinds in its first year of operations. We took steps late in 2022 to prioritize cash flow over growth.

Speaker 3: steps that are materializing in 23 and have our California operation poised to stand alongside our other operations as a contributor of positive EBITDA in 2023.

Speaker 3: While we all know the environment for capital in the cannabis space remains tight, we're pleased to report that we finished the year with $15.2 million in cash on the balance sheet.

Speaker 3: After a rigorous review of our business this winter, we return the cash flow positive from operations this month.

Speaker 3: Aside from California, all of our geographies are easy to deposit and generate positive operating cash flows.

Speaker 3: The construction of our cultivation and production facility in Madison, Illinois will be completed in April . The facility is absolutely gorgeous, incorporating production techniques from Massachusetts that we believe will bring fantastic flower and ancillary products to the Illinois market. We continue to push hard daily on the timeline to get power to the facility, and our current expectation is that this is a Q3 event, although we remain hopeful it could be earlier.

Speaker 3: As we prepare for step-function growth in Illinois over the next 24 months that will double the size of our company-wide revenues, we're pleased to announce a definitive agreement to purchase our third retail license in the state.

Speaker 3: We believe this will be the first of many as we move through the year and expand from our current base of two retail locations to our company allotment of 10 in the state.

Speaker 3: In Massachusetts, we couldn't be more pleased with how the business is performing.

Speaker 3: New product launches, including Island Flower and Live Resin cartridges, combined with the growing wholesale channel, have us extremely excited about how the success of Massachusetts can carry into Illinois as we launch and after this year.

Speaker 3: Washington and California were extremely difficult markets in 2022 with stiff pressure on flower developers to moaning!

Speaker 3: As always, our management team reacted aggressively and met these market challenges head on.

Speaker 3: Cost-cutting initiatives, implementing quality improvements to our flower, and introducing new and innovative products to market have allowed us to counter the negative pricing pressure in those states.

Speaker 3: In particular, we've undertaken significant cost reductions in California whilst maintaining our ability to grow that business.

Speaker 3: While Andrew will get more granular on these markets, we're seeing encouraging signs in both California and Washington with a rebounding flower pricing and a massive contraction of cultivation licenses as capacity and competitors leave those markets. As we all know, the passage of the SAFE Banking Act would represent a much needed step forward for the legal candidacy in the U.S.

Speaker 3: signal that this bill would be introduced in a matter of weeks.

Speaker 3: and the Biden administration has voiced support for the legislation.

Speaker 3: Whether it's safe baking or the introduction of a garland memo from the Department of Justice, we remain confident that the federal government will soon adopt a more favorable stance towards the cannabis industry.

Speaker 3: I'm excited that we have a strong pipeline of new product launches slated for 2023.

Speaker 3: Our Washington Boar brand 1988 which features tobacco-free blunts available in five flavorful flavors.

Speaker 3: We're recently launched to great reception in Massachusetts and should be available in Illinois later this year.

Speaker 3: We also have some exciting new form factors later for Q2.

Speaker 3: With the upcoming launch of our new facility in Massen, Illinois, and the opening of retail facilities along with continued optimization and growth in California and Massachusetts, we're confident that the best is yet to come.

Speaker 3: With that, I will now pass the call over to Andrew to discuss trends in our performance in our key markets, as well as our financial results for Q4 and full year 2022. Andrew? Welcome very much.

Speaker 4: Thanks Leo. I'll first provide a breakdown of our performance state by state before giving an overview of our fourth quarter numbers.

Speaker 4: First, in Massachusetts.

Speaker 4: As Leo said, our continued success in the market instills 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 our existing products, as well as innovation of new products.

Speaker 4: It leaves us chomping at the bit to get going on our Illinois expansion.

Speaker 4: Despite price compression of approximately 10% from Q3 and 32% year-over-year, our growth in Massachusetts was approximately 20% year-over-year.

Speaker 4: Driven by a $5 million increase in wholesale business, coupled with a 7% growth in our retail business.

Speaker 4: We are proud to have outperformed the market and attained a market share of approximately 2.6% in the state, based on our internal sales data, which represents nearly 30% increase compared to mid-2021.

We attribute our success in 2022, in particular in the fourth quarter, to the quality of the flour and the multiple new product launches resulting from all the efforts we have made in upgrading our facilities in accordance with NECC. We are proud to have achieved an extremely high flour quality with more than a third of our flour testing above 30% THC and another third testing around testing between 25 and 29%.

In terms of new product launches, we launched Island Flower 3.5 gram package in September , followed by 7 gram and 28 gram packages on Green Wednesday and for the December holidays respectively.

Since its initial launch in September , island flower represented approximately 23% of total flower sold for a forefront.

In November , we launched single 1 gram pre-rolls and 5-pack, half gram multi-pack pre-rolls, followed by infused 5-pack, half gram multi-packs in December .

Since these launches, Island pre-rolls have represented approximately 21% of our total pre-roll sales, and 23% of total pre-roll sales in Q4.

We also launched new crystal clear products including wide resin skews in both the half gram carts and disposable vape pen formats. Overall, our crystal clear cartridge and disposal pens sales increased 13% and we are now at the top of the list.

and 41% year over year, respectively. These launches showcase our ability to execute on introducing improvement.

mature market SOPs, brands, and products into the rest of our portfolio.

Next, Illinois, which will represent the single biggest driver of our company's growth over the next 18 to 24 months.

As a reminder, in Illinois we currently have two open dispensaries and a 9,000 square foot grow which together generated a little over 40 million dollars in revenue in 2020.

Our brand new cultivation and processing facility in Mattson will be coming online and will have close to 50,000 square feet of flowering canopy and a full production center to manufacture a complete suite of products. This next generation grow incorporates lessons from over 10 years of operation and will allow us to come to market with some of the best flower in the state.

As Leo mentioned, the facility is largely complete and we are working with ComEd in conjunction with the village of Matson to ensure we have power to that facility as soon as possible.

Currently, we are actively searching for new retail licenses to bolster our portfolio.

We're delighted to announce today that we have come to terms for our third Illinois location.

And we anticipate securing more as the year progresses.

We possess a very good sense of the types of properties that would optimize our revenue potential in Illinois.

With the allowance of up to 10 retail locations in the state, we intend to be meticulous in ensuring that every store counts. For reference, other MSOs with the maximum number of stores and scaled grows generate approximately $200 to $250 million of revenue in Illinois.

We are confident this state represents an excellent opportunity to more than double our company's size, especially with Matson Law's launch and the addition of up to eight retail stores.

As most Illinois' operators are currently operating at the 10 dispensary limit and with an abundance of social equity license unable to open due to lack of capital investment in the industry, we are seeing a very positive environment for M&A and believe there is a clear path to achieving a complete vertically integrated license.

revenue and a 64% increase in wholesale revenue.

We increased our market share to about 1% at the end of the year, a 10% increase from Q4'21.

This speaks to the quality and consistency of our products amidst the competitive market, continuing the trend since acquiring NECC.

Our Illinois success in 2022, particularly in Q4, can be attributed to the expansion of our TerpStix line.

We added a new serving size, a half gram two pack, and introduced the new blackberry flavor to the lineup.

new serving size, a half gram two-pack, and introduce the new blackberry flavor to the lineup. Terp sticks

even secured second place at the High Times Cannabis Cup Illinois, People's Choice Edition 2022.

Moreover, we have recently managed to source oil in the Illinois market, which has broadened our product suite beyond flour.

As a result, we introduced crystal clear cartridges in Q1 of this year and are thrilled to expand the availability of our products in the wholesale market.

including our popular Island brand, before our scale production comes online in Madison.

We are looking forward to material growth in both our retail footprint and cultivation and processing capabilities in 23 and 24.

Moving to California, we continue to build our presence in the world's largest cannabis market.

Given our Washington facilities boast a high single-digit share in the highly competitive market, we feel that we are uniquely qualified to gain share in California with our low-cost scaled operations.

As a reminder, we entered the market in the beginning of 2022 with a four-part strategy. One, direct sales of our award-winning and proven product suite.

2. Third-party processing and manufacturing, and 3. Select brand acquisitions.

and four, opening of retail locations. We entered California at a time of near maximum distress.

The illicit market was rampant and oversupply of flour drove prices below production costs.

Retailers struggled with liquidity, taxation was too onerous, and smaller brands in the state were struggling to make ends meet.

California has begun to take steps to remedy some of these problems, such as repealing the cultivation tax, lifting moratoriums on new retail licenses, and reducing the tax debt in the US.

California has begun to take steps to remedy some of these problems, such as repealing the cultivation tax, lifting moratoriums on new retail licenses, and cracking down on illicit growth.

Market forces have started to heal the flower market, as wholesale prices have nearly doubled over the last five months, as active cultivation licenses have plummeted.

While we continue to see California as a huge opportunity for us to gain share in a highly fragmented and distressed market where prices have already largely been commoditized.

The lack of creditworthiness amongst the retailers that have traditionally bought our products has mitigated our near-term growth assumptions.

Currently, current industry ratings are showing that approximately 34% of the retail universe is in good or excellent condition.

28% of retailers are currently in quote unquote fair condition.

and 38% are in weak or poor condition. We have taken a highly proactive approach to minimize our credit exposure and limit losses in California.

Our focus has been on conducting business with financially stable partners, resulting in days sales outstanding in California being consistently under 60 and decreasing quarter over quarter.

To mitigate risk further, we have deliberately shifted a significant portion of our sales to cash on delivery, or COD, which has had a positive impact on our balance sheet.

This approach has been particularly effective as both prices continue to rise.

We have also taken steps to tighten our cost structure and ensure our position as a market share gainer and remain vigilant as we explore opportunities to grow into an otherwise distressed environment. As a reminder, our robust private label pipeline in California focuses on one, top retail partners who can secure shelf space within their retail footprint.

and two, large strategic partners where there's material revenue and growth opportunities.

combined with other strategic alignments. As the market environment in California continues to wash out subscale businesses, we believe there will be fewer operators left to capture the opportunities left behind.

We've seen strong opportunity to engage with major retailers and brands who require reputable partners with sophisticated manufacturing capabilities to maintain their presence in the market.

We've been working on multiple key strategic initiatives to drive continued growth in California.

We have established several foundational private label relationships that we expect will result in more consistent monthly and quarterly revenue production and are working to add a handful of additional partners.

We are also expanding our COD sales of bulk unit products such as gummies, vapes, and pre-roll products that are not in their finished format.

Further, we are scaling tolling and extraction splits with a focus on distillate, live resin, and diamonds, so we can turn excess material from splits into cash.

Also, as the largest state on the West Coast, California is well positioned to play a crucial role in any interstate commerce agreement.

Our company has invested significantly in cutting-edge production and distribution infrastructure.

enabling us to produce and distribute high quality products at large scale.

We believe this puts us in a unique position to meet the growing demand for cannabis products and to capture the early opportunities arising from potential West Coast interstate commerce agreements involving Washington, California, and Oregon. Now to the numbers.

System-wide pro forma revenue was $35.6 million for Q422, up 6% from Q4 of 21.

and $139.4 million for fiscal year 22, also an increase of 6% from the prior year.

GAAP revenue was $31.6 million for Q4, up 11% from Q4-21.

and $118.5 million for fiscal 22, up 13% year over year.

The growth in revenue was primarily driven by a 10x year-over-year increase in wholesale revenue as the company continues to ramp up that segment of the business in California, Illinois, and Massachusetts.

Adjusted EBITDA was $27.7 million for 2022, down from 34 million in previous year.

representing an adjusted EBITDA margin of 20%. We view this decline as a temporary setback rather than a view of things to come.

As our California business turns the corner in 23 and joins the rest of our operations as a positive contributor to EBITDA, we expect to return to a point of adjusted EBITDA growth in 23.

As of December 31 the company had 15.2 million of cash on the balance sheet.

49.8 million of related party long-term debt not due until May 24. As of March 30 the company has 642 million subordinate voting shares outstanding.

So as we wrap up today, I'd like to reiterate a few points.

Despite the downward trends in the industry on pricing, we have increased our market share substantially across the board, which is attributable to a significant increase in both the quality of our products and the quality of our products.

and the level of innovation we bring to the market. This achievement is a testament to our unwavering commitment to providing the best possible products and services to our customers.

all while contributing to our ability to achieve positive cash flow.

We entered the year with $15 million in cash, well positioned to operate without the need for additional capital.

cash, well positioned to operate without the need for additional capital.

Our investment and outstanding talent and unparalleled operational team has positioned us firmly as an industry leader.

Looking ahead to the next quarter and beyond, we are confident in our continued ability to view obstacles as opportunities as we build value to deliver on behalf of our shareholders.

Finally, we are thrilled with the construction of our new state-of-the-art facility in Matts and is nearing completion.

and will be substantially finished in less than 30 days. Once the final touches are complete, we'll be ready to move forward pending the turning on of the power supply.

We are also fully committed to maximizing our retail allowance in the state and are eager to see the results of our hard work and determination. We cannot wait to capitalize on the tremendous potential within Illinois that is so evidently within reach.

2022 was a challenging year for the industry. However, we are incredibly confident in the enhancements we have made to our business over the year and in the direction of our company.

Our growth trajectory is only getting started, and we are excited for what lies ahead for forefront.

With that, I'll now turn the call over to the operator for some Q&A. Operator,

Thank you. Ladies and gentlemen, we will now conduct a question-and-answer session. If you have a question, please press the star followed by the number 1 on your touchtone phone. You will hear a one-tone prompt acknowledging your request.

If you would like to cancel your request, please press Start 2. Please ensure you lift the handset if you are using a speakerphone before pressing any keys.

Your first question comes from the line of Neil Gilmer from Haywood Securities. Your line is now open.

Good afternoon. How are you doing? Good, how are you?

Good afternoon. How are you doing? Good, how are you? Doing well.

Good, I guess I just want to start with a financial question. Just trying to understand some of the moving parts on the full year versus Q4 and some of the prior quarters, whether there was any movement in some of the prior quarters. I take a look at EBITDA for the year versus what your 9 months was for the end of September implies basically just a couple of hundred grand in Q4. Was there any sort of impact and gross margins or any sort of further details you can share there?

We expect to return back to the high, the mid 40s percent going into Q1. But there were some one-time adjustments coming to the audit and some balance sheet adjustments that negatively impacted gross margins inside the quarter. I'm happy to go through that in more detail offline. But we did experience some pressures in the markets due to pricing.

Okay, thank you. Yeah, we can dive into some of the details offline and you've got to follow up tomorrow and then maybe on on Illinois with this third retail license. So I'm interpreting it's a license. It's not a current store. So if you could sort of maybe outline through the timeline to bring that store online.

and Carl on the first part and we'll all chip in on the second part of the question.

Yeah, sure. This is Brandon speaking here. So, in terms of the timeline for the retail store, correct, this is a license that will be paired with a local real estate location in the Chicagoland area. Based on our projections, the build-out time – For more information, go to Rehab

Plus permitting and inventorying of the store, hiring, etc. is roughly a six to eight month timeline, depending on the exact store location, which is yet to be finalized.

So, it's something that could be tilted up this year, whether or not can be accretive to revenue this year, something that's still TBD.

Anything to add to that, Carl?

No, what about budget? We're assuming guys that the build out for these stores if we base it upon our prior build outs and

The locations that we have scouted, we have five or six really key locations and we've had a team working the ground for two years finding pre-mill locations. As Andrew said that we're not going to open up a bad one. I think the first one's going to be a little larger than our other ones, not much, but a little bit. And so the budget to build it out is probably going to be a little higher.

let's assume somewhere between the $800 to $1.2 million cost for the build-out, which we will be able to cap flow through our operations. I can speak later to the bigger picture in terms of what we want to do with more stores, but that's probably where the budget's going to be for the build-out.

And the timeline that Brandon suggested, I think, realistically, we're probably at the back end of that, the right goalpost of 8 months. But you never know, we were very quick with Calumet and we've got some great tailwinds in terms of working with

the primary location that we want to put this first store in that we're excited about. Okay, great. Thank you very much. I can pass the line.

I think we have to speak to the maps and capital, right guys?

I think we have to speak to the maps in capital, right guys? Oh, sure. Yes, please.

So, as you know, Neil, the building itself is fully funded. We would have, I think, an additional 2 to 3M dollars of equipment that will come in over time. It's partly a function of when we get the clear green light in terms of power. We don't want to go too quickly on acquiring that equipment and having it sit follow.

But two to three million is probably the additional capital that will be inserting into that building up until completion, which is an equipment budget.

And again, we do believe that we can finance that throughout our own operations, but we are actively in negotiations to make sure that we have project financing or equipment financing for that, which dovetails into a much bigger point, which is the positive negotiations that are going on right now.

with our long-term debt holder, LI. I'm very happy with where those negotiations are, and I think we're going to be able to soon be able to solidify an extension of that debt, which will freshen up the balance sheet and make these financings more efficient.

more probable and easier to do in this particular environment. Leo, you'd agree on that? Absolutely.

Excellent. Thank you, Carl.

Thank you guys. Of course. Thank you. Your next question comes from thelineofThai Colin from 8 Capital. Your line is now open.

Hey Ty, how are you doing?

I'm not too bad. Yourself? We're good. We're good. Grinding through. Great. Well, thanks for the question here. I wanted to maybe keep pulling on the Illinois thread here. So it sounds like...

Illinois is the priority from an M&A perspective at this point, maybe over California even. In terms of your expectations, do you think you can actually get close to that 10 store cap by year end? How would you expect to finance those acquisitions?

Is that really predicated on working out the debt piece as you just mentioned?

really predicated on working out the debt piece as you just mentioned. Yeah, I'll turn it back to Carl and Brandon.

It's the right question. I think it's almost impossible to think that we're going to have 10 stores open by the end of the year, but very possible that we have 10 licenses secured by the end of the year. We are trying to track the acquisition of licenses. We have quite a number of them on deck.

ready to go. But as you mentioned, financing the buildout and the cash portion of the acquisition is key to be able to do it, obviously. There's a number of steps that we had to take in order to be able to be in a position to, you know, finite ROC finance these things. One is we had to understand where we sat in the industry and we spent

months in the beginning of this year, the end of last year, being very realistic and adult about where our business is and what's going to take to cash flow positive. Because trying to raise even finite ROC financing when you can't be crystal clear in terms of your path to cash flow financing is very challenging.

We feel very confident with the work that we have done on our budget with what's happened so far in Q1 in line with that budget that we are now in a great position to be talking finite financing for these Illinois locations. So, when do we think they'll all be on?

probably hopefully Q3 of 24, we would have all of them up and open. We know that the team we have, we've contracted with a significant team that is on the ground in Chicago in particular, very, very comfortable with opening up retail.

locations. They've opened up 60, not necessarily cannabis retail locations, but retail locations that have similar footprints. And right now we have five to six key real estate locations in queue.

cleaning up the balance sheet, as I mentioned, making sure that our long-term debt is a long-term away.

in terms of termination is step one in order for us to have meaningful

financing conversations with the people we've already had conversations with at the end of last year. There seems to be a lot of interest to finance a finite project, but we need to make sure our house is in order. And I think we're now at the point where we've put the, we've looked at where we are, we focused on what we can do, we've put together a plan.

that is realistic that we are meeting and now we're at the prove-it stage and that prove-it stage together with a you know a cleaned up balance sheet can really promote the opportunity for us to raise financing. We're not going to go after another store until we have a clear line to how we're going to finance those.

One we can do along with the build out of Matson, but if we're gonna do more, we wanna secure that financing and we're undergoing discussions now.

I hope that answers your question. Okay. Yeah, no, no, that's great, Keller. I appreciate that. And just for my follow-up, so you mentioned in the press release the focus on cost discipline and the goal of becoming free cash flow positive ultimately.

Is free cash flow positive something that's realistic for this year? And maybe as part of that answer, can you give us an idea of what CapEx will be company-wide for 2023? I know we've talked about some of the individual pieces, but company-wide would be helpful. Okay.

Is free cash flow positive something that's realistic for this year? And maybe as part of that answer, can you give us an idea of what CapEx will be company-wide for 2023? I know we've talked about some of the individual pieces, but company-wide would be helpful. Andrew, do you want to pass that to Keith?

So I think the statement said operating cash flow positive, not free cash flow. But as far as the capex requirements going into the year, a lot of this will depend on what happens with the store buildouts, of course.

But it's a number, we have a plan that has CapEx spending for the year of just over $5 million including maps. Most of the maps and build out is included in the TI's. So this is just about equipment upgrades in our other locations like California.

And again, depending on how many licenses from Illinois we pull into the air.

And just to add some color to that, this is Carl again tonight. We have an LOI in hand and are actually reviewing definitive documents relating to equipment financing that can help finance that $5 million, even though, as I said, we do believe that we can achieve that throughout the year using our own.

our own cash flow, we do have in hand, and again, cleaning up the balance sheet, as you can imagine, is gonna be very important in order to bolt on things like equipment financing.

And just add clarity to that, that's look back financing. It's for dollars already spent, so that financing will be added into the balance sheet and we can use it under our discretion.

So, Keith, for clarity for this call, for the 5 million in 23, is 3 million, Matt, and 2 million towards the build-out of the store and some of the cash?

purchase price that is postponed to the end of the deal is that kind of where your five comes from or the two and a half Yeah, yeah, and it also includes

It includes some capital improvements that we've been waiting for in California and California.

Yes.

Small, pots and pans.

Small, pots and pans.

Operator, are there any other questions?

Your next question comes from the line of Yi-Won Kang from Canaccord Genuity. Your line is now open. Hey there, how are you? Good afternoon, how are you?

Doing well. So yeah, just one question for me here and it's regarding Illinois again. So yeah, definitely the market has been seeing a lot of pricing pressures as of late and based on our conversations with some of your peers, it actually seems that some of the operators are

trying to wind down their production in that market because the social equity licenses are actually taking longer to come online than expected. But knowing that the Mattinsen facility is about to come online in April for you guys, I guess one is how are you guys thinking about your peers kind of stepping away from the market? Do you kind of see this as an opportunity for you guys?

And I guess the second thing is if you can provide any insight on what you believe will happen to the market going forward, obviously I know that California has kind of seen a rebound, so any kind of color there would be helpful. Thanks.

I guess the second thing is if you can provide any insight on what you believe will happen to the market going forward, obviously I know that California has kind of seen a rebound, so any kind of collar there would be helpful. Thanks.

is if you can provide any insight on what you believe will happen to the market going forward. Obviously, I know that California has kind of seen a rebound, so any kind of collar there would be helpful. Thanks. Brandon, Carl?

Yeah, I'm happy to jump in on part of that. Thanks for a great question. So one, yes, our Madison facility will be construction complete in April , but we're projecting Q3 in terms of having permanent power to the building, and we've been working actively with ComEd to get that power line extension complete. So completion is pushed back a little bit from that April date. Two, great. If competitors are going to step out of the market right now, of course, that's beneficial. So those of us that are still in market as cultivators.

to 4X the size of our canopy in the state. And then the last thing I would say is you're correct that the social equity licenses are a bit delayed in coming online, but they are coming online slowly but surely. There's about 120 active licenses in Illinois today. As you know, there are 180-ish licenses that were issued but are not yet active. And so even if a portion of those licenses is up online by the time...

for price compression and for competition since day one. You know, we've been focused on operational excellence and efficiencies and making sure that all our operations are scaled and ready to compete in environments like a California, like a Washington, understanding that as these markets limited license or not, grow and competition continues to come online.

there will be price compression and it's definitely going to be a battle. And we feel that we're in one of the best positions, if not the best position in the industry to be able to take on these higher markets. I think I might add Leo and Brandon.

that we can say that we do that, right? But I think Massachusetts is a perfect example of us doing it. And that is taking what we've done over 10 years, taking NECC as a facility, increasing the quality of all of our facilities and creating great product. And when you create great product, you're going to be able to do that.

And that would enable our phase 1A of the facility to be able to handle 10 stores and have a little bit left over for wholesale. As that progresses, you know, if we can get the finite financing secured relatively quickly, which you know is our intention, then we will start.

snapping up these social equity licenses that are coming for us, but in addition to, I'm sorry, that are available for us to open up and we hope to be ramping up to 10. You know, maybe when the facility is fully ramped up, because just because you open up a facility doesn't mean it's completely producing at the full capacity.

months or so. So we're pretty excited about the congruence of the paths. I think one thing also worth mentioning...

So we're really excited about the processing element of our facility in Matson and the ability to produce those products, those high value added products and high quality, less value added products to be able to fight off any compression and at least out compete. That's what we believe we can do with LeoPuppet.

about the processing element of our facility in Matson and the ability to produce those products, those high value-added products and high quality less value-added products to be able to fight off any compression and at least out-compete. That's what we believe we can do with LeoPleasant. Got it. Thank you so much.

Thank you everyone, appreciate everyone attending and look forward to updating everyone on our progress in about six weeks time.