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4Front Ventures (FFNT.C) is moving mountains to get out of Gotham Green’s debt

11/02/2020

At a time when Hexo Cannabis (HEXO.T) has written off practically everything they’ve ever owned and will rollback 8 to 1 to maintain some chance of a balance sheet rehab, and Aurora Cannabis has written off 10 digits to bring it back to square, it’s worth giving some credit to groups that don’t wait til rigor mortis sets in to apply some positive change.

I haven’t paid more than a moment’s notice to 4Front Ventures (FFNT.C) over the past year because it *seemed* to me like they were trying to cover too many bases at once to take seriously, especially going into COVID lockdowns.

But a funny thing has been happening over at FFNT HQ. They’ve been doing math.

PHOENIX, Oct. 27, 2020 – 4Front Ventures Corp. (CSE: FFNT) (OTCQX: FFNTF) announced today that it has entered into definitive purchase and sale agreements with an affiliate of Innovative Industrial Properties, Inc., (IIPR) providing for the sale and leaseback of 4Front’s cultivation and production facilities in Tumwater, WA and Georgetown, MA.

Selling your property and agreeing to pay rent on it going forward may not seem to some to be a smart idea, until you hear why.

The all cash sale price of US$30 million will be used by the Company to pay down the outstanding senior secured debt obligation to affiliates of Gotham Green Partners, and for other general corporate purposes.

If this news release had been headlined ‘4Front Ventures tells predatory lenders to go fuck themselves before it’s too late‘, it wouldn’t have been inaccurate.

Gotham Green Partners is a scumbag financing firm that will seemingly always hurt the company it’s lending money to if it means earning an extra dollar out of the deal. As evidence see, well, every deal they’ve ever done, but you can start with the iAnthus ratfuckery where, knowing iAnthus were looking for financing options, GGP gave the company 10 days to be bought out of its loan, effectively ensuring no such loan would happen, and then holding the company’s head underwater until its shareholders agreed to hand over 98% of the company to them.

GGP also fed MedMen’s (MMEN.C) awful, free-spending, self enriching previous management as much of their own tail as they could eat, with endless re-configuring of their deal whenever MMEN couldn’t cove the vig, granting management just a little more time and job security in return for more and more of the company, until there was nothing left to refinance.

A bank gives you a loan hoping you’ll pay it back as scheduled. A loan shark gives you a loan it knows you can’t pay back, ramping up what you owe over time until you’re enslaved.

FFNT’s deal with GGP came about in January of this year, under a different CEO:

4Front has issued to GGP additional senior secured convertible notes in the principal amount of $3-million (U.S.). The notes bear 15-per-cent interest, paid in kind, and are convertible, along with interest, at a price equivalent to 64.7 U.S. cents per subordinate voting share (SVS), a 29-per-cent premium to the SVS closing price as of Jan. 29, 2020. Additionally, 4Front has issued warrants equivalent to 2,230,080 SVS at 67.3 U.S. cents per share, a 35-per-cent premium to the closing price as of Jan. 29, 2020. The notes mature no later than six months from issuance and the warrants have a term of three years.

So as 4Front does what’s necessary to get out from under GGP’s debt two years early, it should be applauded from every rooftop.

Leaseback deals can be tricky things. MedMen tried a deal like this to finance its ongoing losses, but sold its properties to companies part owned by management, which only led to it being even more gross and disgusting an entity. On the other hand, Cresco Labs (CL.C) has performed leaseback moves to help finance growth, to some success.

While renting back your crib isn’t ideal, having stability going forward is, and FFNT’s leaseback arrangement gives it that.

In accordance with the terms of the transaction, 4Front will occupy the Tumwater, WA and Georgetown, MA facilities pursuant to 20-year lease agreements, with two 5-year extensions exercisable at 4Front’s discretion. 4Front anticipates no disruption to its operations as a result of the Transaction.

Also worth noting: 4Front is only leasing back two facilities as part of this deal. That leaves another five untouched as the company has a presence in five states, with nine dispensaries and seven growing and processing facilities in total.

They’re also in the midst of a $15m raise at $0.70 per share, though it’s trading above $0.80, they’ve divested of some non-core assets over the last year that make them more streamlined.

Let’s be clear: 4Front is not a client company and I’m not being paid to say nice things about them.. but I’ve always been upfront that when companies do the right thing, especially by investors, they should be applauded for doing so.

Especially when they’re firing loan sharks.

— Chris Parry

FULL DISCLOSURE: No commercial interest in the companies mentioned above.

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