4Front Holdings, a cannabis investor-turned-multi-state operator engaging in the cultivation, distribution, and retail of cannabis, has closed a $31m venture round. This brings its total funding to over $50 million. An undisclosed family office led the round alongside participation from new and existing investors. Eight Capital, an investment dealer based in Toronto, ran the deal including a syndicate of agents Cormark Securities, Bayfront Capital Partners, and INFOR Financial.
“Most of it is going to help build out licenses within our portfolio,” Kris Krane, president and co-founder, tells AgFunderNews. “We are also in the process of closing an acquisition. Thirty-one million is actually not a lot of money in this industry. We engaged Eight Capital as part of our process towards becoming listed on the CSE. This was a pre-RTO round, so we were interested in building momentum and awareness about our upcoming listing among investors who might have interest in 4Front prior to our listing.”
Obtaining hard-fought and deeply-coveted licenses is a major priority for most cannabis companies. Most states require cannabis operators to obtain licenses to engage in a variety of operations including medical marijuana distribution, cultivation, processing, and retail sales. The licenses are competitive and the competition is stiff, with application packages often requesting a mountain of information.
For Krane, this funding round was the smoothest the company has experienced to date, with a wide swathe of investors offering larger contributions than in the past. He has seen a sea-change in the investment ecosystem for cannabis since the company launched as a consultancy firm in 2011. It made the shift to become an operator when the team decided to be stewards of its own capital instead of putting the then-scarce capital and its platform to work for others. The transition also felt like a natural progression in the company’s growth, Krane says.
“There was a lot more investor interest in the space in general. We spoke with different kinds of investment offices than we are used to seeing in the past, including large family offices and people associated with large institutions. A year or two ago, people associated with that world were less likely to put money into cannabis. There is so much excitement out there now, so much news about the valuation that these companies are getting like the Tilray news. It just feels like there is more excitement than we have seen in previous fundraising efforts.”
Invest alongside AgFunder in Co-Investment Fund II. Now open for investment. Learn More.
Although the increasing interest in cannabis comes with challenges like stiffer competition, it also means that entrepreneurs have to spend less time educating investors or explaining their companies’ value propositions.
The cannabis landscape is still quite murky in some regards, however, particularly when it comes to the federal government’s continued opposition to de-scheduling the plant or the current administration’s threats to crack down on states’ decisions to legalize cannabis.
But investors understand this murkiness better today and he no longer has to explain the state-by-state regulatory issues or federal banking obstacles, according to Krane. Now the conversation is about why this particular company is a good investment compared to the other countless cannabis-focused startups joining the space.
It’s not Scaling a Business, It’s Scaling a Culture
4Front is among a growing group of multi-state operators (MSO) who engage in the entire cannabis production chain across a number of states. The company currently operates across four states with plans to obtain additional licenses in other states. While the MSO approach to building a cannabis business is nothing new, 4Front has differentiated itself by adopting a very clear mission at the core of its business: professionalizing the industry.
The endeavor is partly personal for Krane, who has spent much of his career championing the cannabis industry, starting many years ago on Capitol Hill. He served as associate director of NORML from 2000 to 2005 and executive director of Students for Sensible Drug Policy from 2006 to 2009. He also served as director of client services for CannBe, a pioneer in developing best practices within the medical cannabis industry.
“When I saw early dispensaries in Northern California, it was apparent that if you can demonstrate that cannabis can be distributed in a socially responsible and professional way in retail stores with great products that are tested, it breaks down the stereotypes that some people have of street corner deals and burnouts living in their parents’ basements,” Krane explains. “If you can professionalize the industry, public perception will change, the laws will change, and prohibition will end.”
The mission to professionalize cannabis permeates the company’s operation, especially when it comes to its marketing and customer outreach department. 4Front takes a hands-on approach, going into communities to talk about cannabis. This includes community centers, senior centers, farmers’ markets, parades, and any location where the company can integrate with the community, especially when it comes to medical cannabis.
It recently launched a call center manned with a well-trained staff that can answer a variety of questions about cannabis. Almost everyone who calls with questions ends up coming into the store, says Krane.
Connecting with consumers and changing perceptions about cannabis is, ultimately, the driving force behind 4Front and how it differentiates itself from other MSOs in the space.
“The difference between us and other MSOs is that we are more deliberate in how we expand. We are not just about grabbing assets and figuring out what to do with them. We are about creating an excellent experience including how folks interact with people in our stores, and the culture that we are building in those stores,” he says. “We are not scaling operations, we are scaling a culture.”
What’s Next for 4Front?
“Five years ago, the landscape was so different from how the industry looks today that it’s hard to predict for certain what we expect to see five years out,” he says. “We expect to see more states continuing to legalize in the next few years and there’s a reasonable chance that we see some real action at the federal level, whether it’s something that respects states’ rights or something more dramatic like de-scheduling.”
He also anticipates development in the cannabis investment ecosystem, as larger cannabis companies start to acquire smaller “mom and pop” startups in the space.
“In the future, the biggest companies might be companies outside of cannabis who acquire MSOs, which are the companies that are doing the acquiring today,” he explains. “But we never aspire to be the biggest, we aspire to be the best run. We’d rather be the Ben & Jerry’s than Breyer’s – a brand that people associate and identify with rather than a brand that is everywhere.”