10-Q

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

(Mark One)

☒ QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended: June 30, 2023

OR

☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ______________ to ______________

Commission File Number 000-56075

4Front Ventures Corp.

(Exact name of registrant as specified in its charter)

British Columbia	83-4168417
(State or other jurisdiction of incorporation or organization)	(IRS Employer Identification No.)

7010 E. Chauncey Lane

Suite 235

Phoenix, Arizona 85054

(Address of principal executive offices and zip code)

Registrant’s telephone number, including area code: (602) 633-3067

Securities registered pursuant to Section 12(b) of the Act:

Title of Each Class	Trading Symbol(s)	Name of Each Exchange on Which Registered
Class A Subordinate Voting Shares, no par value	FFNTF	OTCQX
	FFNT	CSE

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes ☒ No ☐

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or such shorter period that the registrant was required to submit such files). Yes ☒ No ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company or an emerging growth company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer ☐	Accelerated filer ☐
Non-accelerated filer ☒	Smaller reporting company ☒
	Emerging growth company ☒

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ☐

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act). Yes ☐ No ☒

As of August 15, 2023, the registrant had 648,583,519 Class A Subordinate Voting Shares outstanding. 

4Front Ventures Corp.

FORM 10-Q

FOR THE QUARTERLY PERIOD ENDED JUNE 30, 2023

TABLE OF CONTENTS

		Page
PART I.	FINANCIAL INFORMATION
Item 1.	Consolidated Financial Statements (unaudited)
	Condensed Consolidated Balance Sheets	1
	Condensed Consolidated Statements of Operations	2
	Condensed Consolidated Statements of Changes in Shareholders' Equity	3
	Condensed Consolidated Statements of Cash Flows	5
	Notes to Condensed Consolidated Financial Statements (unaudited)	7
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	21
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	31
Item 4.	Controls and Procedures	31
PART II.	OTHER INFORMATION
Item 1.	Legal Proceedings	32
Item 1A.	Risk Factors	32
Item 2.	Unregistered Sales of Equity Securities and Use of Proceeds	32
Item 3.	Defaults Upon Senior Securities	32
Item 4.	Mine Safety Disclosures	32
Item 5.	Other Information	32
Item 6.	Exhibits	33
Signatures		34

PART I - FINANCIAL INFORMATION

Item 1. Financial Statements.

4FRONT VENTURES CORP.

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (unaudited)

As of June 30, 2023 and December 31, 2022

(Amounts expressed in thousands of U.S. dollars except for share data)

	June 30, 2023		December 31, 2022
ASSETS
Current assets:
Cash	$	5,350	$	15,190
Accounts receivable, net	10,141		7,391
Other receivables	245		77
Current portion of lease receivables	3,900		3,810
Inventory	25,365		25,592
Prepaid expenses and other assets	2,442		1,207
Total current assets	47,443		53,267
Property, plant, and equipment, net	55,482		56,906
Lease receivables	4,851		5,611
Intangible assets, net	29,531		30,927
Goodwill	53,926		53,955
Right-of-use assets	135,577		138,451
Deposits	3,696		5,615
TOTAL ASSETS	$	330,506	$	344,732
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Current liabilities:
Accounts payable	$	14,724	$	12,701
Accrued expenses and other current liabilities	13,069		14,265
Taxes payable	41,194		36,577
Current portion of contract liabilities	639		369
Current portion of lease liability	3,638		4,479
Current portion of notes payable and accrued interest	7,946		9,059
Total current liabilities	81,210		77,450
Convertible notes	15,398		14,843
Notes payable and accrued interest from related party	50,451		49,807
Long term notes payable	10,744		10,456
Long term accounts payable	1,733		1,362
Contract liabilities	2,000		2,000
Construction finance liability	16,000		16,000
Deferred tax liability	7,614		8,278
Lease liability	137,530		136,185
TOTAL LIABILITIES	322,680		316,381
SHAREHOLDERS' EQUITY
Subordinate Voting Shares (no par value, unlimited shares authorized, 649,859,727 and 643,416,275 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)	305,699		304,602
Additional paid-in capital	60,645		59,411
Deficit	(358,621)		(335,755)
Equity attributable to 4Front Ventures Corp.	7,723		28,258
Non-controlling interest	103		93
TOTAL SHAREHOLDERS' EQUITY	7,826		28,351
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$	330,506	$	344,732

See accompanying notes to condensed consolidated interim financial statements.

1

4FRONT VENTURES CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (unaudited)

For the Three and Six Months Ended June 30, 2023 and 2022

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
REVENUE
Revenue from sale of goods	$	27,696	$	25,488	$	55,066	$	48,571
Real estate income	3,000		2,951		6,006		5,916
Total revenues	30,696		28,439		61,072		54,487
Cost of goods sold	(21,100)		(16,123)		(40,488)		(28,717)
Gross profit	9,596		12,316		20,584		25,770
OPERATING EXPENSES
Selling and marketing expenses	6,748		6,384		13,786		11,493
General and administrative expenses	7,533		6,556		15,389		14,210
Depreciation and amortization	866		1,123		1,736		1,970
Share-based compensation	214		390		1,234		1,428
Transaction and restructuring related expenses	17		2,009		17		2,009
Total operating expenses	15,378		16,462		32,162		31,110
Loss from operations	(5,782)		(4,146)		(11,578)		(5,340)
Other income (expense)
Interest income	7		—		21		2
Interest expense	(3,075)		(3,418)		(6,271)		(6,038)
Change in fair value of derivative liability	—		1,774		—		3,074
Gain on contingent consideration payable	—		2,393		—		2,393
Loss on litigation settlement	—		—		(3)		—
Other	(663)		(107)		(8)		(51)
Total other income (expense), net	(3,731)		642		(6,261)		(620)
Net loss before income taxes	(9,513)		(3,504)		(17,839)		(5,960)
Income tax expense	(1,951)		(3,042)		(5,017)		(6,480)
Net loss	(11,464)		(6,546)		(22,856)		(12,440)
Net income attributable to non-controlling interest	5		5		10		10
Net loss attributable to shareholders	$	(11,469)	$	(6,551)	$	(22,866)	$	(12,450)
Basic and diluted loss per share	$	(0.02)	$	(0.01)	$	(0.04)	$	(0.02)
Weighted average number of shares outstanding, basic and diluted	646,690,827		636,653,975		644,415,447		628,175,765

See accompanying notes to condensed consolidated interim financial statements.

2

4FRONT VENTURES CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

For the Six Months Ended June 30, 2023 and 2022

(Amounts expressed in thousands of U.S. dollars except for share data)

	Share Capital
	Shares	Amount		Additional Paid-In Capital		Deficit		Total 4Front Ventures Corp. Shareholders' Equity		Non-Controlling Interest		Total Shareholders' Equity
Balance, December 31, 2022	643,416,275	$	304,602	$	59,411	$	(335,755)	$	28,258	$	93	$	28,351
Share-based compensation	—	—		1,020		—		1,020		—		1,020
Net loss	—	—		—		(11,397)		(11,397)		5		(11,392)
Balance, March 31, 2023	643,416,275	$	304,602	$	60,431	$	(347,152)	$	17,881	$	98	$	17,979
Share-based compensation	—	—		214		—		214		—		214
Shares issued for asset acquisition	2,380,952	447		—		—		447		—		447
Shares issued to settle payables	4,062,500	650		—		—		650		—		650
Net loss	—	—		—		(11,469)		(11,469)		5		(11,464)
Balance, June 30, 2023	649,859,727	$	305,699	$	60,645	$	(358,621)	$	7,723	$	103	$	7,826

See accompanying notes to condensed consolidated interim financial statements.

3

4FRONT VENTURES CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)

For the Six Months Ended June 30, 2023 and 2022

(Amounts expressed in thousands of U.S. dollars except for share data)

	Share Capital
	Shares	Amount		Additional Paid-In Capital		Deficit		Total 4Front Ventures Corp. Shareholders' Equity		Non-Controlling Interest		Total Shareholders' Equity
Balance, December 31, 2021	594,181,604	$	274,120	$	52,197	$	(288,857)	$	37,460	$	72	$	37,532
Shares issued for NECC pursuant to acquisition	28,571,428	18,200		—		—		18,200		—		18,200
Share-based compensation	—	—		1,038		—		1,038		—		1,038
Conversion of notes to equity	6,235,512	3,122		—		—		3,122		—		3,122
Shares issued with exercise of warrants	88,659	50		—		—		50		—		50
Net loss	—	—		—		(5,899)		(5,899)		5		(5,894)
Balance, March 31, 2022	629,077,203	$	295,492	$	53,235	$	(294,756)	$	53,971	$	77	$	54,048
Shares issued for Island pursuant to acquisition	8,783,716	6,245		—		—		6,245		—		6,245
Warrants issued for Island pursuant to acquisition	—	732		—		—		732		—		732
Share-based compensation	—	—		390		—		390		—		390
Shares issued with exercise of stock options	51,975	33		—		—		33		—		33
Net loss	—	—		—		(6,551)		(6,551)		5		(6,546)
Balance, June 30, 2022	637,912,894	$	302,502	$	53,625	$	(301,307)	$	54,820	$	82	$	54,902

See accompanying notes to condensed consolidated interim financial statements.

4

4FRONT VENTURES CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (unaudited)

For the Three Months Ended June 30, 2023 and 2022

(Amounts expressed in thousands of U.S. dollars)

	Six Months Ended June 30,
	2023		2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$	(22,856)	$	(12,440)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	4,878		4,689
Equity based compensation	1,234		1,428
Change in fair value of derivative liability	—		(3,074)
Accretion of lease liability	3,378		2,803
Change in contingent consideration payable	—		(2,393)
Accretion of debt discount	185		—
Accrued interest on convertible debenture and interest	452		564
Accrued interest on notes payable	4,671		3,614
Interest accrued - lease receivable	670		432
Deferred taxes	(663)		(965)
Adjustment to goodwill	29		—
Changes in operating assets and liabilities:
Accounts receivable, net	(2,750)		(3,022)
Other receivables	(168)		256
Prepaid expenses and other assets	(538)		(318)
Inventory	227		(5,302)
Accounts payable	3,044		4,260
Accrued expenses and other current liabilities	(1,195)		679
Contract liabilities	270		—
Taxes payable	4,617		5,683
Deposits	319		222
NET CASH USED IN OPERATING ACTIVITIES	(4,196)		(2,884)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for asset acquisitions and business combinations, net of cash received	(250)		(24,540)
Proceeds from note receivable	—		109
Purchases of property and equipment	(460)		(2,249)
NET CASH USED IN INVESTING ACTIVITIES	(710)		(26,680)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of contingent consideration	—		(412)
Proceeds from issuance of construction financing liability	—		16,000
Proceeds from the exercise of warrants	—		50
Proceeds from the exercise of stock options	—		33
Repayments of notes payable	(4,934)		(2,656)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(4,934)		13,015
NET DECREASE IN CASH	(9,840)		(16,549)
CASH, BEGINNING OF PERIOD	15,190		22,581
CASH, END OF PERIOD	$	5,350	$	6,032

See accompanying notes to condensed consolidated interim financial statements.

5

4FRONT VENTURES CORP.

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (unaudited)

For the Three Months Ended June 30, 2023 and 2022

(Amounts expressed in thousands of U.S. dollars)

SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	$	114	$	3,174
Cash paid for income taxes	$	1,064	$	2,100
Non-cash investing and financing activities:
Issuance of equity for business combinations	$	—	$	24,445
Issuance of warrants for business acquisition	$	—	$	732
ROU assets and lease liabilities acquired through business acquisition	$	—	$	10,227
Issuance of equity for asset acquisition	$	447	$	—
Shares issued to settle payables	$	650	$	—
Property, plant and equipment acquired through business combination	$	—	$	17,452
Issuance of note payable for business combination	$	—	$	12,000
Note payable acquired through business combination	$	—	$	245
Inventory acquired through business combination	$	—	$	3,285
Issuance of Debt to acquire property and equipment	$	—	$	14
Inventory acquired through issuance of note payable	$	—	$	163
Note payable issued to satisfy accrued expenses	$	—	$	961
Termination of new right-of-use assets and lease liabilities	$	—	$	2,020

See accompanying notes to condensed consolidated interim financial statements.

6

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

Note 1: NATURE OF OPERATIONS

4Front Ventures Corp. (“4Front” or the “Company”) exists pursuant to the provisions of the British Columbia Corporations Act. The Company operates the business through two segments: THC Cannabis and CBD Wellness. As of June 30, 2023, the Company's THC Cannabis segment consists of six dispensaries and seven production and cultivation facilities across Illinois, Michigan, Massachusetts, and California. Also, as part of its THC Cannabis segment, the Company leases real estate and sells equipment, supplies, and intellectual property to cannabis producers in the state of Washington. The Company’s CBD Wellness segment sells non-THC hemp derived products across the United States.

The unaudited condensed consolidated interim financial statements include the accounts of 4Front and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company has prepared these statements pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC) and U.S. GAAP. Certain information related to the organization, significant accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted.

In the opinion of management, the financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. Operating results for interim periods are not necessarily indicative of results you can expect for a full year. These financials should be read in conjunction with our audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Going Concern

As of June 30, 2023, the Company had cash and cash equivalents of $5.4 million and working capital deficit of $33.8 million. The Company incurred net losses of $11.5 million and $6.5 million for the three months ended June 30, 2023 and 2022, respectively, and $22.9 million and $12.4 million for the six months ended June 30, 2023 and 2022, respectively. The conditions described above raise substantial doubt with respect to the Company’s ability to meet its obligations for at least one year from the issuance of these consolidated financial statements, and therefore, to continue as a going concern.

The Company plans to continue to fund its operations through cash generated from sales and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are being utilized for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier and investor and industry relations. The Company has raised capital as needed, however there is no guarantee the Company will be able to continue to raise funds in the same manner it has historically.

Management's Estimates and Assumptions

The preparation of the Company’s financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary. Actual results may differ from these estimates. The most critical and subjective areas are discussed in detail in the notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no changes to the Company's accounting policies since the Annual Report.

7

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

New Accounting Pronouncements

Accounting Standard Updates Issued but Not Yet Adopted

In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurements - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)". ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted and the amendments in the ASU should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The Company is currently assessing the impact of adopting ASU 2022-03 on the consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842) – Common Control Arrangements”, which require that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset. It also requires such leasehold improvements to be accounted for as a transfer between entities under common control through an adjustment to entity if, and when, the lessee no longer controls the use of the underlying asset. ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting ASU 2023-01 on the consolidated financial statements.

Note 2: INVENTORY

The Company’s inventories are summarized in the table below:

	June 30, 2023		December 31, 2022
Raw materials - unharvested cannabis	$	4,032	$	2,688
Raw materials - harvested and purchased cannabis	7,372		7,956
Packaging and other non-finished goods	27		2,468
Work in process - manufactured and purchased extracts	3,276		3,635
Finished goods	10,658		8,845
Total inventory	$	25,365	$	25,592

Note 3: PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment and related depreciation are summarized in the table below:

	June 30, 2023		December 31, 2022
Land	$	774	$	774
Buildings & improvements	13,446		13,784
Construction in process	2,657		82
Furniture, equipment & other	18,916		19,296
Leasehold improvements	36,297		36,287
Total	$	72,090	$	70,223
Less: accumulated depreciation	(16,608)		(13,317)
Total property, plant, and equipment, net	$	55,482	$	56,906

8

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

Depreciation expense for the three months ended June 30, 2023 and 2022 was $1.8 million and $2.2 million, respectively, of which $1.6 million and $1.8 million, respectively, is included in cost of goods sold. Depreciation expense for the six months ended June 30, 2023 and 2022 was $3.5 million and $3.4 million, respectively, of which $3.1 million and $2.7 million, respectively, is included in cost of goods sold.

Unless specifically excluded in the LI Lending note, all property, plant, and equipment is secured by LI Lending as collateral on the LI Lending note (Note 7).

On October 27, 2022, the Company amended its lease agreement for the Company’s facility located in Matteson, Illinois by creating an option to increase the tenant improvement allowance for the facility between $15.0 million and $19.9 million. On November 10, 2022, the Company exercised its option and entered into a Second Amendment to Lease Agreement, increasing the tenant improvement allowance under the lease by $19.9 million; extending the term of the lease to 20 years after the amendment; increasing the base rent by $0.2 million per month (abated until April 1, 2023); and increasing the security deposit by $2.2 million, to be funded pro rata out of draws on the tenant improvement allowance.

Note 4: INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

Intangible assets and related amortization are summarized in the table below:

	Licenses		Customer Relationships		Non-Compete Agreements		Know-How		Tradenames and Trademarks		Total
Gross Carrying Amount, June 30, 2023 and December 31, 2022	$	25,662	$	2,900	$	249	$	9,700	$	2,022	$	40,533
Accumulated Amortization, December 31, 2022	$	—	$	(2,393)	$	(249)	$	(6,628)	$	(336)	$	(9,606)
Amortization Expense	—		(290)		—		(970)		(136)		(1,396)
Accumulated Amortization, June 30, 2023	$	—	$	(2,683)	$	(249)	$	(7,598)	$	(472)	$	(11,002)

During the six months ended June 30, 2023, the Company entered into an agreement to acquire a dispensary license from Euphoria, LLC. Refer to Note 5 for further details on the transaction.

Goodwill

Balance, December 31, 2022	$	53,955
Adjustment to Acquisitions	(29)
Balance, June 30, 2023	$	53,926

Impairment of Intangible Assets and Goodwill

Goodwill as of June 30, 2023 is related to the THC Cannabis segment in which there is no accumulated impairment within this segment. Goodwill related to the CBD Wellness segment has an accumulated impairment charge of $13.4 million, which represented the entire balance and occurred during the year ended December 31, 2020. As of June 30, 2023 and December 31, 2022, all goodwill and intangibles are attributable to the THC Cannabis segment.

9

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

Goodwill and infinite lived assets are assessed on an annual basis for impairment, or more frequently, if circumstances indicate an impairment to the carrying value may have occurred. As of June 30, 2023, the Company believes the carrying amounts of the long-lived assets, including finite-lived intangible assets (licenses), are recoverable and there were no events or circumstances that indicated impairment. However, if adverse events were to occur or circumstances were to change indicating the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment.

Note 5: ASSET ACQUISITIONS

Euphoria, LLC

On March 27, 2023, the Company entered into a Membership Interest Purchase Agreement to acquire 100% of the issued and outstanding equity interests in Euphoria, LLC ("Euphoria") for a total purchase price of $4.5 million to be paid in cash, promissory notes, and Class A Subordinate Voting Shares. Euphoria holds a conditional adult use dispensary license in the state of Illinois which shall convert to a state license upon regulatory approval. The transfer of the license is subject to regulatory approval. As of June 30, 2023, the Company has paid $0.3 million in cash and issued 2,308,952 Class A Subordinate Voting Shares valued at $0.4 million based on the closing stock price of the SVS on the issuance date. In certain events as defined in this agreement, such as, but not limited to the inability to obtain regulatory approval, all consideration paid by the Company to the sellers are refundable. The remaining consideration will be due upon regulatory approval at the closing date. In the event of termination by the Company under certain circumstances, the Company shall pay a breakup fee of $3.5 million to the sellers, less any portion of the purchase price already paid. Conversely, in the event of termination by the sellers under certain circumstances, the sellers shall pay a breakup fee of $3.5 million to the Company.

Note 6: LEASES

The Company as a Lessor:

Lease income for operating and direct financing leases for the periods presented are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Real estate income:
Operating leases	$	2,401	$	2,275	$	4,785	$	4,548
Direct financing leases	599		676		1,221		1,368
Total real estate income	$	3,000	$	2,951	$	6,006	$	5,916

The Company leases buildings in Olympia, Washington, Elk Grove, Illinois and Commerce, California that are subleased or partly subleased to a third party. The subleases are classified as operating leases under ASC 842. The underlying assets are presented in the condensed consolidated balances sheets as follows:

	June 30, 2023		December 31, 2022
Right-of-use assets	$	35,518	$	36,596
Current portion of lease liability	$	1,655	$	1,568
Long-term portion of lease liability	$	31,342	$	31,904

The Company also leases a building in Elma, Washington that is subleased to a third party. This sublease is classified as a finance lease. A reconciliation of the lease receivables is as follows:

10

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

	June 30, 2023		December 31, 2022
Balance, December 31, 2022	$	9,421	$	10,378
Interest	1,221		2,673
Lease payments received	(1,891)		(3,630)
Balance, June 30, 2023	8,751		9,421
Less current portion	(3,900)		(3,810)
Long-term lease receivables	$	4,851	$	5,611

Note 7: NOTES PAYABLE AND CONVERTIBLE NOTES

The Company’s notes payable and convertible notes are as follows:

Terms	June 30, 2023		December 31, 2022
Secured promissory notes dated May 10, 2019, as subsequently amended, with a related party drawn in two tranches: (i) $35.0 million bearing interest at 12.75% and (ii) $10.0 million bearing interest at 14.75%, which mature on May 10, 2024 (2)	$	50,451	$	49,807
Convertible promissory note dated October 6, 2021, which mature on October 6, 2024 and bear interest at a rate of 6% per annum	15,398		14,843
Unsecured convertible promissory note at $0.50 per share due December 18, 2023 at 12% per annum through May 2023 and 14% per annum through December 2023	3,843		3,554
Promissory note issued for the acquisition of NECC due January 7, 2023 at 10% per annum	—		519
Promissory note issued for the acquisition of Island due October 25, 2026 at 6% per annum	10,728		10,431
Secured promissory note due February 28, 2023 at 1.5% monthly interest for three months and 2% monthly interest for three months (1)	2,354		3,230
Unsecured promissory note due September 30, 2023, monthly interest payments at 12% per annum	1,730		1,730
Various	35		51
Total Notes Payable and Convertible Notes	$	84,539	$	84,165

(1) The Company is in default of the secured promissory note as of June 30, 3023. Management is renegotiating terms of the promissory note as of the date of these consolidated financial statements.

(2) The Company has executed an amendment to the LL Lending loan agreement on July 31, 2023 to extend the maturity date to May 1, 2026 and to reduce the interest rate to 12%. In accordance with the conditions specified in ASC 470-10-45-14, the related party loan is classified as a long term liability in the consolidated balance sheet as of June 30, 2023.

LI Lending LLC

On May 10, 2019, the Company entered into a loan agreement with LI Lending LLC, a related party, for $50.0 million, of which $43.0 million was drawn as of June 30, 2023 in two amounts: (i) $35.0 million bearing interest at a rate of 10.25% and (ii) $10.0 million bear interest at a rate of of 12.25%. The loan matures on May 10, 2024 upon the Company shall pay an exit fee of 20% of the remaining principal balance.

11

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

In April 2020, the loan was amended to release certain assets previously held as collateral and to make principal prepayments totaling $2.0 million applied to the initial $35.0 million amount, decreasing the principal balance to $33.0 million. In December 2020, the loan was amended to increase the interest rate by 2.5% of which payments of the incremental interest were paid-in-kind until January 1, 2022.

The Company was still required to make interest-only payments monthly of 10.25% on the initial $33.0 million and 12.25% on the final $10.0 million of the loan until January 1, 2022, when monthly interest rates were increased to 12.75% for the initial $35.0 million and 14.75% for the final $10.0 million for the remaining term.

For the three months ended June 30, 2023 and 2022, the Company recognized accrued interest expense of $1.9 million and $1.5 million, respectively, on the related party loan and made $1.6 million and $1.0 million, respectively, in payments of principal and interest to the related party. For the six months ended June 30, 2023 and 2022, the Company recognized accrued interest expense of $3.7 million and $3.4 million, respectively, on the related party loan and made $3.2 million and $2.5 million, respectively, in payments of principal and interest to the related party. See Note 12 for further discussion of this related party transaction.

October 2021 Convertible Note

On October 6, 2021, the Company entered into a convertible promissory note for $15.0 million that is exercisable into Class A Subordinate Voting Shares for $1.03 per share at any time at the option of the holder. The notes bear interest at 6% per annum and mature on October 6, 2024 upon which any remaining balance is payable in cash. All accrued and unpaid interest is payable in cash on an annual basis beginning on October 6, 2022. As of June 30, 2023, payments of principal and interest totaling $1.1 million have been made for this loan. As of June 30, 2023 and December 31, 2022, the unamortized discount balance related to the October 2021 Convertible Note was $0.3 million and $0.4 million, respectively, with a remaining amortization period of 1.25 years and 1.75 years, respectively. For the six months ended June 30, 2023 and 2022, the Company recognized interest expense of $0.5 million and $0.3 million, respectively, and accretion of debt discount of $0.1 million and $0.1 million, respectively, related to the October 2021 Convertible Note.

Note 8 : SHAREHOLDERS' EQUITY

The Company has authorized an unlimited number of Class A Subordinate Voting Shares (“SVS”) and Class C Multiple Voting Shares (“MVS”), all with no par value.

All share classes are included within share capital in the consolidated statements of shareholders’ equity on an as- converted basis. Each share class is entitled to notice of and to attend any meeting of the shareholders, except a meeting of which only holders of another particular class of shares will have the right to vote. All share classes are entitled to receive dividends, as and when declared by the Company, on an as-converted basis, and no dividends will be declared by the Company on any individual class unless the Company simultaneously declares or pays dividends on all share classes. No subdivision or consolidation of any share class shall be made without simultaneously subdividing or consolidating all share classes in the same manner.

Voting shares activity for the periods presented is summarized as follows:

	Class A Subordinate Voting Shares	Class C Multiple Voting Shares	Total
Balance, December 31, 2022	642,140,067	1,276,208	643,416,275
Share capital issuances	6,443,452	—	6,443,452
Balance, June 30, 2023	648,583,519	1,276,208	649,859,727

12

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

Class A Subordinate Voting Shares

Holders of Class A Subordinate Voting Shares are entitled to one vote in respect of each SVS.

Class C Multiple Voting Shares

Holders of Class C Multiple Voting Shares are entitled to 800 votes in respect of each MVS. One MVS can convert to one SVS but are not convertible until the aggregate number of MVS held by the Initial Holders (being the MVS holders on their initial issuance) are reduced to a number which is less than 50% of the aggregate number of MVS held by the Initial Holders on the date of completion of the business combination with Cannex.

Series	June 30, 2023
Class A - Subordinate Voting Shares	648,583,519
Class C - Multiple Voting Shares	1,276,208
Total shares outstanding	649,859,727

13

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

Note 9: WARRANTS

A reconciliation of the beginning and ending balance of share purchase warrants outstanding is as follows:

	Number of Warrants	Weight-Average Exercise Price
Balance, December 31, 2022	6,352,278	$	0.82
Issued	625,000	$	0.17
Expired	(2,227,303)	$	0.67
Balance, June 30, 2023	4,749,975	$	0.79

As of June 30, 2023, the Company had the following warrants outstanding:

Warrants Outstanding		Exercise Price		Expiration Date
2,999,975		$	1.00	April 13, 2024
625,000	*	C$	0.80	October 6, 2024
500,000	*	C$	0.80	October 6, 2025
625,000		C$	0.23	May 10, 2027
4,749,975

*Represents warrants that were exercisable as of June 30, 2023.

Note 10: SHARE-BASED COMPENSATION

The Company adopted two equity incentive plans where the Company may grant Class A stock options. Under the terms of the plans, the maximum number of stock options which may be granted are a total of 10% of the number of shares outstanding assuming conversion of all shares to SVS. The exercise price for stock options issued under the plans will be set by the Compensation Committee of the Board of Directors but will not be less than 100% of the fair market value of the Company’s shares on the grant date. Stock options have a maximum term of 10 years from the date of grant. Stock options vest at the discretion of the Board.

As of June 30, 2023, the Company had 26,859,765 options exercisable and 74,303,600 options outstanding, with exercise prices ranging from C$0.10 to C$1.63. The following table summarizes the Company’s stock option activity and related information:

	Number of Options	Weighted Average Price CAD$		Weighted Average Years
Balance, December 31, 2022	75,626,960	$	0.86	3.46
Granted	50,158,000	$	0.20	3.16
Forfeited/Expired	(51,481,360)	$	0.83	—
Balance, June 30, 2023	74,303,600	$	0.38	4.01

During the three months ended June 30, 2023 and 2022, the Company recognized share-based compensation of $0.2 million and $0.4 million, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized share-based compensation of $1.2 million and $1.4 million, respectively. In determining the amount of share-based compensation during the periods ended June 30, 2023 and 2022, the Company used the Black-Scholes option pricing model to establish the fair value of options granted with the following key assumptions:

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4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

	Six Months Ended June 30,
	2023		2022
Risk-Free Interest Rate	4.05	%	2.42	%
Expected Life	3.17 years		5.00 years
Expected Annualized Volatility	85.32	%	71.30	%
Forfeiture rate	—	%	—	%
Expected Dividend Yield	—	%	—	%

Note 11: INCOME TAXES

The following table summarizes the Company's income tax expense:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Net loss before income taxes	$	(9,513)	$	(3,504)	$	(17,839)	$	(5,960)
Income tax expense	$	(1,951)	$	(3,042)	$	(5,017)	$	(6,480)

The Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. At this time, there is a high degree of uncertainty in estimating the Company’s annual pre-tax income and significant non-deductible expenses so the Company cannot reliably estimate the annual effective tax rate.

Due to its cannabis operations, the Company is subject to the limitations of Internal Revenue Code (“IRC”) Section 280E. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to sales of its cannabis products. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E for the Company's expenses related to its plant-touching cannabis operations.

The effective tax rate for the three and six months ended June 30, 2023 varies from the three and six months ended June 30, 2022 primarily due to the change in nondeductible expenses under IRC Section 280E as a proportion of pre-tax loss during the period. The Company incurs expenses that are not deductible due to IRC Section 280E limitations which results in significant permanent book-to-tax differences that may not necessarily correlate with pre-tax income or loss.

The Company files income tax returns in the U.S. and various state jurisdictions and is subject to examination of its income tax returns by tax authorities in these jurisdictions who may challenge any item on these returns. The corporate statute of limitations for these jurisdictions remains open for the 2019 tax year to the present. Prior to July 31, 2019, the Company was treated as a partnership for income tax purposes and tax income and losses generated from operations were passed through to the Company’s individual members.

15

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

Note 12: RELATED PARTIES

LI Lending LLC

Linchpin Investors LLC (“Linchpin”), a subsidiary of the Company, and LI Lending LLC (“LI Lending”) entered into a Construction Loan Agreement dated May 10, 2019, as amended, whereby Linchpin received an up-to $50.0 million loan from LI Lending, of which $43.0 million was drawn as of June 30, 2023. Mr. Gontmakher, the CEO of the Company, and Roman Tkachenko, a director of the Company, each hold a 14.28% ownership interest in LI Lending. The loan matures in May 2024. Upon maturity, an exit fee of $9.0 million is payable, for a total payable at maturity of $54.0 million. $50.6 million of the loan advanced includes the notes payable and accrued interest less debt discount of $0.2 million that was outstanding as of June 30, 2023. Of the $50.5 million outstanding at June 30, 2023, $7.6 million represents interest accrued through June 30, 2023. See Note 7 for details on the outstanding note payable.

Note 13: CONTINGENCIES

(a)    Cannabis Industry

While marijuana is legal under the laws of several U.S. states (with varying restrictions), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision. As such, there is an inherent risk related to the federal government’s position on cannabis. There is additional risk associated with the Company’s business in cannabis that third-party service providers could suspend or withdraw services and regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S. As of June 30, 2023, Company has not estimated a potential liability related to the possible enforcement of laws against the medical cannabis industry.

(b)    Legal Matters

From time to time, the Company may be involved in certain disputes arising in the ordinary course of business. Such disputes, taken in the aggregate, are not expected to have a material adverse effect on the Company. There are also no proceedings in which any of the Company’s directors, officers, or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

On January 26, 2022, Savills, Inc. sued the Company in the U.S. District Court for the Southern District of New York. That lawsuit alleged the Company had breached an alleged agreement with Savills under which the Company was allegedly required to pay Savills a percentage of savings realized under certain incentive programs offered in some jurisdictions, which Savills would assist the Company in obtaining. Savills claimed damages of approximately $19.4 million in connection with its claim that it obtained benefits for the Company allegedly valued at over $129.0 million. The Company denied these allegations, denied the Company had obtained such benefits, disputed Savills’ characterization of the facts, and denied liability. The Company filed a counterclaim against Savills alleging breach of contract by Savills. On August 3, 2022, the parties reached a confidential settlement in principle and agreed to dismissal of all claims, which was finalized on September 12, 2022 and required the Company to pay $0.25 million in five monthly installments beginning in October 2022. In addition to this initial payment, there is a portion of the settlement that is contingent on future tax savings. As of June 30, 2023, this additional contingent amount is not reasonably estimable.

16

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

Note 14: FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

The fair value of the Company’s cash, accounts receivable, other receivables, accounts payable and accrued expenses approximates carrying value due to their short-term nature. The Company’s lease receivables, long term accounts payable, derivative liabilities, construction finance liability, convertible notes payable, and notes payable approximate fair value due to the instruments bearing market rates of interest. These measurements were identified as Level 1 measurements, due to the proximity of fair value to carrying values. The fair value of stock options granted were estimated based on a Black-Scholes model. The estimated fair value of the derivative liabilities, which represent warrants classified as liabilities, represent Level 3 measurements.

In November 2022, the warrants issued in connection with the November 2020 private placement had expired unexercised and, accordingly, the balance of derivative liabilities was nil. As of June 30, 2023 and December 31, 2022, the Company did not have any derivatives valued within the fair value hierarchy. For the three and six months ended June 30, 2022, changes in fair value of the derivative liabilities measured on a recurring basis using significant unobservable inputs (Level 3) were as follows:

	Three Months Ended			Six Months Ended
		June 30, 2022
Balance, beginning of period		$	2,202	$	3,502
Change in fair value of derivative liability		(1,774)		(3,074)
Balance, end of period		$	428	$	428

There were no transfers between fair value levels for the three and six months ended June 30, 2023 and the year ended December 31, 2022.

(a)    Financial Risk Management

The Company is exposed in varying degrees to a variety of financial instruments related risks. The Company's board of directors mitigate these risks by assessing, monitoring and approving the Company’s risk management processes.

(b)    Credit Risk

Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, accounts receivable, lease receivables, and other receivables. The risk to cash deposits is mitigated by holding these instruments with regulated financial institutions. Accounts receivable, lease receivables, and other receivables credit risk arises from the possibility that principal and interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationships.

The Company maintains cash with federally insured financial institutions. As of June 30, 2023 and December 31, 2022, the Company exceeded federally insured limits by $1.6 million and $10.1 million, respectively. The Company has historically not experienced any losses in such accounts. As of June 30, 2023 and December 31, 2022, the Company held an immaterial amount of cash in a Canadian account that is denominated in C$.

As of June 30, 2023 and December 31, 2022, the maximum credit exposure related to the carrying amounts of accounts receivable, other receivable, and lease receivables was $19.1 million and $16.9 million, respectively.

17

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

(c)    Liquidity Risk

The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to raise sufficient capital to settle obligations and liabilities when due. The Company has raised capital as needed, however there is no guarantee the company will be able to continue to raise funds in the same manor it has historically.

The Company has the following gross contractual obligations as of June 30, 2023, which are expected to be payable in the following respective periods:

	Less than 1 year		1 to 3 years		3 to 5 years		Greater than 5 years		Total
Accounts payable and accrued liabilities	$	27,793	$	1,733	$	—	$	—	$	29,526
Convertible notes, notes payable and accrued interest	7,946		65,865		10,728		—		84,539
Construction finance liability	—		16,000		—		—		16,000
Total	$	35,739	$	83,598	$	10,728	$	—	$	130,065

(d)    Foreign Exchange Risk

The Company is exposed to exchange rate fluctuations between United States and Canadian dollars. The Company’s share price is denominated in Canadian dollars. If the Canadian dollar declines against the United States dollar, the United States dollar amounts available to fund the Company through the exercise of stock options or warrants will be reduced. The Company also has bank accounts with balances in Canadian dollars. The value of these bank balances if converted to U.S. dollars will fluctuate. While the Company maintains a head office in Canada where it incurs expenses primarily denominated in Canadian dollars, such expenses are a small portion of overall expenses incurred by the Company. The Company does not have a practice of trading derivatives and does not engage in “natural hedging” for funds held in Canada.

Note 15: SEGMENT INFORMATION

As of June 30, 2023, the Company had two reportable segments as follows:

•THC Cannabis – Cultivation, manufacturing, and distribution of THC cannabis; and

•CBD Wellness – Sale of CBD products to third-party consumers.

18

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

The below table presents financial results of each segment for the three and six months ended June 30, 2023 and 2022, as well as total assets as of June 30, 2023 and December 31, 2022:

	Three Months Ended June 30,			Six Months Ended June 30,
	2023		2022	2023		2022
Net Revenues
THC Cannabis	$	30,433	28,195	$	60,593	$	53,978
CBD Wellness	263		244	479		509
Total Net Revenues	$	30,696	28,439	$	61,072	$	54,487
Net (Income) Loss Attributable to Shareholders
THC Cannabis	$	6,813	6,894	$	13,042	$	9,361
CBD Wellness	25		(104)	11		(119)
Corporate	4,631		(239)	9,813		3,208
Total Net Loss	$	11,469	6,551	$	22,866	$	12,450

	June 30, 2023		December 31, 2022
Assets
THC Cannabis	$	329,295	$	343,410
CBD Wellness	608		625
Corporate	603		697
Total Assets	$	330,506	$	344,732

Note 16: SUBSEQUENT EVENTS

The Company has evaluated subsequent events through August 15, 2023, which is the date these condensed consolidated interim financial statements were issued, and has concluded that the following subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated interim financial statements.

Modification of Lease Agreement

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply a portion of the security deposit to pay one-half of the monthly base rent for the four month period through November 30, 2023; to defer payment of the $2.2 million increase in security deposit to be funded as draws on the tenant improvement allowance through November 30, 2023; and to make pro rata payments of such deferred payments equal to 1/12 of the aggregate amount, concurrently with monthly base rent installments, for the twelve month period commencing January 1, 2024.

Amendment of Senior Secured Debt with LI Lending LLC

In July 2023, the Company entered into a definitive agreement with its senior secured lender, LI Lending, LLC (“Lender”) to extend the maturity date of the related party loan to May 1, 2026, to reduce the interest rate to 12.0% per annum beginning May 1, 2024, and to expand the amount of third-party financings allowed under the December 17, 2020 Amended and Restated Loan and Security Agreement (“Loan”) between 4Front and Lender.

19

4 FRONT VENTURES CORP.

NOTES TO CONDENSED CONSOLIDATED INTERIM FINANCIAL STATEMENTS

(Amounts expressed in thousands of U.S. dollars except for share and per share data)

As compensation for the amendment, the Company shall pay an extension fee of $0.52 million payable in cash on May 1, 2024. In addition, the Company shall issue warrants equal to 33% of the loan balance, approximately $17.06 million, wherein each warrant shall be exercisable into one SVS at an exercise price not less than $0.17 through May 1, 2026.

If 4Front obtains a bona fide offer from a third party to refinance the Loan within six months from the amendment date, the Lender will have the option to match the proposed terms of the offer or keep the Loan in force; upon exercise of either option, the Lender's warrant coverage will be reduced to 30% of the Loan balance as of the current maturity date. If 4Front obtains permitted secured debt senior to the Loan up to US$8 million, 75% of the Warrants will become exercisable by cashless exercise. If 4Front obtains permitted secured debt senior to the Loan in excess of US$8 million (up to the US$10 million maximum), 100% of the Warrants will become exercisable by cashless exercise.

Under the terms of the amendment, while the related party loan is outstanding, if 4Front unilaterally removes Leonid Gontmakher as its Chief Executive Officer or Karl Chowscano as its President without either cause or Lender consent, the maturity date of the loan will be accelerated to the date that is 30 days after the first unilateral removal.

Grant of Restricted Share Units

On July 27, 2023, the Company issued a total of 9,853,830 restricted share units ("RSUs"), at a deemed issue price of C$0.165 based on the closing price of its Subordinate Voting Shares, to certain officers and employees of the Company in payment of fiscal year-end 2022 bonus entitlements. The RSUs are fully vested as of the grant date and expire upon the earlier of 18 months following the grant date or the occurrence of certain events.

20

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations.

Investors should read the following discussion in conjunction with the unaudited financial statements and notes thereto included under Part 1, Item 1 of this Quarterly Report on Form 10-Q. In addition, investors should refer to our audited consolidated financial statements and notes thereto and related Management's Discussion and Analysis of Financial Condition and Results of Operations appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Disclosure Regarding Forward-Looking Statements

This Quarterly Report on Form 10-Q contains forward-looking information about the Company that is intended to be covered by the safe harbor for "forward-looking statements" provided by the Private Securities Litigation Reform Act of 1955. Forward-looking statements are statements that are not historical facts. Words such as "guidance," "expect," "will," "may," “should,” “expects,” “plans,” “anticipates,” “could,” “intends,” “target,” “projects,” “contemplates,” “believes,” “estimates,” “predicts,” “suggests,” “potential” and similar expressions are intended to identify forward-looking statements. There statements include information regarding our plans, strategies, and expectations of future financial performance and prospects. Forward-looking statements are not guarantees of performance. These statements are based upon the current beliefs and expectations of our management and are subject to significant risk and uncertainties that could cause actual results to differ materiality from those expressed in, or implied or projected by, the forward-looking information and statements. Although we believe the expectations reflected in the forward-looking statements are reasonable, we cannot assure investors that the expectations will prove to be correct. Among the factors that could cause actual results to differ materially from the expectations are acts of war or terrorism and the impact on the social and economic conditions in the United States, and changes in the legalization of marijuana across the United States. More information on factors that could cause actual results to differ materially from those anticipated is included from time to time in our reports filed with the Securities and Exchange Commissions, including our Annual Report on Form 10-K for the year ended December 31, 2022. New risk factors emerge over time and it is not possible to predict all such risk factors, or to assess the impact such risk factors have on the business. We undertake no obligation to update publicly any forward-looking statements whether as a result of new information, future events or otherwise, except as required by law.

Overview

4Front Ventures Corp. ("4Front", the "Company", "we" or "our") has two primary operating segments: THC Cannabis and CBD Wellness. With regard to its THC Cannabis segment, the Company operates six dispensaries and seven production and cultivation facilities in Massachusetts, Illinois, Michigan, and California as of June 30, 2023. The Company's six "MISSION" branded dispensaries are located in: Brookline, MA; Georgetown, MA; Worcester, MA; South Shore (Chicago), IL; Calumet City, IL; and Ann Arbor, MI. The Company's seven cultivation and production assets are detailed in our Annual Report on Form 10-K for the year ended December 31, 2022.

4Front operations are structured in key geographic locations across the United States to scale operations efficiently and position the company for future growth opportunities as cannabis legalization efforts continue across the U.S. and federally. Management intends to continue scaling operations in Illinois and Massachusetts to increase its market share. The Company has made significant investments in manufacturing facilities in each of these locations. In January 2022, the Company acquired a new cultivation facility in Holliston, MA in the New England Cannabis Corporation ("NECC") acquisition, which doubled the Company's cultivation footprint in the Massachusetts market. The Company has continued to expand it's footprint in the Illinois market with the development of the Matteson facility which is currently in progress. Additionally, the company entered into an agreement to purchase a cannabis license to enable the Company to open an additional dispensary in the state of Illinois. In addition to scaling and driving operational effectiveness, the Company will also focus on developing trusted brand products to grow revenue, build customer loyalty and market share.

21

As part of its THC Cannabis segment, the Company also leases real estate and sells equipment, supplies, and intellectual property to cannabis producers in the state of Washington.

The Company’s CBD Wellness segment is focused upon its ownership and operation of its wholly owned subsidiary, Pure Ratios Holdings, Inc. (“Pure Ratios”), a CBD-focused wellness company in California, that sells non-THC products throughout the United States.

While marijuana is legal under the laws of several U.S. states (with varying restrictions), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision.

Recent Developments

Asset Acquisition of Euphoria, LLC

On March 27, 2023, the Company entered into a Membership Interest Purchase Agreement to acquire 100% of the issued and outstanding equity interests in Euphoria, LLC which holds a conditional adult use dispensary license in the state of Illinois. The transfer of the license is subject to regulatory approval. Please see Note 5 of the financial statements for a full description of the transaction.

Management Changes

Effective May 16, 2023, Amit Patel resigned as a director and the Chair of the Audit Committee of the Company.

Effective July 31, 2023, Keith Adams resigned as Chief Financial Officer of the Company. Effective August 4, 2023, Nicole Frederick has been named Interim Chief financial Officer.

Non-Binding Term Sheet for Extension of Senior Secured Debt

In July 2023, the Company entered into a definitive agreement with the Company’s senior secured lender, LI Lending, LLC (“Lender”) to extend the maturity date, reduce the interest payable, and expand the third-party financings allowed under the December 17, 2020 Amended and Restated Loan and Security Agreement (“Loan”) between 4Front and Lender on terms and conditions set out in the Term Sheet. The Lender will extend the maturity date of the Loan to May 1, 2026, reduce the interest payable to 12.0% per year, payable monthly, and allow for in excess of $30.0 million additional senior secured financing.

The Company shall pay an extension fee of $0.52 million payable in cash on May 1, 2024. In addition, the Company shall issue warrants equal to 33% of the loan balance, or approximately $17.06 million, wherein each warrant shall be exercisable into one Subordinate Voting Share of the Company at an exercise price not less than $0.17 through May 1, 2026. Refer to Note 16 of the financial statements for further information.

Modification of Lease Agreement

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply a portion of the security deposit to pay one-half of the monthly base rent for the four month period through November 30, 2023; to defer payment of the $2.2 million increase in security deposit to be funded as draws on the tenant improvement allowance through November 30, 2023; and to make pro rata payments of such deferred payments equal to 1/12 of the aggregate amount, concurrently with monthly base rent installments, for the twelve month period commencing January 1, 2024.

Critical Accounting Policies and use of Estimates

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Our management’s discussion and analysis of our financial condition and results of operations is based on our financial statements, which we have prepared in accordance with U.S. generally accepted accounting principles (“U.S. GAAP”). Critical accounting policies and estimates are identified and discussed in our Annual Report on Form 10-K for the year ended December 31, 2022, as filed with the SEC on March 30, 2023. Although we believe our estimates and judgments are reasonable, they are based upon information available at the time the judgment or estimate is made. Actual results may differ significantly from estimates under different assumptions or conditions.

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Results of Operations

Three Months Ended June 30, 2023 Compared With Three Months Ended June 30, 2022

The following table sets forth our results of operations for the three months ended June 30, 2023 and 2022:

	For the Three Months Ended June 30,				Change
	2023		2022		$		%
Revenue from Sale of Goods	$	27,696	$	25,488	$	2,208	9	%
Real Estate Income	3,000		2,951		49		2	%
Total Revenues	30,696		28,439		2,257		8	%
Cost of Goods Sold	(21,100)		(16,123)		(4,977)		31	%
Gross Profit	9,596		12,316		(2,720)		22	%
Total Operating Expense	15,378		16,462		(1,084)		(7)	%
Loss from Operations	(5,782)		(4,146)		(1,636)		39	%
Total Other Income (Expense), net	(3,731)		642		(4,373)		(681)	%
Net Loss Before Income Taxes	(9,513)		(3,504)		(6,009)		171	%
Income Tax Expense	(1,951)		(3,042)		1,091		36	%
Net Loss	$	(11,464)	$	(6,546)	$	(4,918)	75	%

Revenue from Sale of Goods

Revenue from sale of goods for the three months ended June 30, 2023 was $27.7 million, an increase of $2.2 million or 9% compared to the three months ended June 30, 2022. Refer to the segment discussion below for specific revenue drivers quarter over quarter.

Real Estate Income

Real estate income from leasing cannabis production facilities for the three months ended June 30, 2023 was $3.0 million, which remained materially consistent compared to the $3.0 million recognized for the three months ended June 30, 2022.

Revenue in the reportable segments from which we operate were as follows:

	For the Three Months Ended June 30,				Change
	2023		2022		$		%
THC Cannabis	$	30,433	$	28,195	$	2,238	8%
CBD Wellness	263		244		19		8%
Total Net Revenues	$	30,696	$	28,439	$	2,257	8%

Net revenues for the THC cannabis segment were $30.4 million for the three months ended June 30, 2023, an increase of $2.2 million or 8%, compared to the three months ended June 30, 2022. The increase was primarily attributable to the implementation of a new discounting structure resulting in decreased discounts coupled with increased pricing in the Massachusetts market year over year.

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Net revenues for the CBD wellness segment were materially consistent for the three months ended June 30, 2023 and 2022.

Cost of Goods Sold

Cost of goods sold for the three months ended June 30, 2023 was $21.1 million, an increase of $5.0 million or 31% compared to $16.1 million for the three months ended June 30, 2022. This increase is primarily attributable to a fully operational California plant with a high fixed cost structure.

Gross Profit

Gross profit for the three months ended June 30, 2023 was $9.6 million, or 31% of revenue, compared to $12.3 million, or 43% of revenue, for the three months ended June 30, 2022. The decrease in gross profit percentage of 12% was primarily due to increase in cost of goods sold in California as described above coupled with price compression in the Illinois market.

Total Operating Expenses

Operating expenses consist of selling and marketing expenses, general and administrative expenses, depreciation and amortization, equity based compensation expense, and transaction related expenses. Total operating expenses for the three months ended June 30, 2023 was $15.4 million, a decrease of $1.1 million or 7%, as compared to the three months ended June 30, 2022. The decrease was primarily attributed to declines in transaction related expenses as a result of decreased acquisition activity as compared to 2022.

Total Other Income (Expense), net

Other income (expense) consists primarily of interest expense, change in fair value of derivative liability, gain on contingent consideration payable, and other expense. Total other expense for the three months ended June 30, 2023 was $3.7 million, as compared to other income of $0.6 million for the three months ended June 30, 2022. The decrease of $4.4 million was primarily due to a change in fair value of derivative liability of $1.8 million in the prior year versus none in the current period as the derivative liability expired in November 2022. In addition, the Company recognized a gain on contingent consideration payable of $2.4 million for the three months ended June 30, 2022 versus none in the current year.

Net Loss

Net loss for the three months ended June 30, 2023 was $11.5 million, compared to $6.5 million for the three months ended June 30, 2022. The increase in net loss for the three months ended June 30, 2023 was primarily attributable to the decline in gross profit as described above.

Six Months Ended June 30, 2023 Compared With Six Months Ended June 30, 2022

The following table sets forth our results of operations for the six months ended June 30, 2023 and 2022:

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	For the Six Months Ended June 30,				Change
	2023		2022		$		%
Revenue from Sale of Goods	$	55,066	$	48,571	$	6,495	13	%
Real Estate Income	6,006		5,916		90		2	%
Total Revenues	61,072		54,487		6,585		12	%
Cost of Goods Sold	(40,488)		(28,717)		(11,771)		41	%
Gross Profit	20,584		25,770		(5,186)		20	%
Total Operating Expense	32,162		31,110		1,052		3	%
Loss from Operations	(11,578)		(5,340)		(6,238)		117	%
Total Other Expense, net	(6,261)		(620)		(5,641)		(910)	%
Net Loss Before Income Taxes	(17,839)		(5,960)		(11,879)		199	%
Income Tax Expense	(5,017)		(6,480)		1,463		23	%
Net Loss	$	(22,856)	$	(12,440)	$	(10,416)	84	%

Revenue from Sale of Goods

Revenue from sale of goods for the six months ended June 30, 2023 was $55.1 million, an increase of $6.5 million or 13% compared to the six months ended June 30, 2022. Refer to the segment discussion below for specific revenue drivers quarter over quarter.

Real Estate Income

Real estate income from leasing cannabis production facilities for the six months ended June 30, 2023 was $6.0 million, which remained materially consistent compared to the $5.9 million recognized for the six months ended June 30, 2022.

Revenue in the reportable segments from which we operate were as follows:

	For the Six Months Ended June 30,				Change
	2023		2022		$		%
THC Cannabis	$	60,593	$	53,978	$	6,615	12%
CBD Wellness	479		509		(30)		6%
Total Net Revenues	$	61,072	$	54,487	$	6,585	12%

Net revenues for the THC cannabis segment were $60.6 million for the six months ended June 30, 2023, an increase of $6.6 million or 12%, compared to the six months ended June 30, 2022. The increase was primarily attributed to a maturing wholesale market in Massachusetts and price structure reevaluations resulting in increased revenue of $3.4M period over period. California contributed approximately $4M in additional revenue as a result of the facility being fully operational in 2023 as compared to the same period in 2022. These increases were offset by declines in revenue in Illinois operations driven by price compression.

Net revenues for the CBD wellness segment were materially consistent for the six months ended June 30, 2023 and 2022.

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Cost of Goods Sold

Cost of goods sold for the six months ended June 30, 2023 was $40.5 million, an increase of $11.8 million or 41% compared to $28.7 million for the six months ended June 30, 2022. Due to the economic environment as well as cannabis market and regulations in the first half of 2023, the Company has experienced an increase in the direct cost of labor and materials, indirect costs such as utilities and supplies used in the growing process, and indirect labor costs for individuals involved in the growing, quality control and inventory processes, as well as certain facility costs.

Gross Profit

Gross profit for the six months ended June 30, 2023 was $20.6 million, or 34% of revenue, compared to $25.8 million, or 47% of revenue, for the six months ended June 30, 2022. The decrease in gross profit percentage of 13% was primarily due to the increase in cost of goods sold as described above coupled with pricing compression across the Company's markets which has been mitigated by increases in retail sell-through of the Company-owned produced products in Massachusetts. Improvements in flower yields and quality led to increases in revenue, market share, and gross margin in Massachusetts for the six months ended June 30, 2023.

Total Operating Expenses

Operating expenses consist of selling and marketing expenses, general and administrative expenses, depreciation and amortization, equity based compensation expense, and transaction related expenses. Total operating expenses for the six months ended June 30, 2023 was $32.2 million, an increase of $1.1 million or 3%, as compared to the six months ended June 30, 2022. This increase was primarily due to an increase in distribution expense in California and increased selling and marketing expenses as a result of increased marketing efforts related to the expansion of its brand and products portfolio resulting from the launch of new products and expansion of the Island and Bloom brands across company operations.

Total Other Expense, net

Other expense consists primarily of interest expense, change in fair value of derivative liability, and gain on contingent consideration payable. Total other expense for the six months ended June 30, 2023 was $6.3 million, as compared to $0.6 million for the six months ended June 30, 2022. The decrease of $5.6 million was primarily due to a change in fair value of derivative liability of $3.1 million in the prior year versus none in the current period as the derivative liability expired in November 2022. In addition, the Company recognized a gain on contingent consideration payable of $2.4 million for the six months ended June 30, 2022 versus none in the current year.

Net Loss

Net loss for the six months ended June 30, 2023 was $22.9 million, compared to $12.4 million for the six months ended June 30, 2022. The increase in net loss for the six months ended June 30, 2023 was primarily due to the decline in gross profit and other factors described above.

Non-GAAP Financial and Performance Measures

In addition to providing financial measurements based on GAAP, we provide additional financial metrics that are not prepared in accordance with GAAP. Management uses non-GAAP financial measures, in addition to GAAP financial measures, to understand and compare operating results across accounting periods, for financial and operational decision making, for planning and forecasting purposes and to evaluate the Company’s financial performance. Management uses the non-GAAP measurement of adjusted EBITDA, which we believe reflects our

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ongoing business in a manner that allows for meaningful comparisons and analysis of trends in the business, as it facilitates comparing financial results across accounting periods. We also believe this non-GAAP financial measure enables investors to evaluate the Company’s operating results and future prospects in the same manner as management. This non-GAAP financial measures may also exclude expenses and gains that may be unusual in nature, infrequent or not reflective of the Company’s ongoing operating results. As there are no standardized methods of calculating non-GAAP measures, our methods may differ from those used by others, and accordingly, the use of these measures may not be directly comparable to similarly titled measures used by others. Accordingly, non-GAAP measures are intended to provide additional information and should not be considered in isolation or as a substitute for measures of performance prepared in accordance with GAAP.

Adjusted EBITDA

Adjusted EBITDA is a financial measure that is not calculated in accordance with U.S. GAAP. Management believes because Adjusted EBITDA excludes (a) certain non-cash expenses (such as depreciation, amortization and stock-based compensation) and (b) expenses that are not reflective of the Company’s core operating results over time (such as restructuring costs, litigation or dispute settlement charges or gains, and transaction-related costs), it represents a clearer picture of what the Company's operations could be doing. Adjusted EBITDA is defined by the Company as detailed below. This measure provides investors with additional useful information to measure the Company’s financial performance, particularly with respect to changes in performance from period to period. The Company’s management uses Adjusted EBITDA (a) as a measure of operating performance, (b) for planning and forecasting in future periods, and (c) in communications with the Company’s board of directors concerning the Company’s financial performance.

The Company’s presentation of Adjusted EBITDA are not necessarily comparable to other similarly titled captions of other companies due to different methods of calculation and should not be used by investors as a substitute or alternative to net income or any measure of financial performance calculated and presented in accordance with U.S. GAAP. Instead, management believes Adjusted EBITDA should be used to supplement the Company’s financial measures derived in accordance with U.S. GAAP to provide a more complete understanding of the trends affecting the business.

Although Adjusted EBITDA is frequently used by investors and securities analysts in their evaluations of companies, Adjusted EBITDA has limitations as an analytical tool, and investors should not consider it in isolation or as a substitute for, or more meaningful than, amounts determined in accordance with U.S. GAAP. Some of the limitations to using non-GAAP measures as an analytical tool are (a) they do not reflect the Company’s interest income and expense, or the requirements necessary to service interest or principal payments on the Company’s debt, (b) they do not reflect future requirements for capital expenditures or contractual commitments, and (c) although depreciation and amortization charges are non-cash charges, the assets being depreciated and amortized will often have to be replaced in the future, and non-GAAP measures do not reflect any cash requirements for such replacements. For comparative purposes, certain prior year amounts have been reclassified to conform to the current year presentation.

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The following table reconciles Net Loss to Adjusted EBITDA for the three and six months ended June 30, 2023 and 2022:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Net loss before NCI (GAAP)	$	(11,464)	$	(6,546)	$	(22,856)	$	(12,440)
Interest income	(7)		—		(21)		(2)
Interest expense	3,075		3,418		6,271		6,038
Income tax expense	1,951		3,042		5,017		6,480
Depreciation and amortization	2,487		2,894		4,878		4,689
EBITDA	$	(3,958)	$	2,808	$	(6,711)	$	4,765
Share-based compensation	214		390		1,234		1,428
Change in fair value of derivative liability	—		(1,774)		—		(3,074)
Change in fair value of contingent consideration	—		(2,393)		—		(2,393)
Loss on litigation settlement	—		—		3		—
Sale leaseback related interest expense and non-cash operating lease amortization	1,477		1,487		2,952		2,876
Facility start-up costs/under-absorbed overhead costs	2,948		1,942		5,920		3,854
Acquisition, transaction, and other non-cash costs	1,306		3,520		2,104		5,940
Adjusted EBITDA (Non-GAAP)	$	1,987	$	5,980	$	5,502	$	13,396

Adjusted EBITDA should not be considered in isolation from, or as a substitute for, Net Loss. There are a number of limitations related to the use of Adjusted EBITDA as compared to Net Loss, the closest comparable GAAP measure. Adjusted EBITDA, as defined by the Company, excludes from Net Loss:

•Interest income and expense;

•Current income tax expense;

•Non-cash depreciation and amortization expense;

•Non-cash share-based compensation expense;

•Non-cash changes in fair value of derivative liability and contingent consideration;

•Loss recognized on litigation settlements;

•Sale leaseback related interest expense and non-cash operating lease amortization;

•Facility start-up costs and under-absorbed overhead costs; and

•Acquisition, transaction, and other non-cash costs, which vary significantly by transactions and are excluded to evaluate ongoing operating results.

Liquidity and Capital Resources

As of June 30, 2023 and December 31, 2022, we had total current liabilities of $81.2 million and $77.5 million, respectively, and current assets of $47.4 million and $53.3 million, respectively, to meet our current obligations. As of June 30, 2023 and December 31, 2022, we had a working capital deficit of $33.8 million compared to $24.2 million. The decline in working capital of $9.6 million was driven primarily by a decrease in cash. Refer to the cash flow section below for specific drivers.The conditions described above raise substantial doubt with respect to the Company’s ability to meet its obligations for at least one year from the issuance of these consolidated financial statements, and therefore, to continue as a going concern.

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The Company is an early-stage growth company. It is generating cash from sales and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are being utilized for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier and investor and industry relations. Historically, the Company has raised capital as needed however there is no guarantee the Company will be able to continue to raise funds in the same manor it has historically.

Cash Flows

Net Cash Used in Operations

Net cash used in operating activities was $4.2 million for the six months ended June 30, 2023, which is materially consistent compared to $2.9 million for the six months ended June 30, 2022.

Net Cash Used in Investing Activities

Net cash used in investing activities was $0.7 million for the six months ended June 30, 2023, a decrease of $26.0 million as compared to $26.7 million for the six months ended June 30, 2022. The decrease was primarily attributable to the financing of the NECC acquisition in 2022. In the period ended June 30, 2023, there were no comparable acquisitions.

Net Cash (Used in) Provided by Financing Activities

Net cash used in financing activities was $4.9 million for six months ended June 30, 2023, a decrease of $17.9 million as compared to $13.0 million of cash provided by financing activities for the six months ended June 30, 2022. The decrease was primarily attributable to the non-recurring nature of the proceeds from the construction finance liability of $16.0 million associated with the NECC acquisition during the six months ended June 30, 2022. This was partially offset by repayments of notes payable during the six months ended June 30, 2023 of $4.9 million compared to $2.7 million paid in the prior period. Refer to Note 7 for additional discussion.

Off-Balance Sheet Arrangements

We do not have any off-balance sheet arrangements that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

Critical Accounting Policies

We review new accounting standards as issued. Although some of these accounting standards issued or effective after the end of our previous fiscal year may be applicable to the Company, we have not identified any standards that we believe merit further discussion. We do not expect the adoption of any recently issued accounting pronouncements to have a significant impact on our financial position, results of operations, or cash flows.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, the Company is not required to provide information required by this Item.

Item 4. Controls and Procedures

Evaluation of Disclosure Controls and Procedures

As required by Rule 13a-15 under the Exchange Act, our management has carried out an evaluation, with the participation and under the supervision of our Chief Executive Officer and Chief Financial Officer, of the effectiveness of the design and operation of our disclosure controls and procedures as of June 30, 2023. Disclosure controls and procedures refer to controls and other procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the rules and forms of the SEC and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating our disclosure controls and procedures, management recognizes that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, and management is required to apply its judgment in evaluating and implementing possible controls and procedures.

Inherent Limitations on Effectiveness of Controls

Management recognizes that a control system, no matter how well conceived and operated, can provide only reasonable, not absolute, assurance that the objectives of the control system are met. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Because of the inherent limitations in all control systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud or error, if any, have been detected. These inherent limitations include the realities that judgments in decision making can be faulty, and that breakdowns can occur because of a simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the controls. The design of any system of controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that any design will succeed in achieving its stated goals under all potential future conditions; over time, controls may become inadequate because of changes in conditions, or the degree of compliance with policies or procedures may deteriorate. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected.

Changes in Internal Control over Financial Reporting

There have been no changes in the Company's internal control over financial reporting during the six months ended June 30, 2023 that have materially affected, or that are reasonably likely to materially affect, the Company's internal control over financial reporting.

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PART II—OTHER INFORMATION

Item 1. Legal Proceedings

On January 26, 2022, Savills, Inc. sued the Company in the U.S. District Court for the Southern District of New York. That lawsuit alleged the Company had breached an alleged agreement with Savills under which the Company was allegedly required to pay Savills a percentage of savings realized under certain incentive programs offered in some jurisdictions, which Savills would assist the Company in obtaining. Savills claimed damages of approximately $19.4 million in connection with its claim that it obtained benefits for the Company allegedly valued at over $129.0 million. The Company denied these allegations, denied the Company had obtained such benefits, disputed Savills’ characterization of the facts, and denied liability. The Company filed a counterclaim against Savills alleging breach of contract by Savills. On August 3, 2022, the parties reached a confidential settlement in principle and agreed to dismissal of all claims, which was finalized on September 12, 2022 and required the Company to pay $0.25 million in five monthly installments beginning in October 2022. In addition to this initial payment, there is a portion of the settlement that is contingent on future tax savings. As of June 30, 2023, this additional contingent amount is not reasonably estimable.

Apart from the foregoing and ongoing legal proceedings, from time to time, we may be subject to various other legal proceedings and claims that are routine and incidental to our business. Although some of the legal proceedings set forth herein may result in adverse decisions or settlements, management believes that the final disposition of such matters will not have a material adverse effect on our business, financial position, results of operations or cash flows.

Item 1A. Risk Factors

As a “smaller reporting company” as defined by Item 10 of Regulation S-K, we are not required to provide information required by this Item.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

None.

Item 3. Defaults Upon Senior Securities

None.

Item 4. Mine Safety Disclosures

Not Applicable.

Item 5. Other Information

None.

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Item 6. Exhibits

Exhibit Number	Exhibit Description	Form	Filing Date	Exhibit Number	Filed Herewith
31.1	Certification of the Chief Executive Officer (Principal Executive Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act				x
31.2	Certification of the Chief Financial Officer (Principal Financial Officer) pursuant to Rule 13a-14(a) of the Securities Exchange Act				x
32.1	Certification of Chief Executive Officer and Chief Financial Officer Pursuant to Rule 13a-14(b) Under the Securities Exchange Act of 1934 and Section 1350 of Chapter 60 of Title 18 of the United States Code *				x
101.INS	XBRL Instance Document
101.SCH	XBRL Taxonomy Extension Schema Document
101.CAL	XBRL Taxonomy Extension Calculation Linkbase Document
101.DEF	XBRL Taxonomy Extension Definition Linkbase Document
101.LAB	XBRL Taxonomy Extension Label Linkbase Document
101.PRE	XBRL Taxonomy Extension Presentation Linkbase Document
104	Cover Page Interactive Data File (embedded within the Inline XBRL document)

+    Indicates management contract or compensatory plan.

*    This certification is being furnished solely to accompany this Quarterly Report pursuant to 18 U.S.C. Section 1350, and it is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934 and is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general incorporation language in such filing.

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SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.

	4FRONT VENTURES CORP.
Date: August 15, 2023	By:	/s/ Leonid Gontmakher
		Leonid Gontmakher
		Chief Executive Officer and Director
		(Principal Executive Officer)
Date: August 15, 2023	By:	/s/ Nicole Frederick
		Nicole Frederick
		Interim Chief Financial Officer
		(Principal Financial Officer)

 

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EX-31.1

Exhibit 31.1

Certification of Chief Executive Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Leonid Gontmakher, certify that: 

1.I have reviewed this Quarterly Report on Form 10-Q of 4Front Ventures Corp.; 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): 

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date: August 15, 2023	/s/ Leonid Gontmakher
	Leonid Gontmakher, Chief Executive Officer  (principal executive officer)

EX-31.2

Exhibit 31.2

Certification of Interim Chief Financial Officer

Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Nicole Frederick, certify that: 

1.I have reviewed this Quarterly Report on Form 10-Q of 4Front Ventures Corp.; 

2.Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 

3.Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 

4.The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have: 

a.designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; 

b.designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles; 

c.evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 

d.disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting. 

5.The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions): 

a.all significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and 

b.any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting. 

Date: August 15, 2023	/s/ Nicole Frederick
	Nicole Frederick, Interim Chief Financial Officer  (principal financial and accounting officer)

EX-32.1

Exhibit 32.1

Certifications of Chief Executive Officer and Interim Chief Financial Officer

Pursuant to18 U.S.C. Section 1350,as adopted pursuant to

Section 906 of the Sarbanes-Oxley Act of 2002

Pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, Leonid Gontmakher, Chief Executive Officer (principal executive officer) of 4Front Ventures Corp. (the “Company”), and Nicole Frederick, Interim Chief Financial Officer (principal financial and accounting officer) of the Company, each hereby certifies that, to the best of his knowledge: 

1)	The Company’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2023, to which this certification is attached as Exhibit 32.1 (the “Report”) fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
2)	The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

Date: August 15, 2023

/s/ Leonid Gontmakher 

Leonid Gontmakher  

Chief Executive Officer 

(principal executive officer)

/s/ Nicole Frederick

Nicole Frederick

Interim Chief Financial Officer 

(principal financial and accounting officer) 

The foregoing certifications are being furnished pursuant to 18 U.S.C. Section 1350. They are not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and are not to be incorporated by reference into any filing of the Company, regardless of any general incorporation language in such filing. 

XML

Cover - shares	6 Months Ended
	Jun. 30, 2023	Aug. 15, 2023
Document Information [Line Items]
Document Type	10-Q
Document Quarterly Report	true
Document Period End Date	Jun. 30, 2023
Document Transition Report	false
Entity File Number	000-56075
Entity Registrant Name	4Front Ventures Corp.
Entity Incorporation, State or Country Code	A1
Entity Tax Identification Number	83-4168417
Entity Address, Address Line One	7010 E. Chauncey Lane
Entity Address, Address Line Two	Suite 235
Entity Address, City or Town	Phoenix
Entity Address, State or Province	AZ
Entity Address, Postal Zip Code	85054
City Area Code	602
Local Phone Number	633-3067
Entity Current Reporting Status	Yes
Entity Interactive Data Current	Yes
Entity Filer Category	Non-accelerated Filer
Entity Small Business	true
Entity Emerging Growth Company	true
Entity Ex Transition Period	false
Entity Shell Company	false
Entity Common Stock, Shares Outstanding		648,583,519
Entity Central Index Key	0001783875
Current Fiscal Year End Date	--12-31
Document Fiscal Year Focus	2023
Document Fiscal Period Focus	Q2
Amendment Flag	false
Class A Subordinate Voting Share
Document Information [Line Items]
Title of 12(b) Security	Class A Subordinate Voting Shares, no par value
Trading Symbol	FFNTF
ADR
Document Information [Line Items]
Title of 12(b) Security	Class A Subordinate Voting Shares, no par value
Trading Symbol	FFNT

XML

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (unaudited) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Current assets:
Cash	$ 5,350	$ 15,190
Accounts receivable, net	10,141	7,391
Other receivables	245	77
Current portion of lease receivables	3,900	3,810
Inventory	25,365	25,592
Prepaid expenses and other assets	2,442	1,207
Total current assets	47,443	53,267
Property, plant, and equipment, net	55,482	56,906
Lease receivables	4,851	5,611
Intangible assets, net	29,531	30,927
Goodwill	53,926	53,955
Right-of-use assets	135,577	138,451
Deposits	3,696	5,615
TOTAL ASSETS	330,506	344,732
Current liabilities:
Accounts payable	14,724	12,701
Accrued expenses and other current liabilities	13,069	14,265
Taxes payable	41,194	36,577
Current portion of contract liabilities	639	369
Current portion of lease liability	3,638	4,479
Current portion of notes payable and accrued interest	7,946	9,059
Total current liabilities	81,210	77,450
Convertible notes	15,398	14,843
Notes payable and accrued interest from related party	50,451	49,807
Long term notes payable	10,744	10,456
Long term accounts payable	1,733	1,362
Contract liabilities	2,000	2,000
Construction finance liability	16,000	16,000
Deferred tax liability	7,614	8,278
Lease liability	137,530	136,185
TOTAL LIABILITIES	322,680	316,381
SHAREHOLDERS' EQUITY
Subordinate Voting Shares (no par value, unlimited shares authorized, 649,859,727 and 643,416,275 shares issued and outstanding as of June 30, 2023 and December 31, 2022, respectively)	305,699	304,602
Additional paid-in capital	60,645	59,411
Deficit	(358,621)	(335,755)
Equity attributable to 4Front Ventures Corp.	7,723	28,258
Non-controlling interest	103	93
TOTAL SHAREHOLDERS' EQUITY	7,826	28,351
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY	$ 330,506	$ 344,732

XML

CONDENSED CONSOLIDATED INTERIM BALANCE SHEETS (unaudited) (Parenthetical) - shares	Jun. 30, 2023	Dec. 31, 2022
Statement of Financial Position [Abstract]
Common stock, shares issued (in shares)	649,859,727	643,416,275
Common stock, shares outstanding (in shares)	649,859,727	643,416,275

XML

CONDENSED CONSOLIDATED INTERIM STATEMENTS OF OPERATIONS (unaudited) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
REVENUE
Revenue from sale of goods	$ 27,696	$ 25,488	$ 55,066	$ 48,571
Real estate income	3,000	2,951	6,006	5,916
Total revenues	30,696	28,439	61,072	54,487
Cost of goods sold	(21,100)	(16,123)	(40,488)	(28,717)
Gross profit	9,596	12,316	20,584	25,770
OPERATING EXPENSES
Selling and marketing expenses	6,748	6,384	13,786	11,493
General and administrative expenses	7,533	6,556	15,389	14,210
Depreciation and amortization	866	1,123	1,736	1,970
Share-based compensation	214	390	1,234	1,428
Transaction and restructuring related expenses	17	2,009	17	2,009
Total operating expenses	15,378	16,462	32,162	31,110
Loss from operations	(5,782)	(4,146)	(11,578)	(5,340)
Other income (expense)
Interest income	7	0	21	2
Interest expense	(3,075)	(3,418)	(6,271)	(6,038)
Change in fair value of derivative liability	0	1,774	0	3,074
Gain on contingent consideration payable	0	2,393	0	2,393
Loss on litigation settlement	0	0	(3)	0
Other	(663)	(107)	(8)	(51)
Total other income (expense), net	(3,731)	642	(6,261)	(620)
Net loss before income taxes	(9,513)	(3,504)	(17,839)	(5,960)
Income tax expense	(1,951)	(3,042)	(5,017)	(6,480)
Net loss	(11,464)	(6,546)	(22,856)	(12,440)
Net income attributable to non-controlling interest	5	5	10	10
Net loss attributable to shareholders	$ (11,469)	$ (6,551)	$ (22,866)	$ (12,450)
Basic loss per share (in dollar per share)	$ (0.02)	$ (0.01)	$ (0.04)	$ (0.02)
Diluted loss per share (in dollar per share)	$ (0.02)	$ (0.01)	$ (0.04)	$ (0.02)
Weighted average number of shares outstanding, basic (in shares)	646,690,827	636,653,975	644,415,447	628,175,765
Weighted average number of shares outstanding, diluted (in shares)	646,690,827	636,653,975	644,415,447	628,175,765

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CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited) - USD ($) $ in Thousands	Total	New England Cannabis Corporation	Island Global Holdings, Inc.	Total 4Front Ventures Corp. Shareholders' Equity	Total 4Front Ventures Corp. Shareholders' Equity New England Cannabis Corporation	Total 4Front Ventures Corp. Shareholders' Equity Island Global Holdings, Inc.	Share Capital	Share Capital New England Cannabis Corporation	Share Capital Island Global Holdings, Inc.	Additional Paid-In Capital	Deficit	Non-Controlling Interest
Beginning balance (in shares) at Dec. 31, 2021							594,181,604
Beginning balance at Dec. 31, 2021	$ 37,532			$ 37,460			$ 274,120			$ 52,197	$ (288,857)	$ 72
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares issued for pursuant to acquisition (in shares)								28,571,428
Shares issued for pursuant to acquisition		$ 18,200			$ 18,200			$ 18,200
Share-based compensation	1,038			1,038						1,038
Conversion of notes to equity (in shares)							6,235,512
Conversion of notes to equity	3,122			3,122			$ 3,122
Shares issued with exercise of warrants (in shares)							88,659
Shares issued with exercise of warrants	50			50			$ 50
Net loss	(5,894)			(5,899)							(5,899)	5
Ending balance (in shares) at Mar. 31, 2022							629,077,203
Ending balance at Mar. 31, 2022	54,048			53,971			$ 295,492			53,235	(294,756)	77
Beginning balance (in shares) at Dec. 31, 2021							594,181,604
Beginning balance at Dec. 31, 2021	37,532			37,460			$ 274,120			52,197	(288,857)	72
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Net loss	(12,440)
Ending balance (in shares) at Jun. 30, 2022							637,912,894
Ending balance at Jun. 30, 2022	54,902			54,820			$ 302,502			53,625	(301,307)	82
Beginning balance (in shares) at Mar. 31, 2022							629,077,203
Beginning balance at Mar. 31, 2022	54,048			53,971			$ 295,492			53,235	(294,756)	77
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares issued for pursuant to acquisition (in shares)									8,783,716
Shares issued for pursuant to acquisition			$ 6,245			$ 6,245			$ 6,245
Share-based compensation	390			390						390
Warrants issued for Island pursuant to acquisition	732			732			$ 732
Shares issued with exercise of stock options (in shares)							51,975
Shares issued with exercise of stock options	33			33			$ 33
Net loss	(6,546)			(6,551)							(6,551)	5
Ending balance (in shares) at Jun. 30, 2022							637,912,894
Ending balance at Jun. 30, 2022	$ 54,902			54,820			$ 302,502			53,625	(301,307)	82
Beginning balance (in shares) at Dec. 31, 2022	643,416,275						643,416,275
Beginning balance at Dec. 31, 2022	$ 28,351			28,258			$ 304,602			59,411	(335,755)	93
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Share-based compensation	1,020			1,020						1,020
Net loss	(11,392)			(11,397)							(11,397)	5
Ending balance (in shares) at Mar. 31, 2023							643,416,275
Ending balance at Mar. 31, 2023	$ 17,979			17,881			$ 304,602			60,431	(347,152)	98
Beginning balance (in shares) at Dec. 31, 2022	643,416,275						643,416,275
Beginning balance at Dec. 31, 2022	$ 28,351			28,258			$ 304,602			59,411	(335,755)	93
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares issued to settle payables (in shares)	6,443,452
Net loss	$ (22,856)
Ending balance (in shares) at Jun. 30, 2023	649,859,727						649,859,727
Ending balance at Jun. 30, 2023	$ 7,826			7,723			$ 305,699			60,645	(358,621)	103
Beginning balance (in shares) at Mar. 31, 2023							643,416,275
Beginning balance at Mar. 31, 2023	17,979			17,881			$ 304,602			60,431	(347,152)	98
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Shares issued for pursuant to acquisition (in shares)							2,380,952
Shares issued for pursuant to acquisition	447			447			$ 447
Share-based compensation	214			214						214
Shares issued to settle payables (in shares)							4,062,500
Shares issued to settle payables	650			650			$ 650
Net loss	$ (11,464)			(11,469)							(11,469)	5
Ending balance (in shares) at Jun. 30, 2023	649,859,727						649,859,727
Ending balance at Jun. 30, 2023	$ 7,826			$ 7,723			$ 305,699			$ 60,645	$ (358,621)	$ 103

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CONDENSED CONSOLIDATED INTERIM STATEMENTS OF CASH FLOWS (unaudited) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss	$ (22,856)	$ (12,440)
Adjustments to reconcile net loss to net cash used in operating activities:
Depreciation and amortization	4,878	4,689
Equity based compensation	1,234	1,428
Change in fair value of derivative liability	0	(3,074)
Accretion of lease liability	3,378	2,803
Change in contingent consideration payable	0	(2,393)
Accretion of debt discount	185	0
Accrued interest on convertible debenture and interest	452	564
Accrued interest on notes payable	4,671	3,614
Interest accrued - lease receivable	670	432
Deferred taxes	(663)	(965)
Adjustment to goodwill	29	0
Changes in operating assets and liabilities:
Accounts receivable, net	(2,750)	(3,022)
Other receivables	(168)	256
Prepaid expenses and other assets	(538)	(318)
Inventory	227	(5,302)
Accounts payable	3,044	4,260
Accrued expenses and other current liabilities	(1,195)	679
Contract liabilities	270	0
Taxes payable	4,617	5,683
Deposits	319	222
NET CASH USED IN OPERATING ACTIVITIES	(4,196)	(2,884)
CASH FLOWS FROM INVESTING ACTIVITIES
Cash paid for asset acquisitions and business combinations, net of cash received	(250)	(24,540)
Proceeds from note receivable	0	109
Purchases of property and equipment	(460)	(2,249)
NET CASH USED IN INVESTING ACTIVITIES	(710)	(26,680)
CASH FLOWS FROM FINANCING ACTIVITIES
Payment of contingent consideration	0	(412)
Proceeds from issuance of construction financing liability	0	16,000
Proceeds from the exercise of warrants	0	50
Proceeds from the exercise of stock options	0	33
Repayments of notes payable	(4,934)	(2,656)
NET CASH (USED IN) PROVIDED BY FINANCING ACTIVITIES	(4,934)	13,015
NET DECREASE IN CASH	(9,840)	(16,549)
CASH, BEGINNING OF PERIOD	15,190	22,581
CASH, END OF PERIOD	5,350	6,032
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid for interest	114	3,174
Cash paid for income taxes	1,064	2,100
Non-cash investing and financing activities:
Issuance of equity for business combinations	0	24,445
Issuance of warrants for business acquisition	0	732
ROU assets and lease liabilities acquired through business acquisition	0	10,227
Issuance of equity for asset acquisition	447	0
Shares issued to settle payables	650	0
Property, plant and equipment acquired through business combination	0	17,452
Issuance of note payable for business combination	0	12,000
Note payable acquired through business combination	0	245
Inventory acquired through business combination	0	3,285
Issuance of Debt to acquire property and equipment	0	14
Inventory acquired through issuance of note payable	0	163
Note payable issued to satisfy accrued expenses	0	961
Termination of new right-of-use assets and lease liabilities	$ 0	$ 2,020

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Nature of Operations

6 Months Ended

Jun. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

Nature of Operations

NATURE OF OPERATIONS

4Front Ventures Corp. (“4Front” or the “Company”) exists pursuant to the provisions of the British Columbia Corporations Act. The Company operates the business through two segments: THC Cannabis and CBD Wellness. As of June 30, 2023, the Company's THC Cannabis segment consists of six dispensaries and seven production and cultivation facilities across Illinois, Michigan, Massachusetts, and California. Also, as part of its THC Cannabis segment, the Company leases real estate and sells equipment, supplies, and intellectual property to cannabis producers in the state of Washington. The Company’s CBD Wellness segment sells non-THC hemp derived products across the United States.

The unaudited condensed consolidated interim financial statements include the accounts of 4Front and all entities in which the Company either has a controlling voting interest or is the primary beneficiary of a variable interest entity in accordance with accounting principles generally accepted in the United States of America (U.S. GAAP). The Company has prepared these statements pursuant to the rules and regulations of the United States Securities and Exchange Commission (SEC) and U.S. GAAP. Certain information related to the organization, significant accounting policies, and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed, or omitted.

In the opinion of management, the financial statements include all adjustments necessary for the fair presentation of the results of the interim periods presented. All adjustments are of a normal recurring nature, except as otherwise noted below. Operating results for interim periods are not necessarily indicative of results you can expect for a full year. These financials should be read in conjunction with our audited consolidated financial statements and notes thereto appearing in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022.

Going Concern

As of June 30, 2023, the Company had cash and cash equivalents of $5.4 million and working capital deficit of $33.8 million. The Company incurred net losses of $11.5 million and $6.5 million for the three months ended June 30, 2023 and 2022, respectively, and $22.9 million and $12.4 million for the six months ended June 30, 2023 and 2022, respectively. The conditions described above raise substantial doubt with respect to the Company’s ability to meet its obligations for at least one year from the issuance of these consolidated financial statements, and therefore, to continue as a going concern.

The Company plans to continue to fund its operations through cash generated from sales and is deploying its capital reserves to acquire and develop assets capable of producing additional revenues and earnings over both the immediate and near term. Capital reserves are being utilized for capital expenditures and improvements in existing facilities, product development and marketing, as well as customer, supplier and investor and industry relations. The Company has raised capital as needed, however there is no guarantee the Company will be able to continue to raise funds in the same manner it has historically.

Management's Estimates and Assumptions

The preparation of the Company’s financial statements requires management to make judgments, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, and revenue and expenses. We cannot predict what future laws and regulations might be passed that could have a material effect on our results of operations. We assess the impact of significant changes in laws and regulations on a regular basis and update the assumptions and estimates used to prepare our financial statements when we deem it necessary. Actual results may differ from these estimates. The most critical and subjective areas are discussed in detail in the notes in our Annual Report on Form 10-K for the fiscal year ended December 31, 2022. There have been no changes to the Company's accounting policies since the Annual Report.

New Accounting Pronouncements

Accounting Standard Updates Issued but Not Yet Adopted

In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurements - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)". ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted and the amendments in the ASU should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The Company is currently assessing the impact of adopting ASU 2022-03 on the consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842) – Common Control Arrangements”, which require that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset. It also requires such leasehold improvements to be accounted for as a transfer between entities under common control through an adjustment to entity if, and when, the lessee no longer controls the use of the underlying asset. ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting ASU 2023-01 on the consolidated financial statements.

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Inventory

6 Months Ended

Jun. 30, 2023

Inventory Disclosure [Abstract]

Inventory

INVENTORY

The Company’s inventories are summarized in the table below:

	June 30, 2023		December 31, 2022
Raw materials - unharvested cannabis	$	4,032	$	2,688
Raw materials - harvested and purchased cannabis	7,372		7,956
Packaging and other non-finished goods	27		2,468
Work in process - manufactured and purchased extracts	3,276		3,635
Finished goods	10,658		8,845
Total inventory	$	25,365	$	25,592

XML

Property, Plant, and Equipment

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment [Abstract]

Property, Plant, and Equipment

PROPERTY, PLANT, AND EQUIPMENT

Property, plant, and equipment and related depreciation are summarized in the table below:

	June 30, 2023		December 31, 2022
Land	$	774	$	774
Buildings & improvements	13,446		13,784
Construction in process	2,657		82
Furniture, equipment & other	18,916		19,296
Leasehold improvements	36,297		36,287
Total	$	72,090	$	70,223
Less: accumulated depreciation	(16,608)		(13,317)
Total property, plant, and equipment, net	$	55,482	$	56,906

Depreciation expense for the three months ended June 30, 2023 and 2022 was $1.8 million and $2.2 million, respectively, of which $1.6 million and $1.8 million, respectively, is included in cost of goods sold. Depreciation expense for the six months ended June 30, 2023 and 2022 was $3.5 million and $3.4 million, respectively, of which $3.1 million and $2.7 million, respectively, is included in cost of goods sold.

Unless specifically excluded in the LI Lending note, all property, plant, and equipment is secured by LI Lending as collateral on the LI Lending note (Note 7).

On October 27, 2022, the Company amended its lease agreement for the Company’s facility located in Matteson, Illinois by creating an option to increase the tenant improvement allowance for the facility between $15.0 million and $19.9 million. On November 10, 2022, the Company exercised its option and entered into a Second Amendment to Lease Agreement, increasing the tenant improvement allowance under the lease by $19.9 million; extending the term of the lease to 20 years after the amendment; increasing the base rent by $0.2 million per month (abated until April 1, 2023); and increasing the security deposit by $2.2 million, to be funded pro rata out of draws on the tenant improvement allowance.

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Intangible Assets and Goodwill

6 Months Ended

Jun. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Intangible Assets and Goodwill

INTANGIBLE ASSETS AND GOODWILL

Intangible Assets

Intangible assets and related amortization are summarized in the table below:

	Licenses		Customer Relationships		Non-Compete Agreements		Know-How		Tradenames and Trademarks		Total
Gross Carrying Amount, June 30, 2023 and December 31, 2022	$	25,662	$	2,900	$	249	$	9,700	$	2,022	$	40,533
Accumulated Amortization, December 31, 2022	$	—	$	(2,393)	$	(249)	$	(6,628)	$	(336)	$	(9,606)
Amortization Expense	—		(290)		—		(970)		(136)		(1,396)
Accumulated Amortization, June 30, 2023	$	—	$	(2,683)	$	(249)	$	(7,598)	$	(472)	$	(11,002)

During the six months ended June 30, 2023, the Company entered into an agreement to acquire a dispensary license from Euphoria, LLC. Refer to Note 5 for further details on the transaction.

Goodwill

Balance, December 31, 2022	$	53,955
Adjustment to Acquisitions	(29)
Balance, June 30, 2023	$	53,926

Impairment of Intangible Assets and Goodwill

Goodwill as of June 30, 2023 is related to the THC Cannabis segment in which there is no accumulated impairment within this segment. Goodwill related to the CBD Wellness segment has an accumulated impairment charge of $13.4 million, which represented the entire balance and occurred during the year ended December 31, 2020. As of June 30, 2023 and December 31, 2022, all goodwill and intangibles are attributable to the THC Cannabis segment.

Goodwill and infinite lived assets are assessed on an annual basis for impairment, or more frequently, if circumstances indicate an impairment to the carrying value may have occurred. As of June 30, 2023, the Company believes the carrying amounts of the long-lived assets, including finite-lived intangible assets (licenses), are recoverable and there were no events or circumstances that indicated impairment. However, if adverse events were to occur or circumstances were to change indicating the carrying amount of such assets may not be fully recoverable, the assets would be reviewed for impairment.

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Asset Acquisitions

6 Months Ended

Jun. 30, 2023

Business Combination and Asset Acquisition [Abstract]

Asset Acquisitions

ASSET ACQUISITIONS

Euphoria, LLC

On March 27, 2023, the Company entered into a Membership Interest Purchase Agreement to acquire 100% of the issued and outstanding equity interests in Euphoria, LLC ("Euphoria") for a total purchase price of $4.5 million to be paid in cash, promissory notes, and Class A Subordinate Voting Shares. Euphoria holds a conditional adult use dispensary license in the state of Illinois which shall convert to a state license upon regulatory approval. The transfer of the license is subject to regulatory approval. As of June 30, 2023, the Company has paid $0.3 million in cash and issued 2,308,952 Class A Subordinate Voting Shares valued at $0.4 million based on the closing stock price of the SVS on the issuance date. In certain events as defined in this agreement, such as, but not limited to the inability to obtain regulatory approval, all consideration paid by the Company to the sellers are refundable. The remaining consideration will be due upon regulatory approval at the closing date. In the event of termination by the Company under certain circumstances, the Company shall pay a breakup fee of $3.5 million to the sellers, less any portion of the purchase price already paid. Conversely, in the event of termination by the sellers under certain circumstances, the sellers shall pay a breakup fee of $3.5 million to the Company.

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Leases

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

Leases

LEASES

The Company as a Lessor:

Lease income for operating and direct financing leases for the periods presented are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Real estate income:
Operating leases	$	2,401	$	2,275	$	4,785	$	4,548
Direct financing leases	599		676		1,221		1,368
Total real estate income	$	3,000	$	2,951	$	6,006	$	5,916

The Company leases buildings in Olympia, Washington, Elk Grove, Illinois and Commerce, California that are subleased or partly subleased to a third party. The subleases are classified as operating leases under ASC 842. The underlying assets are presented in the condensed consolidated balances sheets as follows:

	June 30, 2023		December 31, 2022
Right-of-use assets	$	35,518	$	36,596
Current portion of lease liability	$	1,655	$	1,568
Long-term portion of lease liability	$	31,342	$	31,904

The Company also leases a building in Elma, Washington that is subleased to a third party. This sublease is classified as a finance lease. A reconciliation of the lease receivables is as follows:

	June 30, 2023		December 31, 2022
Balance, December 31, 2022	$	9,421	$	10,378
Interest	1,221		2,673
Lease payments received	(1,891)		(3,630)
Balance, June 30, 2023	8,751		9,421
Less current portion	(3,900)		(3,810)
Long-term lease receivables	$	4,851	$	5,611

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Notes Payable and Convertible Notes

6 Months Ended

Jun. 30, 2023

Debt Disclosure [Abstract]

Notes Payable and Convertible Notes

NOTES PAYABLE AND CONVERTIBLE NOTES

The Company’s notes payable and convertible notes are as follows:

Terms	June 30, 2023		December 31, 2022
Secured promissory notes dated May 10, 2019, as subsequently amended, with a related party drawn in two tranches: (i) $35.0 million bearing interest at 12.75% and (ii) $10.0 million bearing interest at 14.75%, which mature on May 10, 2024 (2)	$	50,451	$	49,807
Convertible promissory note dated October 6, 2021, which mature on October 6, 2024 and bear interest at a rate of 6% per annum	15,398		14,843
Unsecured convertible promissory note at $0.50 per share due December 18, 2023 at 12% per annum through May 2023 and 14% per annum through December 2023	3,843		3,554
Promissory note issued for the acquisition of NECC due January 7, 2023 at 10% per annum	—		519
Promissory note issued for the acquisition of Island due October 25, 2026 at 6% per annum	10,728		10,431
Secured promissory note due February 28, 2023 at 1.5% monthly interest for three months and 2% monthly interest for three months (1)	2,354		3,230
Unsecured promissory note due September 30, 2023, monthly interest payments at 12% per annum	1,730		1,730
Various	35		51
Total Notes Payable and Convertible Notes	$	84,539	$	84,165

(1) The Company is in default of the secured promissory note as of June 30, 3023. Management is renegotiating terms of the promissory note as of the date of these consolidated financial statements.

(2) The Company has executed an amendment to the LL Lending loan agreement on July 31, 2023 to extend the maturity date to May 1, 2026 and to reduce the interest rate to 12%. In accordance with the conditions specified in ASC 470-10-45-14, the related party loan is classified as a long term liability in the consolidated balance sheet as of June 30, 2023.

LI Lending LLC

On May 10, 2019, the Company entered into a loan agreement with LI Lending LLC, a related party, for $50.0 million, of which $43.0 million was drawn as of June 30, 2023 in two amounts: (i) $35.0 million bearing interest at a rate of 10.25% and (ii) $10.0 million bear interest at a rate of of 12.25%. The loan matures on May 10, 2024 upon the Company shall pay an exit fee of 20% of the remaining principal balance.

In April 2020, the loan was amended to release certain assets previously held as collateral and to make principal prepayments totaling $2.0 million applied to the initial $35.0 million amount, decreasing the principal balance to $33.0 million. In December 2020, the loan was amended to increase the interest rate by 2.5% of which payments of the incremental interest were paid-in-kind until January 1, 2022.

The Company was still required to make interest-only payments monthly of 10.25% on the initial $33.0 million and 12.25% on the final $10.0 million of the loan until January 1, 2022, when monthly interest rates were increased to 12.75% for the initial $35.0 million and 14.75% for the final $10.0 million for the remaining term.

For the three months ended June 30, 2023 and 2022, the Company recognized accrued interest expense of $1.9 million and $1.5 million, respectively, on the related party loan and made $1.6 million and $1.0 million, respectively, in payments of principal and interest to the related party. For the six months ended June 30, 2023 and 2022, the Company recognized accrued interest expense of $3.7 million and $3.4 million, respectively, on the related party loan and made $3.2 million and $2.5 million, respectively, in payments of principal and interest to the related party. See Note 12 for further discussion of this related party transaction.

October 2021 Convertible Note

On October 6, 2021, the Company entered into a convertible promissory note for $15.0 million that is exercisable into Class A Subordinate Voting Shares for $1.03 per share at any time at the option of the holder. The notes bear interest at 6% per annum and mature on October 6, 2024 upon which any remaining balance is payable in cash. All accrued and unpaid interest is payable in cash on an annual basis beginning on October 6, 2022. As of June 30, 2023, payments of principal and interest totaling $1.1 million have been made for this loan. As of June 30, 2023 and December 31, 2022, the unamortized discount balance related to the October 2021 Convertible Note was $0.3 million and $0.4 million, respectively, with a remaining amortization period of 1.25 years and 1.75 years, respectively. For the six months ended June 30, 2023 and 2022, the Company recognized interest expense of $0.5 million and $0.3 million, respectively, and accretion of debt discount of $0.1 million and $0.1 million, respectively, related to the October 2021 Convertible Note.

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Shareholders' Equity

6 Months Ended

Jun. 30, 2023

Stockholders' Equity Note [Abstract]

Shareholders' Equity

SHAREHOLDERS' EQUITY

The Company has authorized an unlimited number of Class A Subordinate Voting Shares (“SVS”) and Class C Multiple Voting Shares (“MVS”), all with no par value.

All share classes are included within share capital in the consolidated statements of shareholders’ equity on an as- converted basis. Each share class is entitled to notice of and to attend any meeting of the shareholders, except a meeting of which only holders of another particular class of shares will have the right to vote. All share classes are entitled to receive dividends, as and when declared by the Company, on an as-converted basis, and no dividends will be declared by the Company on any individual class unless the Company simultaneously declares or pays dividends on all share classes. No subdivision or consolidation of any share class shall be made without simultaneously subdividing or consolidating all share classes in the same manner.

Voting shares activity for the periods presented is summarized as follows:

	Class A Subordinate Voting Shares	Class C Multiple Voting Shares	Total
Balance, December 31, 2022	642,140,067	1,276,208	643,416,275
Share capital issuances	6,443,452	—	6,443,452
Balance, June 30, 2023	648,583,519	1,276,208	649,859,727

Class A Subordinate Voting Shares

Holders of Class A Subordinate Voting Shares are entitled to one vote in respect of each SVS.

Class C Multiple Voting Shares

Holders of Class C Multiple Voting Shares are entitled to 800 votes in respect of each MVS. One MVS can convert to one SVS but are not convertible until the aggregate number of MVS held by the Initial Holders (being the MVS holders on their initial issuance) are reduced to a number which is less than 50% of the aggregate number of MVS held by the Initial Holders on the date of completion of the business combination with Cannex.

Series	June 30, 2023
Class A - Subordinate Voting Shares	648,583,519
Class C - Multiple Voting Shares	1,276,208
Total shares outstanding	649,859,727

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Warrants

6 Months Ended

Jun. 30, 2023

Warrants and Rights Note Disclosure [Abstract]

Warrants

WARRANTS

A reconciliation of the beginning and ending balance of share purchase warrants outstanding is as follows:

	Number of Warrants	Weight-Average Exercise Price
Balance, December 31, 2022	6,352,278	$	0.82
Issued	625,000	$	0.17
Expired	(2,227,303)	$	0.67
Balance, June 30, 2023	4,749,975	$	0.79

As of June 30, 2023, the Company had the following warrants outstanding:

Warrants Outstanding		Exercise Price		Expiration Date
2,999,975		$	1.00	April 13, 2024
625,000	*	C$	0.80	October 6, 2024
500,000	*	C$	0.80	October 6, 2025
625,000		C$	0.23	May 10, 2027
4,749,975

*Represents warrants that were exercisable as of June 30, 2023.

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Share-Based Compensation

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

Share-Based Compensation

SHARE-BASED COMPENSATION

The Company adopted two equity incentive plans where the Company may grant Class A stock options. Under the terms of the plans, the maximum number of stock options which may be granted are a total of 10% of the number of shares outstanding assuming conversion of all shares to SVS. The exercise price for stock options issued under the plans will be set by the Compensation Committee of the Board of Directors but will not be less than 100% of the fair market value of the Company’s shares on the grant date. Stock options have a maximum term of 10 years from the date of grant. Stock options vest at the discretion of the Board.

As of June 30, 2023, the Company had 26,859,765 options exercisable and 74,303,600 options outstanding, with exercise prices ranging from C$0.10 to C$1.63. The following table summarizes the Company’s stock option activity and related information:

	Number of Options	Weighted Average Price CAD$		Weighted Average Years
Balance, December 31, 2022	75,626,960	$	0.86	3.46
Granted	50,158,000	$	0.20	3.16
Forfeited/Expired	(51,481,360)	$	0.83	—
Balance, June 30, 2023	74,303,600	$	0.38	4.01

During the three months ended June 30, 2023 and 2022, the Company recognized share-based compensation of $0.2 million and $0.4 million, respectively. During the six months ended June 30, 2023 and 2022, the Company recognized share-based compensation of $1.2 million and $1.4 million, respectively. In determining the amount of share-based compensation during the periods ended June 30, 2023 and 2022, the Company used the Black-Scholes option pricing model to establish the fair value of options granted with the following key assumptions:

	Six Months Ended June 30,
	2023		2022
Risk-Free Interest Rate	4.05	%	2.42	%
Expected Life	3.17 years		5.00 years
Expected Annualized Volatility	85.32	%	71.30	%
Forfeiture rate	—	%	—	%
Expected Dividend Yield	—	%	—	%

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Income Taxes

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Income Taxes

INCOME TAXES

The following table summarizes the Company's income tax expense:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Net loss before income taxes	$	(9,513)	$	(3,504)	$	(17,839)	$	(5,960)
Income tax expense	$	(1,951)	$	(3,042)	$	(5,017)	$	(6,480)

The Company has computed its provision for income taxes under the discrete method which treats the year-to-date period as if it were the annual period and determines the income tax expense or benefit on that basis. The discrete method is applied when application of the estimated annual effective tax rate is impractical because it is not possible to reliably estimate the annual effective tax rate. At this time, there is a high degree of uncertainty in estimating the Company’s annual pre-tax income and significant non-deductible expenses so the Company cannot reliably estimate the annual effective tax rate.

Due to its cannabis operations, the Company is subject to the limitations of Internal Revenue Code (“IRC”) Section 280E. Under IRC Section 280E, the Company is only allowed to deduct expenses directly related to sales of its cannabis products. This results in permanent differences between ordinary and necessary business expenses deemed non-allowable under IRC Section 280E for the Company's expenses related to its plant-touching cannabis operations.

The effective tax rate for the three and six months ended June 30, 2023 varies from the three and six months ended June 30, 2022 primarily due to the change in nondeductible expenses under IRC Section 280E as a proportion of pre-tax loss during the period. The Company incurs expenses that are not deductible due to IRC Section 280E limitations which results in significant permanent book-to-tax differences that may not necessarily correlate with pre-tax income or loss.

The Company files income tax returns in the U.S. and various state jurisdictions and is subject to examination of its income tax returns by tax authorities in these jurisdictions who may challenge any item on these returns. The corporate statute of limitations for these jurisdictions remains open for the 2019 tax year to the present. Prior to July 31, 2019, the Company was treated as a partnership for income tax purposes and tax income and losses generated from operations were passed through to the Company’s individual members.

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Related Parties	6 Months Ended
	Jun. 30, 2023
Related Party Transactions [Abstract]
Related Parties	RELATED PARTIESLI Lending LLCLinchpin Investors LLC (“Linchpin”), a subsidiary of the Company, and LI Lending LLC (“LI Lending”) entered into a Construction Loan Agreement dated May 10, 2019, as amended, whereby Linchpin received an up-to $50.0 million loan from LI Lending, of which $43.0 million was drawn as of June 30, 2023. Mr. Gontmakher, the CEO of the Company, and Roman Tkachenko, a director of the Company, each hold a 14.28% ownership interest in LI Lending. The loan matures in May 2024. Upon maturity, an exit fee of $9.0 million is payable, for a total payable at maturity of $54.0 million. $50.6 million of the loan advanced includes the notes payable and accrued interest less debt discount of $0.2 million that was outstanding as of June 30, 2023. Of the $50.5 million outstanding at June 30, 2023, $7.6 million represents interest accrued through June 30, 2023. See Note 7 for details on the outstanding note payable.

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Contingencies

6 Months Ended

Jun. 30, 2023

Commitments and Contingencies Disclosure [Abstract]

Contingencies

CONTINGENCIES

(a)    Cannabis Industry

While marijuana is legal under the laws of several U.S. states (with varying restrictions), the United States Federal Controlled Substances Act classifies all “marijuana” as a Schedule I drug, whether for medical or recreational use. Under U.S. federal law, a Schedule I drug or substance has a high potential for abuse, no accepted medical use in the United States, and a lack of safety for the use of the drug under medical supervision. As such, there is an inherent risk related to the federal government’s position on cannabis. There is additional risk associated with the Company’s business in cannabis that third-party service providers could suspend or withdraw services and regulatory bodies could impose certain restrictions on the issuer’s ability to operate in the U.S. As of June 30, 2023, Company has not estimated a potential liability related to the possible enforcement of laws against the medical cannabis industry.

(b)    Legal Matters

From time to time, the Company may be involved in certain disputes arising in the ordinary course of business. Such disputes, taken in the aggregate, are not expected to have a material adverse effect on the Company. There are also no proceedings in which any of the Company’s directors, officers, or affiliates is an adverse party or has a material interest adverse to the Company’s interest.

On January 26, 2022, Savills, Inc. sued the Company in the U.S. District Court for the Southern District of New York. That lawsuit alleged the Company had breached an alleged agreement with Savills under which the Company was allegedly required to pay Savills a percentage of savings realized under certain incentive programs offered in some jurisdictions, which Savills would assist the Company in obtaining. Savills claimed damages of approximately $19.4 million in connection with its claim that it obtained benefits for the Company allegedly valued at over $129.0 million. The Company denied these allegations, denied the Company had obtained such benefits, disputed Savills’ characterization of the facts, and denied liability. The Company filed a counterclaim against Savills alleging breach of contract by Savills. On August 3, 2022, the parties reached a confidential settlement in principle and agreed to dismissal of all claims, which was finalized on September 12, 2022 and required the Company to pay $0.25 million in five monthly installments beginning in October 2022. In addition to this initial payment, there is a portion of the settlement that is contingent on future tax savings. As of June 30, 2023, this additional contingent amount is not reasonably estimable.

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Financial Instruments and Financial Risk Management

6 Months Ended

Jun. 30, 2023

Investments, All Other Investments [Abstract]

Financial Instruments and Financial Risk Management

FINANCIAL INSTRUMENTS AND FINANCIAL RISK MANAGEMENT

The fair value of the Company’s cash, accounts receivable, other receivables, accounts payable and accrued expenses approximates carrying value due to their short-term nature. The Company’s lease receivables, long term accounts payable, derivative liabilities, construction finance liability, convertible notes payable, and notes payable approximate fair value due to the instruments bearing market rates of interest. These measurements were identified as Level 1 measurements, due to the proximity of fair value to carrying values. The fair value of stock options granted were estimated based on a Black-Scholes model. The estimated fair value of the derivative liabilities, which represent warrants classified as liabilities, represent Level 3 measurements.

In November 2022, the warrants issued in connection with the November 2020 private placement had expired unexercised and, accordingly, the balance of derivative liabilities was nil. As of June 30, 2023 and December 31, 2022, the Company did not have any derivatives valued within the fair value hierarchy. For the three and six months ended June 30, 2022, changes in fair value of the derivative liabilities measured on a recurring basis using significant unobservable inputs (Level 3) were as follows:

	Three Months Ended			Six Months Ended
		June 30, 2022
Balance, beginning of period		$	2,202	$	3,502
Change in fair value of derivative liability		(1,774)		(3,074)
Balance, end of period		$	428	$	428

There were no transfers between fair value levels for the three and six months ended June 30, 2023 and the year ended December 31, 2022.

(a)    Financial Risk Management

The Company is exposed in varying degrees to a variety of financial instruments related risks. The Company's board of directors mitigate these risks by assessing, monitoring and approving the Company’s risk management processes.

(b)    Credit Risk

Credit risk is the risk of loss associated with counterparty’s inability to fulfill its payment obligations. The Company’s credit risk is primarily attributable to cash, accounts receivable, lease receivables, and other receivables. The risk to cash deposits is mitigated by holding these instruments with regulated financial institutions. Accounts receivable, lease receivables, and other receivables credit risk arises from the possibility that principal and interest due may become uncollectible. The Company mitigates this risk by managing and monitoring the underlying business relationships.

The Company maintains cash with federally insured financial institutions. As of June 30, 2023 and December 31, 2022, the Company exceeded federally insured limits by $1.6 million and $10.1 million, respectively. The Company has historically not experienced any losses in such accounts. As of June 30, 2023 and December 31, 2022, the Company held an immaterial amount of cash in a Canadian account that is denominated in C$.

As of June 30, 2023 and December 31, 2022, the maximum credit exposure related to the carrying amounts of accounts receivable, other receivable, and lease receivables was $19.1 million and $16.9 million, respectively.

(c)    Liquidity Risk

The Company manages liquidity risk through the management of its capital structure. The Company’s approach to managing liquidity is to raise sufficient capital to settle obligations and liabilities when due. The Company has raised capital as needed, however there is no guarantee the company will be able to continue to raise funds in the same manor it has historically.

The Company has the following gross contractual obligations as of June 30, 2023, which are expected to be payable in the following respective periods:

	Less than 1 year		1 to 3 years		3 to 5 years		Greater than 5 years		Total
Accounts payable and accrued liabilities	$	27,793	$	1,733	$	—	$	—	$	29,526
Convertible notes, notes payable and accrued interest	7,946		65,865		10,728		—		84,539
Construction finance liability	—		16,000		—		—		16,000
Total	$	35,739	$	83,598	$	10,728	$	—	$	130,065

(d)    Foreign Exchange Risk

The Company is exposed to exchange rate fluctuations between United States and Canadian dollars. The Company’s share price is denominated in Canadian dollars. If the Canadian dollar declines against the United States dollar, the United States dollar amounts available to fund the Company through the exercise of stock options or warrants will be reduced. The Company also has bank accounts with balances in Canadian dollars. The value of these bank balances if converted to U.S. dollars will fluctuate. While the Company maintains a head office in Canada where it incurs expenses primarily denominated in Canadian dollars, such expenses are a small portion of overall expenses incurred by the Company. The Company does not have a practice of trading derivatives and does not engage in “natural hedging” for funds held in Canada.

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Segment Information

6 Months Ended

Jun. 30, 2023

Segment Reporting [Abstract]

Segment Information

SEGMENT INFORMATION

As of June 30, 2023, the Company had two reportable segments as follows:

•THC Cannabis – Cultivation, manufacturing, and distribution of THC cannabis; and

•CBD Wellness – Sale of CBD products to third-party consumers.

The below table presents financial results of each segment for the three and six months ended June 30, 2023 and 2022, as well as total assets as of June 30, 2023 and December 31, 2022:

	Three Months Ended June 30,			Six Months Ended June 30,
	2023		2022	2023		2022
Net Revenues
THC Cannabis	$	30,433	28,195	$	60,593	$	53,978
CBD Wellness	263		244	479		509
Total Net Revenues	$	30,696	28,439	$	61,072	$	54,487
Net (Income) Loss Attributable to Shareholders
THC Cannabis	$	6,813	6,894	$	13,042	$	9,361
CBD Wellness	25		(104)	11		(119)
Corporate	4,631		(239)	9,813		3,208
Total Net Loss	$	11,469	6,551	$	22,866	$	12,450

	June 30, 2023		December 31, 2022
Assets
THC Cannabis	$	329,295	$	343,410
CBD Wellness	608		625
Corporate	603		697
Total Assets	$	330,506	$	344,732

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Subsequent Events

6 Months Ended

Jun. 30, 2023

Subsequent Events [Abstract]

Subsequent Events

SUBSEQUENT EVENTS

The Company has evaluated subsequent events through August 15, 2023, which is the date these condensed consolidated interim financial statements were issued, and has concluded that the following subsequent events have occurred that would require recognition in the condensed consolidated financial statements or disclosure in the notes to the condensed consolidated interim financial statements.

Modification of Lease Agreement

On July 7, 2023, the Company amended its lease agreement for the cultivation and production facility in Matteson, Illinois to apply a portion of the security deposit to pay one-half of the monthly base rent for the four month period through November 30, 2023; to defer payment of the $2.2 million increase in security deposit to be funded as draws on the tenant improvement allowance through November 30, 2023; and to make pro rata payments of such deferred payments equal to 1/12 of the aggregate amount, concurrently with monthly base rent installments, for the twelve month period commencing January 1, 2024.

Amendment of Senior Secured Debt with LI Lending LLC

In July 2023, the Company entered into a definitive agreement with its senior secured lender, LI Lending, LLC (“Lender”) to extend the maturity date of the related party loan to May 1, 2026, to reduce the interest rate to 12.0% per annum beginning May 1, 2024, and to expand the amount of third-party financings allowed under the December 17, 2020 Amended and Restated Loan and Security Agreement (“Loan”) between 4Front and Lender.

As compensation for the amendment, the Company shall pay an extension fee of $0.52 million payable in cash on May 1, 2024. In addition, the Company shall issue warrants equal to 33% of the loan balance, approximately $17.06 million, wherein each warrant shall be exercisable into one SVS at an exercise price not less than $0.17 through May 1, 2026.

If 4Front obtains a bona fide offer from a third party to refinance the Loan within six months from the amendment date, the Lender will have the option to match the proposed terms of the offer or keep the Loan in force; upon exercise of either option, the Lender's warrant coverage will be reduced to 30% of the Loan balance as of the current maturity date. If 4Front obtains permitted secured debt senior to the Loan up to US$8 million, 75% of the Warrants will become exercisable by cashless exercise. If 4Front obtains permitted secured debt senior to the Loan in excess of US$8 million (up to the US$10 million maximum), 100% of the Warrants will become exercisable by cashless exercise.

Under the terms of the amendment, while the related party loan is outstanding, if 4Front unilaterally removes Leonid Gontmakher as its Chief Executive Officer or Karl Chowscano as its President without either cause or Lender consent, the maturity date of the loan will be accelerated to the date that is 30 days after the first unilateral removal.

Grant of Restricted Share Units

On July 27, 2023, the Company issued a total of 9,853,830 restricted share units ("RSUs"), at a deemed issue price of C$0.165 based on the closing price of its Subordinate Voting Shares, to certain officers and employees of the Company in payment of fiscal year-end 2022 bonus entitlements. The RSUs are fully vested as of the grant date and expire upon the earlier of 18 months following the grant date or the occurrence of certain events.

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Nature of Operations (Policies)

6 Months Ended

Jun. 30, 2023

Organization, Consolidation and Presentation of Financial Statements [Abstract]

New Accounting Pronouncements

New Accounting Pronouncements

Accounting Standard Updates Issued but Not Yet Adopted

In June 2022, the FASB issued ASU 2022-03, "Fair Value Measurements - Fair Value Measurement of Equity Securities Subject to Contractual Sale Restrictions (Topic 820)". ASU 2022-03 clarifies that a contractual restriction on the sale of an equity security is not considered part of the unit of account of the equity security and, therefore, is not considered in measuring fair value. It also clarifies that an entity cannot, as a separate unit of account, recognize and measure a contractual sale restriction. For public business entities, the ASU is effective for fiscal years beginning after December 15, 2023, and interim periods within those fiscal years. Early adoption is permitted and the amendments in the ASU should be applied prospectively with any adjustments from the adoption of the amendments recognized in earnings and disclosed on the date of adoption. The Company is currently assessing the impact of adopting ASU 2022-03 on the consolidated financial statements.

In March 2023, the FASB issued ASU 2023-01, “Leases (Topic 842) – Common Control Arrangements”, which require that leasehold improvements associated with common control leases be amortized by the lessee over the useful life of the leasehold improvements to the common control group (regardless of the lease term) as long as the lessee controls the use of the underlying asset. It also requires such leasehold improvements to be accounted for as a transfer between entities under common control through an adjustment to entity if, and when, the lessee no longer controls the use of the underlying asset. ASU 2023-01 is effective for fiscal years beginning after December 15, 2023, including interim periods within those fiscal years. Early adoption is permitted. The Company is currently assessing the impact of adopting ASU 2023-01 on the consolidated financial statements.

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Inventory (Tables)

6 Months Ended

Jun. 30, 2023

Inventory Disclosure [Abstract]

Summary of Inventory

The Company’s inventories are summarized in the table below:

	June 30, 2023		December 31, 2022
Raw materials - unharvested cannabis	$	4,032	$	2,688
Raw materials - harvested and purchased cannabis	7,372		7,956
Packaging and other non-finished goods	27		2,468
Work in process - manufactured and purchased extracts	3,276		3,635
Finished goods	10,658		8,845
Total inventory	$	25,365	$	25,592

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Property, Plant, and Equipment (Tables)

6 Months Ended

Jun. 30, 2023

Property, Plant and Equipment [Abstract]

Summary of Property and Equipment and Related Depreciation

Property, plant, and equipment and related depreciation are summarized in the table below:

	June 30, 2023		December 31, 2022
Land	$	774	$	774
Buildings & improvements	13,446		13,784
Construction in process	2,657		82
Furniture, equipment & other	18,916		19,296
Leasehold improvements	36,297		36,287
Total	$	72,090	$	70,223
Less: accumulated depreciation	(16,608)		(13,317)
Total property, plant, and equipment, net	$	55,482	$	56,906

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Intangible Assets and Goodwill (Tables)

6 Months Ended

Jun. 30, 2023

Goodwill and Intangible Assets Disclosure [Abstract]

Schedule of Indefinite-Lived Intangible Assets

Intangible assets and related amortization are summarized in the table below:

	Licenses		Customer Relationships		Non-Compete Agreements		Know-How		Tradenames and Trademarks		Total
Gross Carrying Amount, June 30, 2023 and December 31, 2022	$	25,662	$	2,900	$	249	$	9,700	$	2,022	$	40,533
Accumulated Amortization, December 31, 2022	$	—	$	(2,393)	$	(249)	$	(6,628)	$	(336)	$	(9,606)
Amortization Expense	—		(290)		—		(970)		(136)		(1,396)
Accumulated Amortization, June 30, 2023	$	—	$	(2,683)	$	(249)	$	(7,598)	$	(472)	$	(11,002)

Schedule of Finite-Lived Intangible Assets

Intangible assets and related amortization are summarized in the table below:

	Licenses		Customer Relationships		Non-Compete Agreements		Know-How		Tradenames and Trademarks		Total
Gross Carrying Amount, June 30, 2023 and December 31, 2022	$	25,662	$	2,900	$	249	$	9,700	$	2,022	$	40,533
Accumulated Amortization, December 31, 2022	$	—	$	(2,393)	$	(249)	$	(6,628)	$	(336)	$	(9,606)
Amortization Expense	—		(290)		—		(970)		(136)		(1,396)
Accumulated Amortization, June 30, 2023	$	—	$	(2,683)	$	(249)	$	(7,598)	$	(472)	$	(11,002)

Summary of Goodwill

Balance, December 31, 2022	$	53,955
Adjustment to Acquisitions	(29)
Balance, June 30, 2023	$	53,926

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Leases (Tables)

6 Months Ended

Jun. 30, 2023

Leases [Abstract]

Direct Financing Lease, Lease Income

Lease income for operating and direct financing leases for the periods presented are as follows:

	Three Months Ended June 30,				Six Months Ended June 30,
	2023		2022		2023		2022
Real estate income:
Operating leases	$	2,401	$	2,275	$	4,785	$	4,548
Direct financing leases	599		676		1,221		1,368
Total real estate income	$	3,000	$	2,951	$	6,006	$	5,916

Balance Sheet Information

The underlying assets are presented in the condensed consolidated balances sheets as follows:

	June 30, 2023		December 31, 2022
Right-of-use assets	$	35,518	$	36,596
Current portion of lease liability	$	1,655	$	1,568
Long-term portion of lease liability	$	31,342	$	31,904

Summary of Changes in Lease Receivables

A reconciliation of the lease receivables is as follows:

	June 30, 2023		December 31, 2022
Balance, December 31, 2022	$	9,421	$	10,378
Interest	1,221		2,673
Lease payments received	(1,891)		(3,630)
Balance, June 30, 2023	8,751		9,421
Less current portion	(3,900)		(3,810)
Long-term lease receivables	$	4,851	$	5,611

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Notes Payable and Convertible Notes (Tables)

6 Months Ended

Jun. 30, 2023

Debt Disclosure [Abstract]

Schedule of Debt

The Company’s notes payable and convertible notes are as follows:

Terms	June 30, 2023		December 31, 2022
Secured promissory notes dated May 10, 2019, as subsequently amended, with a related party drawn in two tranches: (i) $35.0 million bearing interest at 12.75% and (ii) $10.0 million bearing interest at 14.75%, which mature on May 10, 2024 (2)	$	50,451	$	49,807
Convertible promissory note dated October 6, 2021, which mature on October 6, 2024 and bear interest at a rate of 6% per annum	15,398		14,843
Unsecured convertible promissory note at $0.50 per share due December 18, 2023 at 12% per annum through May 2023 and 14% per annum through December 2023	3,843		3,554
Promissory note issued for the acquisition of NECC due January 7, 2023 at 10% per annum	—		519
Promissory note issued for the acquisition of Island due October 25, 2026 at 6% per annum	10,728		10,431
Secured promissory note due February 28, 2023 at 1.5% monthly interest for three months and 2% monthly interest for three months (1)	2,354		3,230
Unsecured promissory note due September 30, 2023, monthly interest payments at 12% per annum	1,730		1,730
Various	35		51
Total Notes Payable and Convertible Notes	$	84,539	$	84,165

(1) The Company is in default of the secured promissory note as of June 30, 3023. Management is renegotiating terms of the promissory note as of the date of these consolidated financial statements.

(2) The Company has executed an amendment to the LL Lending loan agreement on July 31, 2023 to extend the maturity date to May 1, 2026 and to reduce the interest rate to 12%. In accordance with the conditions specified in ASC 470-10-45-14, the related party loan is classified as a long term liability in the consolidated balance sheet as of June 30, 2023.

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Shareholders' Equity (Tables)

6 Months Ended

Jun. 30, 2023

Stockholders' Equity Note [Abstract]

Summary of Voting Shares Activity

Voting shares activity for the periods presented is summarized as follows:

	Class A Subordinate Voting Shares	Class C Multiple Voting Shares	Total
Balance, December 31, 2022	642,140,067	1,276,208	643,416,275
Share capital issuances	6,443,452	—	6,443,452
Balance, June 30, 2023	648,583,519	1,276,208	649,859,727

Summary of Share Capital and Equity

Series	June 30, 2023
Class A - Subordinate Voting Shares	648,583,519
Class C - Multiple Voting Shares	1,276,208
Total shares outstanding	649,859,727

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Warrants (Tables)

6 Months Ended

Jun. 30, 2023

Warrants and Rights Note Disclosure [Abstract]

Summary of Warrants Outstanding to Purchase Shares

A reconciliation of the beginning and ending balance of share purchase warrants outstanding is as follows:

	Number of Warrants	Weight-Average Exercise Price
Balance, December 31, 2022	6,352,278	$	0.82
Issued	625,000	$	0.17
Expired	(2,227,303)	$	0.67
Balance, June 30, 2023	4,749,975	$	0.79

Summary of Warrants Outstanding And Exercisable

As of June 30, 2023, the Company had the following warrants outstanding:

Warrants Outstanding		Exercise Price		Expiration Date
2,999,975		$	1.00	April 13, 2024
625,000	*	C$	0.80	October 6, 2024
500,000	*	C$	0.80	October 6, 2025
625,000		C$	0.23	May 10, 2027
4,749,975

*Represents warrants that were exercisable as of June 30, 2023.

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Share-Based Compensation (Tables)

6 Months Ended

Jun. 30, 2023

Share-Based Payment Arrangement [Abstract]

Summary of Stock Option Activity

The following table summarizes the Company’s stock option activity and related information:

	Number of Options	Weighted Average Price CAD$		Weighted Average Years
Balance, December 31, 2022	75,626,960	$	0.86	3.46
Granted	50,158,000	$	0.20	3.16
Forfeited/Expired	(51,481,360)	$	0.83	—
Balance, June 30, 2023	74,303,600	$	0.38	4.01

Summary of Stock Options Values using Black-Scholes Model with Key Assumptions

In determining the amount of share-based compensation during the periods ended June 30, 2023 and 2022, the Company used the Black-Scholes option pricing model to establish the fair value of options granted with the following key assumptions:

	Six Months Ended June 30,
	2023		2022
Risk-Free Interest Rate	4.05	%	2.42	%
Expected Life	3.17 years		5.00 years
Expected Annualized Volatility	85.32	%	71.30	%
Forfeiture rate	—	%	—	%
Expected Dividend Yield	—	%	—	%

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Income Taxes (Tables)

6 Months Ended

Jun. 30, 2023

Income Tax Disclosure [Abstract]

Schedule of Effective Income Tax Rate Reconciliation

The following table summarizes the Company's income tax expense:

	For the Three Months Ended June 30,				For the Six Months Ended June 30,
	2023		2022		2023		2022
Net loss before income taxes	$	(9,513)	$	(3,504)	$	(17,839)	$	(5,960)
Income tax expense	$	(1,951)	$	(3,042)	$	(5,017)	$	(6,480)

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Financial Instruments and Financial Risk Management (Tables)

6 Months Ended

Jun. 30, 2023

Investments, All Other Investments [Abstract]

Summary of Changes in Fair Value of the Derivative Liabilities Measured on a Recurring Basis

For the three and six months ended June 30, 2022, changes in fair value of the derivative liabilities measured on a recurring basis using significant unobservable inputs (Level 3) were as follows:

	Three Months Ended			Six Months Ended
		June 30, 2022
Balance, beginning of period		$	2,202	$	3,502
Change in fair value of derivative liability		(1,774)		(3,074)
Balance, end of period		$	428	$	428

Schedule of Gross Contractual Obligations

The Company has the following gross contractual obligations as of June 30, 2023, which are expected to be payable in the following respective periods:

	Less than 1 year		1 to 3 years		3 to 5 years		Greater than 5 years		Total
Accounts payable and accrued liabilities	$	27,793	$	1,733	$	—	$	—	$	29,526
Convertible notes, notes payable and accrued interest	7,946		65,865		10,728		—		84,539
Construction finance liability	—		16,000		—		—		16,000
Total	$	35,739	$	83,598	$	10,728	$	—	$	130,065

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Segment Information (Tables)

6 Months Ended

Jun. 30, 2023

Segment Reporting [Abstract]

Summary of Revenue By Type

The below table presents financial results of each segment for the three and six months ended June 30, 2023 and 2022, as well as total assets as of June 30, 2023 and December 31, 2022:

	Three Months Ended June 30,			Six Months Ended June 30,
	2023		2022	2023		2022
Net Revenues
THC Cannabis	$	30,433	28,195	$	60,593	$	53,978
CBD Wellness	263		244	479		509
Total Net Revenues	$	30,696	28,439	$	61,072	$	54,487
Net (Income) Loss Attributable to Shareholders
THC Cannabis	$	6,813	6,894	$	13,042	$	9,361
CBD Wellness	25		(104)	11		(119)
Corporate	4,631		(239)	9,813		3,208
Total Net Loss	$	11,469	6,551	$	22,866	$	12,450

	June 30, 2023		December 31, 2022
Assets
THC Cannabis	$	329,295	$	343,410
CBD Wellness	608		625
Corporate	603		697
Total Assets	$	330,506	$	344,732

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Nature of Operations (Details) $ in Thousands	3 Months Ended				6 Months Ended
	Jun. 30, 2023 USD ($)	Mar. 31, 2023 USD ($)	Jun. 30, 2022 USD ($)	Mar. 31, 2022 USD ($)	Jun. 30, 2023 USD ($) Dispensary Segment facility	Jun. 30, 2022 USD ($)
Nature Of Operations [Line Items]
Number of operating segments | Segment					2
Cash and cash equivalents	$ 5,400				$ 5,400
Working capital deficit	33,800				33,800
Net loss	$ 11,464	$ 11,392	$ 6,546	$ 5,894	$ 22,856	$ 12,440
THC Cannabis
Nature Of Operations [Line Items]
Number of dispensaries | Dispensary					6
Number of production facilities | facility					7

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Inventory - Summary of Inventories (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Inventory [Line Items]
Packaging and other non-finished goods	$ 27	$ 2,468
Work in process - manufactured and purchased extracts	3,276	3,635
Finished goods	10,658	8,845
Total inventory	25,365	25,592
Raw materials - unharvested cannabis
Inventory [Line Items]
Raw materials	4,032	2,688
Raw materials - harvested and purchased cannabis
Inventory [Line Items]
Raw materials	$ 7,372	$ 7,956

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Property, Plant, and Equipment - Summary of Property and Equipment and Related Depreciation (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 72,090	$ 70,223
Less: accumulated depreciation	(16,608)	(13,317)
Total property, plant, and equipment, net	55,482	56,906
Land
Property, Plant and Equipment [Line Items]
Property and equipment, gross	774	774
Buildings & improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	13,446	13,784
Construction in process
Property, Plant and Equipment [Line Items]
Property and equipment, gross	2,657	82
Furniture, equipment & other
Property, Plant and Equipment [Line Items]
Property and equipment, gross	18,916	19,296
Leasehold improvements
Property, Plant and Equipment [Line Items]
Property and equipment, gross	$ 36,297	$ 36,287

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Property, Plant, and Equipment - Additional Information (Details) - USD ($) $ in Millions		3 Months Ended		6 Months Ended
	Nov. 10, 2022	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Oct. 27, 2022
Property, Plant and Equipment [Line Items]
Depreciation expense		$ 1.8	$ 2.2	$ 3.5	$ 3.4
Depreciation in COGS		$ 1.6	$ 1.8	$ 3.1	$ 2.7
IL Grown Medicine, LLC
Property, Plant and Equipment [Line Items]
Tenant improvement allowance, increase	$ 19.9
Remaining lease term	20 years
Increase in base rent	$ 0.2
Increase in security deposit	$ 2.2
IL Grown Medicine, LLC | Minimum
Property, Plant and Equipment [Line Items]
Tenant improvement allowance, increase option						$ 15.0
IL Grown Medicine, LLC | Maximum
Property, Plant and Equipment [Line Items]
Tenant improvement allowance, increase option						$ 19.9

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Intangible Assets and Goodwill - Schedule of Indefinite-Lived and Finite-Lived Intangible Assets (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Finite-Lived Intangible Assets [Roll Forward]
Accumulated amortization, beginning balance	$ (9,606)
Amortization Expense	(1,396)
Accumulated amortization, ending balance	(11,002)
Total
Intangible assets, gross	40,533	$ 40,533
Licenses
Indefinite-Lived Intangible Assets [Roll Forward]
Beginning balance	25,662
Ending balance	25,662
Customer Relationships
Finite-Lived Intangible Assets [Roll Forward]
Beginning balance	2,900
Ending balance	2,900
Accumulated amortization, beginning balance	(2,393)
Amortization Expense	(290)
Accumulated amortization, ending balance	(2,683)
Non-Compete Agreements
Finite-Lived Intangible Assets [Roll Forward]
Beginning balance	249
Ending balance	249
Accumulated amortization, beginning balance	(249)
Amortization Expense	0
Accumulated amortization, ending balance	(249)
Know-How
Finite-Lived Intangible Assets [Roll Forward]
Beginning balance	9,700
Ending balance	9,700
Accumulated amortization, beginning balance	(6,628)
Amortization Expense	(970)
Accumulated amortization, ending balance	(7,598)
Tradenames and Trademarks
Finite-Lived Intangible Assets [Roll Forward]
Beginning balance	2,022
Ending balance	2,022
Accumulated amortization, beginning balance	(336)
Amortization Expense	(136)
Accumulated amortization, ending balance	$ (472)

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Intangible Assets and Goodwill - Summary of Goodwill (Details) $ in Thousands	6 Months Ended
	Jun. 30, 2023 USD ($)
Goodwill [Roll Forward]
Beginning balance	$ 53,955
Adjustment to Acquisitions	(29)
Ending balance	$ 53,926

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Intangible Assets and Goodwill - Additional Information (Details)	Jun. 30, 2023 USD ($)
THC Cannabis
Disclosure Of Intangible Assets And Goodwill [Line Items]
Accumulated impairment	$ 0
CBD Wellness
Disclosure Of Intangible Assets And Goodwill [Line Items]
Accumulated impairment	$ 13,400,000

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Asset Acquisitions - Additional Information (Details) - Euphoria, LLC - USD ($) $ in Millions		1 Months Ended	6 Months Ended
	Mar. 27, 2023	Apr. 30, 2023	Jun. 30, 2023
Asset Acquisition [Line Items]
Asset acquisition, percentage of voting interests acquired	100.00%
Total purchase price	$ 4.5
Payments for asset acquisitions			$ 0.3
Asset acquisition, stock consideration (in shares)		2,308,952
Asset acquisition, consideration transferred, equity interest value		$ 0.4
Breakup fee in case of buyer termination	3.5
Breakup fee in case of seller termination	$ 3.5

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Leases - Lease Income (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Leases [Abstract]
Operating leases	$ 2,401	$ 2,275	$ 4,785	$ 4,548
Direct financing leases	599	676	1,221	1,368
Total real estate income	$ 3,000	$ 2,951	$ 6,006	$ 5,916

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Leases - Summary of Underlying Assets Leased (Details) - USD ($) $ in Thousands	Jun. 30, 2023	Dec. 31, 2022
Leases [Line Items]
Right-of-use assets	$ 135,577	$ 138,451
Current portion of lease liability	3,638	4,479
Long-term portion of lease liability	137,530	136,185
Building
Leases [Line Items]
Right-of-use assets	35,518	36,596
Current portion of lease liability	1,655	1,568
Long-term portion of lease liability	$ 31,342	$ 31,904

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Leases - Summary of Changes in Lease Receivables (Details) - USD ($) $ in Thousands	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Sales-type and Direct Financing Leases, Lease Receivable [Roll Forward]
Balance, December 31, 2022	$ 9,421	$ 10,378
Interest	1,221	2,673
Lease payments received	(1,891)	(3,630)
Balance, June 30, 2023	8,751	9,421
Less current portion	(3,900)	(3,810)
Long-term lease receivables	$ 4,851	$ 5,611

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Notes Payable and Convertible Notes - Summary of Convertible Debt (Details)	Jul. 31, 2023	Jun. 30, 2023 USD ($) tranche $ / shares	Dec. 31, 2022 USD ($)
Debt Instrument [Line Items]
Debt, net amount		$ 84,539,000	$ 84,165,000
Secured promissory notes dated May 10, 2019, as subsequently amended, with a related party drawn in two tranches: (i) $35.0 million bearing interest at 12.75% and (ii) $10.0 million bearing interest at 14.75%, which mature on May 10, 2024
Debt Instrument [Line Items]
Debt instrument, number of tranches | tranche		2
Debt, net amount		$ 50,451,000	49,807,000
Secured Promissory Note, Tranche One
Debt Instrument [Line Items]
Debt instrument, face amount		$ 35,000,000.0
Interest rate, stated percentage		12.75%
Secured Promissory Note, Tranche Two
Debt Instrument [Line Items]
Debt instrument, face amount		$ 10,000,000.0
Interest rate, stated percentage		14.75%
Convertible promissory note dated October 6, 2021, which mature on October 6, 2024 and bear interest at a rate of 6% per annum
Debt Instrument [Line Items]
Interest rate, stated percentage		6.00%
Debt, net amount		$ 15,398,000	14,843,000
Unsecured convertible promissory note at $0.50 per share due December 18, 2023 at 12% per annum through May 2023 and 14% per annum through December 2023
Debt Instrument [Line Items]
Debt instrument, convertible, conversion price (in dollars per share) | $ / shares		$ 0.50
Debt, net amount		$ 3,843,000	3,554,000
Unsecured convertible promissory note at $0.50 per share due December 18, 2023 at 12% per annum through May 2023 and 14% per annum through December 2023 | Interest Rate, Period One
Debt Instrument [Line Items]
Interest rate, stated percentage		12.00%
Unsecured convertible promissory note at $0.50 per share due December 18, 2023 at 12% per annum through May 2023 and 14% per annum through December 2023 | Interest Rate, Period Two
Debt Instrument [Line Items]
Interest rate, stated percentage		14.00%
Promissory note issued for the acquisition of NECC due January 7, 2023 at 10% per annum
Debt Instrument [Line Items]
Interest rate, stated percentage		10.00%
Debt, net amount		$ 0	519,000
Promissory note issued for the acquisition of Island due October 25, 2026 at 6% per annum
Debt Instrument [Line Items]
Interest rate, stated percentage		6.00%
Debt, net amount		$ 10,728,000	10,431,000
Secured promissory note due February 28, 2023 at 1.5% monthly interest for three months and 2% monthly interest for three months
Debt Instrument [Line Items]
Debt, net amount		$ 2,354,000	3,230,000
Secured promissory note due February 28, 2023 at 1.5% monthly interest for three months and 2% monthly interest for three months | Interest Rate, Period One
Debt Instrument [Line Items]
Interest rate, stated percentage		1.50%
Secured promissory note due February 28, 2023 at 1.5% monthly interest for three months and 2% monthly interest for three months | Interest Rate, Period Two
Debt Instrument [Line Items]
Interest rate, stated percentage		2.00%
Unsecured promissory note due September 30, 2023, monthly interest payments at 12% per annum
Debt Instrument [Line Items]
Interest rate, stated percentage		12.00%
Debt, net amount		$ 1,730,000	1,730,000
Various
Debt Instrument [Line Items]
Debt, net amount		35,000	$ 51,000
LI Lending LLC Loan Agreement
Debt Instrument [Line Items]
Debt, net amount		$ 50,500,000
LI Lending LLC Loan Agreement | Subsequent Event
Debt Instrument [Line Items]
Interest rate, stated percentage	12.00%

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Notes Payable and Convertible Notes - LI Lending LLC Additional Information (Details) - LI Lending LLC Loan Agreement $ in Millions		1 Months Ended	3 Months Ended		6 Months Ended
	Apr. 30, 2020 USD ($)	Dec. 31, 2020	Jun. 30, 2023 USD ($) draw	Jun. 30, 2022 USD ($)	Jun. 30, 2023 USD ($) draw	Jun. 30, 2022 USD ($)	Jan. 01, 2022	May 10, 2019 USD ($)
Debt Instrument [Line Items]
Maximum borrowing capacity under credit facility								$ 50.0
Amount drawn			$ 43.0		$ 43.0
Number of draws made | draw			2		2
Percentage of exit fee of the principal balance					20.00%
Increase in interest rate		2.50%
Interest expense, debt			$ 1.9	$ 1.5	$ 3.7	$ 3.4
Repayments of debt			1.6	$ 1.0	3.2	$ 2.5
LI Lending Facility, Draw One
Debt Instrument [Line Items]
Amount drawn	$ 33.0		$ 35.0		$ 35.0
Interest rate			10.25%		10.25%
Debt prepayment	$ 2.0
Interest rate on initial loan amount							12.75%
LI Lending Facility, Draw Two
Debt Instrument [Line Items]
Amount drawn			$ 10.0		$ 10.0
Interest rate			12.25%		12.25%
Interest rate on final loan amount							14.75%

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Notes Payable and Convertible Notes - Convertible Notes Additional Information (Details) - USD ($) $ / shares in Units, $ in Thousands	6 Months Ended		12 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022	Oct. 06, 2021
Debt Instrument [Line Items]
Loan discount accretion expense	$ 185	$ 0
October 2021 Convertible Note | Convertible Note
Debt Instrument [Line Items]
Debt instrument, face amount				$ 15,000
Debt instrument, convertible, conversion price (in dollars per share)				$ 1.03
Interest rate, stated percentage				6.00%
Repayments of debt	1,100
Debt instrument, unamortized discount	$ 300		$ 400
Debt instrument, convertible, remaining discount amortization period	1 year 3 months		1 year 9 months
Interest expense, debt	$ 500	300
Loan discount accretion expense	$ 100	$ 100

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Shareholders' Equity - Summary of Voting Shares Activity (Details)	6 Months Ended
	Jun. 30, 2023 shares
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)	643,416,275
Share capital issuances (in shares)	6,443,452
Ending balance (in shares)	649,859,727
Class A Subordinate Voting Shares
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)	642,140,067
Share capital issuances (in shares)	6,443,452
Ending balance (in shares)	648,583,519
Class C Multiple Voting Shares
Increase (Decrease) in Stockholders' Equity [Roll Forward]
Beginning balance (in shares)	1,276,208
Share capital issuances (in shares)	0
Ending balance (in shares)	1,276,208

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Shareholders' Equity - Additional Information (Details)	6 Months Ended
	Jun. 30, 2023 vote
Class A Subordinate Voting Shares
Class Of Stock [Line Items]
Number of votes each shareholder is entitled to for each share	1
Class C Multiple Voting Shares
Class Of Stock [Line Items]
Number of votes each shareholder is entitled to for each share	800
Percentage of shares of one class held as a percentage of shares of another class	50.00%
Common stock, conversion ratio	1

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Shareholders' Equity - Summary of Share Capital and Equity (Details) - shares	Jun. 30, 2023	Dec. 31, 2022
Class Of Stock [Line Items]
Number of shares outstanding (in shares)	649,859,727	643,416,275
Class A Shares
Class Of Stock [Line Items]
Number of shares outstanding (in shares)	648,583,519
Class C Shares
Class Of Stock [Line Items]
Number of shares outstanding (in shares)	1,276,208

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Warrants - Summary of Warrants Outstanding to Purchase Shares (Details)	6 Months Ended
	Jun. 30, 2023 $ / shares shares
Number of Warrants
Number of warrants, beginning balance (in shares) | shares	6,352,278
Number of warrants, issued (in shares) | shares	625,000
Number of warrants, expired (in shares) | shares	(2,227,303)
Number of warrants, ending balance (in shares) | shares	4,749,975
Weight-Average Exercise Price
Weighted average exercise price, Beginning balance (in dollars per share) | $ / shares	$ 0.82
Weighted average exercise price, Issued (in dollars per share) | $ / shares	0.17
Weighted average exercise price, Expired (in dollars per share) | $ / shares	0.67
Weighted average exercise price, Ending balance (in dollars per share) | $ / shares	$ 0.79

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Warrants - Summary of Warrants Outstanding And Exercisable (Details)	Jun. 30, 2023 $ / shares shares	Jun. 30, 2023 $ / shares shares	Dec. 31, 2022 shares
Class Of Warrant Or Right [Line Items]
Warrants outstanding (in shares)	4,749,975	4,749,975	6,352,278
Exercise Price $1.00
Class Of Warrant Or Right [Line Items]
Warrants outstanding (in shares)	2,999,975	2,999,975
Warrants purchase price per share (in dollar/canadian dollar per share) | $ / shares	$ 1.00
Exercise Price $ 0.80
Class Of Warrant Or Right [Line Items]
Warrants outstanding (in shares)	625,000	625,000
Warrants purchase price per share (in dollar/canadian dollar per share) | $ / shares		$ 0.80
Exercise Price $ 0.80
Class Of Warrant Or Right [Line Items]
Warrants outstanding (in shares)	500,000	500,000
Warrants purchase price per share (in dollar/canadian dollar per share) | $ / shares		$ 0.80
Exercise Price $ 0.23
Class Of Warrant Or Right [Line Items]
Warrants outstanding (in shares)	625,000	625,000
Warrants purchase price per share (in dollar/canadian dollar per share) | $ / shares		$ 0.23

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Share-Based Compensation - Additional Information (Details) $ in Millions	3 Months Ended		6 Months Ended
	Jun. 30, 2023 USD ($)	Jun. 30, 2022 USD ($)	Jun. 30, 2023 USD ($) plan	Jun. 30, 2022 USD ($)	Jun. 30, 2023 $ / shares shares	Dec. 31, 2022 shares
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Number of equity incentive plans | plan			2
Exercisable options (in shares) | shares					26,859,765
Outstanding options (in shares) | shares					74,303,600	75,626,960
Minimum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Strike price (in dollar per share) | $ / shares					$ 0.10
Maximum
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Strike price (in dollar per share) | $ / shares					$ 1.63
Equity Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Recognized share-based compensation expense | $	$ 0.2	$ 0.4	$ 1.2	$ 1.4
Class A Stock Options | Equity Incentive Plan
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Maximum number of stock options available for grant, percentage of number of outstanding shares			10.00%
Minimum exercise price of stock options issued, percentage of fair market value of shares on grant date			100.00%
Awards expiration period			10 years

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Share-Based Compensation - Summary of Stock Option Activity (Details) - $ / shares	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Number of Options
Number of options, beginning balance (in shares)	75,626,960
Number of options, granted (in shares)	50,158,000
Number of options, forfeited/ expired (in shares)	(51,481,360)
Number of options, ending balance (in shares)	74,303,600	75,626,960
Weighted Average Price CAD$
Weighted Average Price, Beginning Balance (in dollar per shares)	$ 0.86
Weighted Average Price, Granted (in dollar per shares)	0.20
Weighted Average Price, Forfeited/ Expired (in dollar per shares)	0.83
Weighted Average Price, Ending Balance (in dollar per shares)	$ 0.38	$ 0.86
Weighted Average Years
Weighted average years	4 years 3 days	3 years 5 months 15 days
Weighted average years, granted	3 years 1 month 28 days

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Share-Based Compensation - Summary of Stock Options Values using Black-Scholes Model with Key Assumptions (Details) - Share-Based Payment Arrangement, Option	6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022
Share Based Compensation Arrangement By Share Based Payment Award [Line Items]
Risk-Free Interest Rate	4.05%	2.42%
Expected Life	3 years 2 months 1 day	5 years
Expected Annualized Volatility	85.32%	71.30%
Forfeiture rate	0.00%	0.00%
Expected Dividend Yield	0.00%	0.00%

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Income Taxes - Summary of Income Tax Expense and Effective Tax Rates (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022
Income Tax Disclosure [Abstract]
Net loss before income taxes	$ (9,513)	$ (3,504)	$ (17,839)	$ (5,960)
Income tax expense	$ (1,951)	$ (3,042)	$ (5,017)	$ (6,480)

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Related Parties (Details) - USD ($) $ in Thousands	6 Months Ended
	Jun. 30, 2023	Dec. 31, 2022	May 10, 2019
Related Party Transaction [Line Items]
Debt, net amount	$ 84,539	$ 84,165
Chief Executive Officer | LI Lending LLC Loan Agreement
Related Party Transaction [Line Items]
Percentage of ownership interest held	14.28%
Director | LI Lending LLC Loan Agreement
Related Party Transaction [Line Items]
Percentage of ownership interest held	14.28%
LI Lending LLC Note, as Amended
Related Party Transaction [Line Items]
Maximum borrowing capacity under credit facility			$ 50,000
LI Lending LLC Loan Agreement
Related Party Transaction [Line Items]
Maximum borrowing capacity under credit facility			$ 50,000
Long-term line of credit	$ 43,000
Line of credit facility, exit fee	9,000
Amount due at maturity	54,000
Long-term debt, gross	50,600
Debt instrument, unamortized discount	200
Debt, net amount	50,500
Interest payable	$ 7,600

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Contingencies - Additional Information (Details) $ in Thousands	Sep. 12, 2022 USD ($) installment	Jan. 26, 2022 USD ($)
Commitments and Contingencies Disclosure [Abstract]
Loss contingency damages sought value		$ 19,400
Loss contingency benefit value		$ 129,000
Litigation settlement, amount	$ 250
Litigation settlement, number of installments | installment	5

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Financial Instruments and Financial Risk Management - Summary of Changes in Fair Value of the Derivative Liabilities Measured on a Recurring Basis (Details) - USD ($) $ in Thousands	3 Months Ended	6 Months Ended
	Jun. 30, 2022	Jun. 30, 2022
Fair Value, Liabilities Measured on Recurring Basis, Unobservable Input Reconciliation, Calculation [Roll Forward]
Balance, beginning of period	$ 2,202	$ 3,502
Change in fair value of derivative liability	(1,774)	(3,074)
Balance, end of period	$ 428	$ 428

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Financial Instruments and Financial Risk Management - Additional information (Details) - USD ($) $ in Millions	6 Months Ended	12 Months Ended
	Jun. 30, 2023	Dec. 31, 2022
Investments, All Other Investments [Abstract]
Cash, uninsured amount	$ 1.6	$ 10.1
Maximum credit exposure	$ 19.1	$ 16.9

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Financial Instruments and Financial Risk Management - Schedule of Gross Contractual Obligations (Details) $ in Thousands	Jun. 30, 2023 USD ($)
Financial Instruments [Line Items]
Less than 1 year	$ 35,739
1 to 3 years	83,598
3 to 5 years	10,728
Greater than 5 years	0
Total	130,065
Accounts payable and accrued liabilities
Financial Instruments [Line Items]
Less than 1 year	27,793
1 to 3 years	1,733
3 to 5 years	0
Greater than 5 years	0
Total	29,526
Convertible notes, notes payable and accrued interest
Financial Instruments [Line Items]
Less than 1 year	7,946
1 to 3 years	65,865
3 to 5 years	10,728
Greater than 5 years	0
Total	84,539
Construction finance liability
Financial Instruments [Line Items]
Less than 1 year	0
1 to 3 years	16,000
3 to 5 years	0
Greater than 5 years	0
Total	$ 16,000

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Segment Information - Additional Information (Details)	6 Months Ended
	Jun. 30, 2023 Segment
Segment Reporting [Abstract]
Number of reportable segments	2

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Segment Information - Summary of Revenues By Type (Details) - USD ($) $ in Thousands	3 Months Ended		6 Months Ended
	Jun. 30, 2023	Jun. 30, 2022	Jun. 30, 2023	Jun. 30, 2022	Dec. 31, 2022
Segment Reporting Information [Line Items]
Total Net Revenues	$ 30,696	$ 28,439	$ 61,072	$ 54,487
Total Net Loss	11,469	6,551	22,866	12,450
Total Assets	330,506		330,506		$ 344,732
Operating Segments | THC Cannabis
Segment Reporting Information [Line Items]
Total Net Revenues	30,433	28,195	60,593	53,978
Total Net Loss	6,813	6,894	13,042	9,361
Total Assets	329,295		329,295		343,410
Operating Segments | CBD Wellness
Segment Reporting Information [Line Items]
Total Net Revenues	263	244	479	509
Total Net Loss	25	(104)	11	(119)
Total Assets	608		608		625
Corporate
Segment Reporting Information [Line Items]
Total Net Loss	4,631	$ (239)	9,813	$ 3,208
Total Assets	$ 603		$ 603		$ 697

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Subsequent Events (Details) - Subsequent Event $ / shares in Units, $ in Thousands		1 Months Ended
	Jul. 27, 2023 $ / shares shares	Jul. 31, 2023 USD ($) $ / shares shares	Jul. 07, 2023 USD ($)
Subsequent Event [Line Items]
Modification of lease agreement, portion of security deposit to pay monthly base rent, percentage			50.00%
Modification of lease agreement, deferred pro rata payments as percentage of aggregate amount			0.0833
Modification of lease agreement, portion of security deposit to pay monthly base rent, period			4 months
Modification of lease agreement, defer payment amount, increase in security deposit to be funded			$ 2,200
Modification of lease agreement, deferred pro rata payments, period			12 months
Debt extension fee		$ 520
Permitted secured debt senior to the Loan up to US$8 million
Subsequent Event [Line Items]
Debt refinance bona fide offer, permitted secured debt senior to the loan amount		$ 8,000
Percentage of warrant exercised by cashless exercise		75.00%
Permitted secured debt senior to the Loan up to US$10 million
Subsequent Event [Line Items]
Debt refinance bona fide offer, permitted secured debt senior to the loan amount		$ 10,000
Percentage of warrant exercised by cashless exercise		100.00%
Restricted Stock Units (RSUs)
Subsequent Event [Line Items]
Awards issued (in shares) | shares	9,853,830
Awards issue price (in CAD per share) | $ / shares	$ 0.165
Awards expiration period	18 months
Warrants Exercisable Through May1, 2026
Subsequent Event [Line Items]
Warrant issuance amount as percentage of loan balance		33.00%
Warrant issuance amount		$ 17,060
Number of securities called by each warrant (in shares) | shares		1
Warrants exercise price (in dollar per share) | $ / shares		$ 0.17
Warrant coverage percentage of loan balance upon exercise of option		30.00%
LI Lending LLC Loan Agreement
Subsequent Event [Line Items]
Interest rate, stated percentage		12.00%
Debt refinance bona fide offer, period from amendment date		6 months