4Front Ventures (FFNT) (FFNT.F -4.44%) is a small-cap marijuana company that rarely shows up on investors' watchlists. However small it may be, the company has handsomely awarded its shareholders. Over the past year, its shares have soared 224%. It did far better than the sector benchmark, the Horizons Marijuana Life Sciences ETF (HMMJ 3.00%), which gained 45% during the same period.

The company is rapidly gaining traction in Washington. It has become the top player in the state's edibles market and ranks No. 2 by total market share. Here's why there's still room for the stock to grow

Two people stand at the counter of a marijuana boutique.

Image source: Getty Images.

A strong cannabis operation

4Front Ventures' sales grew by an astonishing 203% last year to $57.6 million. Simultaneously, it recognized $5.9 million in operating income less noncash expenses (EBITDA) and began generating positive cash flow by August. 

This year, the company expects to take those numbers higher. Its guidance calls for $175 million in revenue (including those from pending acquisitions) and $45 million in EBITDA. A big driver behind its growth is its efficiency in harvesting marijuana plants.

Right now, the company's compact indoor growing facilities in Washington yield 400 grams of cannabis per square foot. That is almost 80% higher than the sector average. 4Front Ventures sells 25 brands and 2,800 products in its dispensaries, as well as a wholesale segment to over 260 locations in Washington. Unlike other cannabis growers, 4Front Ventures manufacturers hemp-derived CBD/THC patches. These can be applied anywhere to the body for pain relief, and have been gaining in popularity.

Ample diversification 

Recently, it entered the California market and plans to open a second dispensary in Illinois. But 4Front Ventures' most prized possession outside of Washington is its Om of Medicine dispensary in Ann Arbor, Michigan. The store is strategically located on Main Street and is within half a mile from the University of Michigan.

Om of Medicine began recreational cannabis sales in December 2019. The store launched marijuana delivery in its last Q2, and quickly achieved 1,000 deliveries in Q3. 4Front's efforts in Ann Arbor will help it capitalize off the budding Michigan market, which is expected to grow from a $803 million valuation in 2020 to $2.5 billion by 2024.

Can you count on 4Front Ventures?

Perhaps the best part about the company is that it has one of the highest rates of insider ownership in the industry. Approximately 40% of its shares outstanding are held by management or founders. This indicates that the executive team has a very high degree of confidence in its growth strategy.

A combination of high yield, excellent product selection, and solid geographical exposure means that 4Front Ventures' growth is highly sustainable. However, investors should keep in mind that the company has only $18.9 million in cash and $47.3 million in long-term debt on hand, so it may need to sell stock to raise some funds in the future.

At the end of the day, 4Front Ventures stock is only trading at around five times forward sales. That's a very reasonable price to pay for a cannabis company that is more than doubling its revenue year over year in an industry poised for incredible growth over the next decade.