Best-in-class cannabis retailing and an alliance with a major convenience store operator should give this company an edge as it targets opening 135 stores.
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FIRE & FLOWER HOLDINGS CORP, $1.25, symbol FAF on the Toronto exchange (Shares outstanding: 119.3 million; Market cap: $149.1 million; TSI Cannabis Quality Rating (CQR): ; www.fireandflower.com), is a Canadian-based licensed cannabis and accessories retailer in Alberta, Saskatchewan, Manitoba and the Yukon. It’s also a consultant and licensor to Fire & Flower-branded retail locations in the province of Ontario.
The company aims to offer what it believes is education-focused, best-in-class retailing while its Hifyre digital platform connects consumers with cannabis products.
The company aims to continue to expand by acquiring small retailers. It recently agreed to pay Cannabis Cowboy Inc. $5.7 million for eight proposed cannabis retail stores under development in the province of Alberta. Those locations are at various stages of development, including two fully built stores and a third requiring minimal construction to be completed prior to licensing.
Following the acquisition, Fire & Flower will oversee the remaining construction, and will work to obtain cannabis retail store licences for each location. All the stores, other than one location, have received municipal development permits for a cannabis retail sales use. The one exception is in Okotoks, Alberta, and should receive a municipal development permit shortly following the sale to Fire & Flower.
Meanwhile, the company just completed a big investment from Alimentation Couche-Tard (symbol ATD.B on Toronto). That company operates 12,661 convenience stores across North America and Europe.
The investment includes an 8% unsecured convertible debenture worth $26.0 million. That debt is convertible into 24.3 million shares of Fire & Flower at $1.07 per share. If Alimentation Couche-Tard does in fact opt to convert the debentures, it will own 9.9% of Fire & Flower.
Couche-Tard also received warrants, which if exercised will bring its interest in Fire & Flower to 50.1%r. It also now has the right to appoint a member to Fire & Flower’s board of directors.
Apart from its overall retail experience, Couche-Tard also brings some expertise in cannabis retailing to Fire & Flower. Earlier this year, it, together with Canopy Growth (symbol WEED on Toronto), entered into a trademark licensing agreement with one winner of the Ontario Alcohol and Gaming Commission’s first 25 cannabis retailer licences.
The lottery winner began operating a “Tweed” branded retail store in London, Ontario, in April 2019. That licensee has full ownership and control over the London store, but will sell Canopy Growth cannabis and use Alimentation Couche-Tard’s retailing expertise.
For the quarter ended May 4, 2019, Fire & Flower reported revenue of $9.5 million, compared to no sales a year earlier. Losses rose to $17.1 million, or $0.17 a share, from $2.5 million, or $0.05.
The company’s balance sheet is sound: on May 4, 2019, it held cash of $25.4 million and had low debt.
Fire & Flower aims to have 135 stores open by the end of 2021. Plus, through the strategic investment of Alimentation Couche-Tard, it has set its sights on global expansion as new cannabis markets emerge.
Meanwhile, though, it faces aggressive rivals in the Canadian market. That fierce competition could eventually result in an oversupplied retail market and put downward pressure on cannabis prices.
Fire & Flower Holdings has a 2.5-Leaf Cannabis Quality Rating (CQR). The stock is a speculative buy for aggressive investors who want exposure to the marijuana industry.
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