Exclusive Interview with Fire & Flower CEO Trevor Fencott
Fire & Flower (TSX: FAF) (OTCQX: FFLWF) is a tech-forward retailer, according to CEO Trevor Fencott. The cannabis company has branded retail stores, as well as the digital Hifyre platform. Fencott last spoke with New Cannabis Ventures at the beginning of 2021, and he checked in to discuss continued expansion in Canada, strategic growth in the U.S. market and preparing for more competition. The audio of the entire conversation is available at the end of this written summary.
The company has made a number of changes to its leadership team since the beginning of the year. Matthew Hollingshead, President of the wholly owned subsidiary Hifyre, stepped into the additional role of Chief Innovation Officer. This role will serve an important purpose as the company continues to create enhanced digital products, according to Fencott.
Nadia Vattovaz, previously the CFO and Executive Vice President of Operations, stepped into the COO role, while Judy Adam joined the company as CFO. Adam brings years of public company experience. She helped to grow Corus Entertainment to $1.7 billion, according to Fencott.
Retail and Wholesale in Canada
Fire & Flower has 86 corporate-owned stores in Canada, and it continues to add to that number on a monthly and quarterly basis. In addition to its retail footprint, wholesale plays an important role in the company’s Canadian operations. It continues to see strong growth with Open Fields, its wholesale business.
The Open Fields model, built in Saskatchewan, makes U.S. markets like California, Oregon and Colorado attractive, according to Fencott. He expects what the company has learned through Open Fields to pay dividends as the company enters the U.S. market.
Fire & Flower has been engaged in the U.S. market through its partnership with the point of sale cannabis software company Cova. The company has strengthened its technology presence in the U.S. through a strategic partnership with BDSA. Through this partnership, Hifyre can offer BDSA data from Canada and U.S. to its customers on both sides of the border.
The company is also bolstering its U.S. strategy through a licensing partnership with American Acres, which acquires dispensaries and converts them to branded stores. Fire & Flower has licensed American Acres its complete suite of technology, IP and standard operating procedures. Through this partnership, the first Fire & Flower branded store opens in Palm Springs this year.
The deal also gives Fire & Flower the option to acquire American Acres at a significant discount when cannabis becomes federally legal in the United States or when the exchanges permit American cannabis operators to list.
The progress Fire & Flower has made in the U.S. is a part of its three-pronged approach to that market. The company’s first step was to move into the market with technology, which is largely borderless, according to Fencott. A branded market entry is the second part of the strategy, which the company is accomplishing via its American Acres partnership. These steps will prepare the company for the third part of the strategy: opening corporate-owned stores in the U.S. when possible.
Humble & Fume
Fire & Flower entered into an agreement to sell Humble & Fume accessories to consumers in North America. Fire & Flowers customers will be able to access the more than 5,000 SKUs available through the Humble & Fume portfolio. This kind of asset-light partnership helps to provide a higher level of service to customers, according to Fencott.
The Fire & Flower Balance Sheet
Fire & Flower currently has a strong balance sheet, according to Fencott, bolstered by the company’s partnership with Alimentation Couche-Tard. Couche-Tard recently exercised warrants and upped its ownership stake in the company to 22.4 percent. Through that partnership, Fire & Flower continues to expand its relationship with Circle K stores.
Right now, the company has very little debt on its balance sheet, according to Fencott. The company has a bank line with ATB Financial, and it is open to looking at other non-dilutive bank financing options. It is interested in potentially accessing debt to do acquisitions and continue growing the business.
Any retail deals that would be immediately accretive are always of interest to Fire & Flower. The team will also consider potential acquisitions on the technology side of the business as well. The company views Hifyre as its R&D arm. Fire & Flower will continue to invest in innovating and creating new products that it can commercialize through this part of its business.
Same-store sales are an important metric for the company, and the company announced an 18 percent increase in same-store sales with its Q1 results. Fire & Flower tracks same-store sales growth for retail locations operating for a full year. The bulk of the locations that demonstrated 18 percent same-store growth are located in Alberta, a hyper-competitive market, according to Fencott.
The Canadian cannabis industry is still emerging from the COVID-19 pandemic in the first half of this year. Restrictions are beginning to lift in Ontario, a major market for Fire & Flower. Fencott expects to see more and more competition in the Canadian market, but he sees the company as prepared to compete for consumer dollars and believes it could also open the door to interesting M&A opportunities.
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