Exclusive Interview with Fire & Flower CEO Trevor Fencott
Fire & Flower (TSX: FAF) (OTCQX: FFLWF) is not a traditional brick-and-mortar cannabis retailer. While the company does have physical stores, it is evolving to become more of a technology platform, according to CEO Trevor Fencott. He last spoke with New Cannabis Ventures in July 2021 and reconnected to discuss its recent technology acquisitions and evolving strategy. The audio of the entire conversation is available at the end of this written summary.
As Fire & Flower becomes more of a cannabis consumer technology platform, its leadership team has evolved. For example, the company has brought on tech talent with a number of its tech-focused acquisitions.
The company is also in the process of listing on the NASDAQ, historically a technology exchange, according to Fencott. He noted other technology-focused cannabis companies opting to list on that exchange and how the NASDAQ will be a natural fit for Fire & Flower.
A Fully Integrated Tech Stack
Technology company Hifyre was Fire & Flower’s first acquisition, and now, it has built a fully integrated tech stack that incorporates customer acquisition, loyalty, ecommerce and delivery. In 2021, the company acquired PotGuide and Wikileaf. Fencott compared this layer of the company’s technology stack to Weedmaps or Leafly. Fire & Flower developed its own loyalty program: Spark Perks, which Fencott considers analogous to springbig. At the beginning of this year, the company completed the acquisition of Pineapple Express Delivery, which gives it the capability to complete more than 40,000 deliveries per month.
Other companies compete with parts of Fire & Flower’s tech stack, but they don’t have all of the company’s digital capabilities, according to Fencott. Similarly, cannabis retail companies do not have the tech stack that Fire & Flower does.
Retail Footprint and Strategy
Fire & Flower currently has 103 retail stores in Canada, and it plans to expand its retail footprint through an asset-light approach. The company has an established relationship with convenience store company Alimentation Couche-Tard. Fire & Flower is looking to leverage this relationship to secure beneficial leases as it expands. It also has a co-located model with Circle K stores. That program began with just two stores, and it was so successful that is expanding across multiple Canadian provinces, according to Fencott.
When it comes to expansion via M&A, the Fire & Flower team will keep an open mind, but it will be discerning. It likely does not need to add to its tech stack. Any potential deal would need to be immediately accretive and of strategic value.
In January, Fire & Flower announced an amendment to its U.S. strategic licensing agreement and acquisition option. The company is looking to its partner Fire & Flower US to expand in an asset-light way in the United States. The company is extracting high-margin, compliant revenue from its technology licensing and laying the groundwork for federal legalization in the United States. When that occurs, the company will be able to quickly ingest a good platform, according to Fencott.
At the end of 2021, Fire & Flower secured a $30 million credit line from Couche-Tard, another step forward with its strategic partner. In addition to co-locating stores with Circle K, Fire & Flower gift cards are available for purchase at more than 300 Circle K locations in Canada.
The company also has three tranches of funding with Couche-Tard. The series A warrants have all been discharged, and there are 8.3 million B warrants that are exercisable up until September. After that, the C warrants will give Couche-Tard up to 50.1 percent of the company, exercisable until next June, according to Fencott. Fire & Flower continues to be bullish on its ability to raise capital with its strategic partner.
The company also has the ability to seek outside funding, which Couche-Tard would be obliged to participate in, according to Fencott. Fire & Flower as a guaranteed lead investor should it choose to go to the capital markets.
Beyond that close partnership with Couche-Tard, the Fire & Flower team takes an individualized approach to building relationships with its investors. The company wants to clearly communicate its story as a tech platform to its investors.
Growth in 2022
Fencott expects 2022 to be a challenging year for cannabis retail in Canada, but Fire & Flower is prepared for the challenge because of its digital strategy. The company has doubled the revenue from its digital segment every year for the past three years, and it expects that trend to continue, according to Fencott. The company has reports revenue separately for each of its three business segments: retail, wholesale and digital so investors can see the growth of its high-margin digital business.
Continuing federal regulatory uncertainty in the United States will be a challenge for the cannabis industry, according to Fencott. But once again, Fire & Flower’s digital strategy comes into play. It can work with Fire & Flower US to extract high-margin digital revenue while it waits for the regulatory landscape to evolve.
New Cannabis Ventures provides a sponsored Investor Dashboard for Fire & Flower. Listen to the entire interview: