Founded in 2017 and headquartered in Toronto, Fire & Flower Holdings is an independent retailer of cannabis products and accessories through its 83 locations in Alberta, Manitoba, Ontario, Yukon and Saskatchewan, where the company additionally engages in the wholesale of regulated cannabis products and accessories.
While the cannabis retailer isn’t turning any profit yet, it is poised for strong growth in the coming years.
Fire & Flower Revenue Increased in 2021
On April 26, Fire & Flower released its fourth-quarter and year-end financial results for the 2021 fiscal year. Consolidated revenue for fiscal 2021 increased 37% to a record $175.5 million. Fiscal 2021 consolidated adjusted EBITDA was $5.1 million, in line with the prior year.
Cannabis consumption technology platform Hifyre™ generated a record $14.3 million for the fiscal year, a 129% year-over-year increase. Meanwhile, retail revenue increased 29% to a record $130.8 million in fiscal 2021, with over 100 retail stores open and operating as of January 29, 2022.
Consolidated revenue and adjusted EBITDA for the fourth quarter of fiscal 2021 were $42.7 million and negative $2.4 million, respectively.
Net loss was $19.5 million for the quarter and $63.6 million for the year ended January 29, 2022, compared with a net loss of $11.4 million for the comparable quarter and $79 million for the year ended January 30, 2021.
Hifyre™ revenue for the fourth quarter generated a record $4.1 million, representing a 7% sequential increase quarter-over-quarter. Fire & Flower acquired Pineapple Express Delivery during the quarter, PotGuide, and Wikileaf with the intent to expand logistics capabilities and web traffic as part of a lightweight e-commerce strategy.
Subsequent to the quarter, Fire & Flower completed one of the final steps in preparation for a NASDAQ listing, including the filing of a 40-F registration statement and DTC eligibility for common stock.
On April 20th, the company announced its intention to exercise Series B warrants through its strategic partner Alimentation Couche-Tard, owner of Circle K convenience stores, resulting in after-exercise ownership of approximately 35%.
In addition, Fire & Flower announced the expansion of the industry-first Spark Select program, a highly competitive product and pricing strategy to attract a broader customer base, in a proactive response to the rapidly growing value-driven cannabis consumer segment.
Fire & Flower opened 32 stores during the year, with 105 total stores open and in operation at the end of the year.
"Fiscal 2021 has been a year of significant advancement and growth for Fire & Flower and we have delivered meaningful year-over-year revenue growth. The Hifyre Digital Platform has exhibited impressive 129% annual and 7% quarterly sequential growth and is the core value proposition of our business. This year, we have refined our vision to, 'Deliver Cannabis to the World' positioning our business as a consumer e-commerce platform, supported by a distributed retail network enhanced by our Circle K store co-location program. This position is enabled through the acquisition of Pineapple Express Delivery, one of the largest cannabis delivery platforms in the world," said Trevor Fencott, Chief Executive Officer of Fire & Flower.
"In the fourth quarter of fiscal 2021, while we have continued to see growth in our Hifyre digital business segment, we saw a decline in our retail revenue due to increased competitive pressures within the Canadian cannabis retail landscape. We announced a further competitive price and product strategy aimed at continuing to build an expanded consumer base. As we look out to fiscal 2022, we anticipate continued growth in our digital business and driving further revenue opportunities in the U.S. We look forward to greater continued alignment with our partners at Alimentation Couche-Tard through the retail store co-location program which will be important in delivering a clear, convenience-oriented value proposition to our customers in brick-and-mortar retail and e-commerce," added Fencott.
ATB Capital Cuts Target Price on Fire & Flower
Following the release of its Q4 and 2021 full-year financial results, Fire & Flower got a big target cut from ATB Capital Markets. In an update to clients, Frederico Gomes maintained an “Outperform” rating on FAF but slashed his target price from $15 per share to $9 per share for a one-year projected return of 150%.
Gomes has lowered a number of his financial projections due to lower store sales in Canada, a revised store opening timeline, and a more conservative growth outlook in the wholesale and digital segments.
The analyst lowered his 2022 revenue projection from $203.5 million to $189.6 million for a potential year-over-year increase of 8%. Looking ahead to 2023, Gomes made a minimal adjustment to reduce his estimate from $275 million to $274.7 million, suggesting a year-over-year increase of 44.9%.
Competitive Pressures to Ease Soon
According to Gomes, competitive pressures in the retail sector will start to ease in H2/FY22 leading to a gradual pickup in sales per store and margins. He expects FAF to continue opening new stores and forecasts the company to end FY2022 with 115 stores operating in Canada. He believes the pace of openings could accelerate as the Circle-K co-location program picks up steam.
“Our sector thesis is that consolidation will occur over the next 12-18 months and larger retailers stand to benefit. FAF is well-positioned due to its scale, digital capabilities, and partnership with Alimentation Couche-Tard. However, we are trimming our estimates to reflect challenging market conditions and the dilutive impact of ATD’s warrants,” he said.
The Cannabis Company Expands Delivery Services
Fire & Flower recently launched Firebird Delivery in Toronto, Kingston, London, Ottawa, Oshawa, Guelph and North Bay, Ontario. The expansion of the company's current delivery program will leverage CannDeliv™ routing technology and the logistics expertise of Pineapple Express Delivery to power strategic execution through Fire & Flower's retail network with windows same-day delivery and a new one-hour estimated "rush delivery" option. Firebird Delivery will soon be launched in Alberta, Manitoba, Saskatchewan and other markets.
On May 10, Fire & Flower announced that its wholly-owned delivery and logistics subsidiary, Pineapple Express Delivery Inc. has signed a deal with Zonetail Inc. to provide cannabis delivery services to users of the Zonetail residential platforms. Zonetail’s high-rise residential platforms connect residents of condos and apartments to the amenities and services of their building, through the convenience of their mobile device. A marketplace highlighting the businesses and services that residents need is included on the Zonetail platform.
Fire & Flower’s share price has fallen off by 35% since the start of 2022, unable to sustain early momentum after reaching a 2022 high of $6.04 on March 25. The stock took a tumble since then, though it has rebounded slightly after closing on May 11 at a 2022 low point of $2.52.
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