Earnings Call Transcript - Fire & Flower Holdings Corp. (FFLWF) CEO Trevor Fencott on Q4 2021 Results -
Apr. 26, 2022 1:23 PM ET
Fire & Flower Holdings Corp. (FFLWF)
Fire & Flower Holdings Corp. (OTCQX:FFLWF) Q4 2021 Earnings Conference Call April 26, 2022 8:30 AM ET
Company Participants
Trevor Fencott - CEO
Judy Adam - CFO
Conference Call Participants
Frederico Gomes - ATB Capital
Aaron Grey - Alliance Global Partners
Alex Gelmych - Echelon Capital Markets
Jason Sandberg - PI Financial
Justin Keywood - Stifel GMP
Operator
Hello and welcome to the Fire & Flower Fourth Quarter Financial and Operational Results. My name is Katie, and I will be coordinating your call today [Operator Instructions].
I'll now hand over to your host, Trevor Fencott, the Chief Executive Officer of Fire & Flower to begin. Trevor, please go ahead.
Trevor Fencott
Thank you very much, and thank you for joining me today for our fourth quarter and fiscal year 2021 conference call. I'm Trevor Fencott, President and CEO of Fire & Flower. And joining me today is Judy Adam, our CFO. Earlier today, our company published its operational and financial results for the fourth quarter ended January 29, 2022, and the results are available on the company's Web site and on SEDAR. Prior to beginning our call, I'm going to admit to slide here, I'll direct listeners to the cautionary statement regarding forward-looking information published on the news release for the fourth quarter and fiscal year 2021, as well as our company's filings on SEDAR. Today, we'll driving a commentary on the fiscal fourth quarter of 2021 financial results along with an update on the continued execution of our asset light technology driven business model that's driving our financial growth and expansion of our cannabis retail footprint across North America. We'll then conclude with the moderated question-and-answer period from equity research analysts that cover Fire & Flower.
So our fiscal 2021 highlights. To begin fiscal 2021 was a year of significant growth and advancement across the company. Results continue to demonstrate the unique value of the Hifyre consumer technology platform and progress across all business segments. Total consolidated revenue across the segments of digital, retail and wholesale increased 37% to a record of $175.5 million for the fiscal year. Given retail headwinds that occurred in the fourth quarter of the year, adjusted EBITDA was essentially flat to the prior year at about 5.1%. Driving the growth in the business with a significant increase in year-over-year revenue in our Hifyre consumer technology platform segment with an impressive 129% increase year-over-year. In this segment alone, the company generated $14.3 million in revenue at an extremely high margin. Despite an increase in retail store licenses in all jurisdictions, which Judy will speak to in her comments, our retail business segment increased revenue by 29% to $130.8 million for the fiscal year. At the end of our fiscal year, Fire & Flower represented one of the largest cannabis retail store networks in Canada with more than 100 stores opened and operating.
One of the most exciting progressions for the fiscal year was driven through a number of our acquisitions at our e-commerce and passive light business unit. We refined our vision to a consumer retail and technology platform with the mission to deliver cannabis to the world. Executing upon this vision, we added cannabis consumer web traffic into our platform due to acquisition of PotGuide and Wikileaf at the top of our funnel, which also marked the opening of our Hifyre office in Denver, Colorado. We also acquired the largest cannabis delivery business in Canada, Pineapple Express, which now delivers more than 40,000 packages per month across many Canadian provinces. Pineapple Express provides the necessary technology and scale to cost effectively deliver cannabis packages direct to consumers in a manner that those shopping in the legacy markets are accustomed to. In addition, this business provide us with enhanced operating leverage through offering medical delivery services to our existing licensed producer partners, as well as logistics within the cannabis industry. The results and progress that we've achieved this year uniquely position Fire & Flower to compete in the evolving Canadian market and advance our strategy in the United States and international markets.
So for fourth quarter 2021 and those recent highlights. During the fourth quarter of fiscal 2021, we continue to see headwinds driven by both a significant increase in the number of licensed stores as well as competitive price pressures within the market. We've taken steps to address competitive challenges by playing to our strengths on ensuring that we focus on the long term sustainability of the business. For the quarter, we saw modest decrease in revenue to $42.7 million with a negative adjusted EBITDA of $2.4 million. Despite the consolidated performance, our highest margin most growth oriented and most scalable business segment, the Hifyre consumer technology platform, reported a record quarterly revenue of $4.1 million, again, an extremely high margin. This represents a sequential quarter-over-quarter growth of 7% over the past record quarter for this business segment. We continue to focus on innovation, growth and commercialization within this business segment to propel the company forward.
One of the questions that we get most from most investors is the timing of our NASDAQ application. Recently, we completed the filing of our 40-F registration and DTC eligibility, which are amongst the final stages of our NASDAQ application. We understand that investors are eagerly anticipating the NASDAQ listing, especially if your position as a technology driven consumer cannabis platform, which is the natural fit for listing on the NASDAQ exchange. We believe the timeline for our listing is measured in weeks at this point and we're excited to be listed on this exchange, which will bring greater visibility to US based investors who are already interested in our story. Last week, our strategic partners, Alimentation Couche-Tard, the owners of the Circle K convenience store chain, provided us with their intent to exercise the Series B warrants, which will take their ownership stake in Fire & Flower to more than 35%. I'll speak further to our progress with Circle K and other strategic initiatives in the next slide.
Most recently, in response to the needs of the rapidly growing value oriented consumer segment, we've announced the expansion of the industry first Spark Select pricing program. This expansion of our strategy is designed to attract additional value oriented customers, which are driving competitive pressures in the market. As always, our strategic focus has been on capturing valuable customer segments and preserving the highest possible gross margin through using data to understand our customers and meet their product and pricing needs. Further details on the expansion of Spark Select program will be forthcoming on our Web site, social media and through digital and retail engagement channels of our customers.
So for a Circle K strategic update. For those of you on the call today who are new to our story, Fire & Flower had a strategic agreement with retail giant, Alimentation Couche-Tard, the owners of the Circle K convenience store chain. This is a company with an impressive story and a retail scale of more than 14,000 stores in 26 countries around the globe. And as of today, Couche-Tard has a market capitalization of more than $60 billion. Through a warrant structure, Circle K has the potential to take up to 50.1% ownership stake in Fire and Flower, which I'll provide an overview of in the next slide. Couch-Tard holds a board position with Fire & Flower and we've worked together on many strategic initiatives, including a co-located store program, which was proven successful on every metric. Based on the pilot program, Fire & Flower has entered into a strategic licensing agreement where the Hifyre technology, Fire & Flower brand and operating procedures will be used in cannabis dispensary locations owned by Circle K adjacent to convenience store location.
This is an important part of our strategy, potentially large number of convenience store locations, not only provide traffic and consumer engagement to the Fire & Flower brand but also serve as distributed pickup points for e-commerce delivery to cannabis consumers through the Pineapple Express delivery service and logistics. It’s important to note that we continue to work with Circle K on improving operational efficiencies and real estate site selection across our retail network. There are also significant opportunities for the Hifyre consumer technology platform globally as Fire & Flower and Circle K become more closely aligned.
All right. So sort of a summary of our warrant action here. We thought that it's important in this slide to call, I would provide overview of the strategic agreement of warrant structure between Circle K owner Alimentation Couche-Tard and Fire & Flower. So first, I draw your attention to our disclosure on this topic that the warrants are held through a numbered Ontario company, of which details can be found on SEDAR. I'll also note that the warrant numbers referred on this slide are post consolidation. So it's a bit of history in the warrant structure. Up until March 2, 2021, Couche-Tard held 19.9% ownership in us, which is achieved through an initial investment, which is a conversion of A-1 and A-2 warrants, as well as a conversion of some debentures. From there, in June of 2021, Couche-Tard exercised its Series A-3 warrants, which took the company up to 22.4% ownership in Fire & Flower.
Last week Couche-Tard provided us notice of an early exercise of the Series B warrants, which will be completed two days from today. The next series of warrants after the Bs are the C warrants, which if exercised, will take Couche-Tard up to 50.1% ownership in our company. The timeline of these warrants is between October 1, 2022 and June 30, 2023 at an outside expiry date. It's very important to understand that these warrants are exercisable at 125% of the 20 day VWAP to a maximum of $30 per share. I'll underscore this again that these warrants are at a 25% premium to market with an outside expiry date of June 30, 2023. We thought it's important for those people that are new to the story to provide an overview of the structure. And if there are any questions about the warrant structure of our strategic relationship, we encourage you to reach out directly to our investor relations team.
Leading the way in our growth has been the Hifyre cannabis technology platform, which has delivered success in high margin revenue channels. As we continue to build our business as a complete consumer technology and retail platform, Hifyre will build and maintain our competitive advantage. In fiscal 2021, we acquired PotGuide and Wikileaf, driving top level cannabis consumer traffic. The acquisition of PotGuide brought us a US presence for Hifyre with our office in the technology hub of Denver, Colorado. In addition to driving revenue in PotGuide, Hifyre is also generating revenue through the amended strategic agreement with Fire & Flower U.S. Holdings, formerly American Acres Managers. Through our data and analytics business, Hifyre IQ.
We are also continuing to grow our strategic partnership with US data leader, BDSA, in offering integrated Canadian and US data where subscribers include major US financial institutions, beverage alcohol companies, tobacco companies and international players looking to grow in the cannabis industry. Our core products of Hifyre IQ and Hifyre Reach enjoy very significant market share and have built a base of strong monthly recurring and annually recurring revenue that you'll see us refer to as MRR and ARR. The direct-to-consumer branded the-commerce channel enabled by Pineapple Express delivery has launched in pilot with branded dispensaries online for key Canadian license producers, including Tilray, Oxley and Organa Graham to name a few. We see a significant opportunity to leverage our existing customer and vendor relationships and expanding medical delivery and logistics through Pineapple's industry leading CannDeliv technology, a network of more than 40,000 deliveries per month.
Moving on, I'll provide an update on our retail network and the expansion of the Spark Select program. Our retail network continues to be one of the largest across the country with more than 100 corporately owned stores across major private retail markets. Given our large corporate owned retail footprint, we will also focus on how to drive consumer touchpoints in an asset lightweight through the co-located store program with our partners at Circle K. With the addition of a significant number of retail stores and licenses across the country and the emergence of a growing value oriented customer segment, it's important for us to respond to the needs of this rapidly growing segment, especially true with the largest market of Ontario. Last week, we announced the expansion of our Spark Select member pricing program more than 420,000 Spark Perks members. Within the expansion of this program, there will be a large number of products offered with the top products discounted to address the needs of this highly competitive market. Fire & Flower will leverage the deep insights garnered from our proprietary Hifyre IQ analytics program to establish a competitive pricing and product strategy that provides our customers and products that meet their buying habits and needs. Anticipated benefits in the expanded Spark Select program include driving higher overall retail sales, increased engagement from our Spark Perks members, new Spark Perks membership benefits, all while addressing this rapidly growing consumer segment.
I'd like to now turn the call over to Judy to discuss our financials and provide a more detailed overview of the progress at each of our key business segments as made in the fourth quarter and the full fiscal year 2021. Judy?
Judy Adam
Thank you, Trevor and good morning everyone. I'm happy to provide a financial overview of Fire & Flower and our operations as released to the markets earlier this morning. To begin, I remind everyone that Fire & Flower follows a retail calendar with every quarter consisting of 13 weeks. Today, I will be speaking to the fourth quarter and year end results for fiscal 2021, which ended January 29, 2022. For the current fiscal year 2021, consolidated revenue was $175.5 million, an increase of 37% compared to $128.1 million in the prior year. All three business segments individually contributed to the year-over-year growth in consolidated revenue. The retail segment generated revenue of $130.8 million. The wholesale distribution segment generated revenue of $30.3 million and the digital platform segment generated revenue of $14.3 million. Total gross profit for the fiscal year 2021 also increased 37% year-over-year to $62.1 million and gross margin percentage was 35% consistent with the prior year.
Total SG&A expense for the current fiscal year was $63.2 million compared to $45.8 million in the prior year. SG&A expense, excluding share based compensation and acquisition strategic initiative professional fees for the current fiscal year 2021, was $57 million or 32% of revenue compared to $40.3 million or 31% of revenue in the prior year. The year-over-year increase is attributable to growth across all operating segments. This includes an increase in operating costs associated with the company's expansion of its retail network for 73 stores at the end of fiscal 2020 to 105 stores at the end of fiscal 2021. Expansion of the warehouse distribution operations to support growth for new retailers sourcing inventory from [overseas] and the province of Saskatchewan, continued investment in the Hifyre digital platform as we expand its virtual presence and incremental headcount in our corporate shared services to support the company's strategic growth initiatives. As well, professional and consulting fees increased by $1.9 million over the prior year, primarily due to business development activities, preparation for NASDAQ listing, implementation of a new ERP system and developing the co-location program with ACT.
Consolidated adjusted EBITDA for the fiscal year was $5.1 million, consistent with the prior year, and all three business segments generated positive adjusted EBITDA for the full fiscal year ended January 29, 2022. Given the challenges we faced this past year with prolonged changes in operating conditions due to COVID-19 and intense competitive retail landscape, the continued growth in consolidated revenue and adjusted EBITDA in fiscal 2021 reflects the benefits of scale and being a tech enabled retailer with a diversified segment portfolio. In particular, revenues from our proprietary Hifyre digital platforms more than doubled that of the prior year and delivered adjusted EBITDA of $7.7 million compared to just $1.8 million in the prior year. However, for the fourth quarter of fiscal 2021, our overall financial performance was soft when compared to the strong results we posted in the prior year as compared to the previous quarter. This highlights the accelerated pace in which the cannabis retail industry is evolving as a result of license saturation and increased competition. As Trevor mentioned earlier, we have already undertaken a proactive expansion of the Spark Select product and pricing program to capture additional customers in the fast growing value cannabis consumer segment.
Consolidated revenue for the fourth quarter fiscal 2021 was $42.7 million, down modestly from $43.2 million in the prior year comparable period. Retail generated revenue of $31.7 million, wholesale distribution generated revenue of $7 million and the digital platform segment generated revenue of $4.1 million. Retail revenue of $31.7 million for 13 weeks ended January 29, 2022 decreased 5% from $33.2 million in the prior year comparable period and decreased $2 million or 6% sequentially from Q3 fiscal 2021. The retail network expanded to 105 stores at the end of Q4 fiscal 2021 compared to 97 stores at the end of Q3 fiscal 2021 and 73 stores at the start of fiscal 2021. On a same store sales basis, comparing the 73 stores with operations throughout the 13 weeks of Q4 fiscal ‘21 and Q4 fiscal 2020, sales decreased by 33% year over year. Despite the increase in store count this current fiscal year, the decline in revenue year over year and from the prior quarter is primarily due to the highly competitive retail landscape, resulting from mass licensing, particularly in Ontario, as well as aggressive price discounting by value based retailers.
In Ontario alone, the total provincial store count increased by approximately 169 daily licensed stores or 14% from October 30, 2021 to 1,412 stores at January 29, 2022. This also represents a year over year increase of 245% or 1,003 newly licensed stores since last year. In the fourth quarter, the decline in same store sales was most significant in Ontario, Alberta and Saskatchewan, as a result of the surge in newly licensed stores in these provinces and aggressive discount based pricing tactics by value retailers intensified. While we saw a strong lift in total sales in December over November because of our promotions around holidays, January sales declined significantly compared to December similar to the market overall, which declined 8% nationally according to Statistics Canada data. From the sales trends we have seen over the last several months, it's clear that the value oriented cannabis consumer segment is growing at a more rapid pace. We have been closely watching and analyzing the pricing strategies of our competitors. And in response, we announced last week that we are launching a new pricing strategy that will focus on competitive and member based pricing. With the expansion of our industry first Spark Select member pricing program, there will be a larger number of products offered with top products discounted to address the needs of this highly competitive value oriented cannabis consumer segment.
Wholesale distribution revenue of $7 million for the fourth quarter of fiscal 2021 was comparable to the prior year as the Saskatchewan market becomes stabilized. We recently announced that open field distribution is expanding into the Manitoba market with cross stocking services and leveraging Pineapple Express delivery services. Extending these services into an additional province creates further scale and efficiency for the wholesale business segment going forward. Digital platform revenue increased 33% to $4.1 million in the fourth quarter of fiscal 2021 from $3.1 million in the fourth quarter of fiscal 2020. As company continues to monetize the Hifyre cannabis technology platform with increased data and ad network subscriptions, recurring monthly services to external clients and standalone data and analytics projects. The year over year increase also reflects that acquisitions of PotGuide and Wikileaf in Q3 of fiscal 2021, as well as Pineapple Express Delivery, which was acquired in late January 2022. Additional revenue was driven from channels within the US and the medical cannabis market as part of Hifyre strategy to increase engagement with its B2B customers. In the fourth quarter of fiscal 2021, the digital platform segment generated approximately $600,000 in revenue from the US market. We continue to look for opportunities to drive aggressive growth in the US market.
Total gross profit for the company for the fourth quarter of fiscal 2021 was $13.7 million or 32.1% of revenue compared to total gross profit of $16.4 million or 38% of revenue for same period of the previous year. The year-over-year decline in gross profit of $2.7 million is attributed to the retail segment, which saw a gross profit decline of $3.8 million year-over-year and gross margin reduction to 25.8% compared to 36% in the prior year. The decline was offset by increase in gross profit of $0.9 million from digital platforms segment. In the fourth quarter of fiscal 2021, gross margin percentage on a consolidated basis benefited from a shift in mix with a larger portion of gross profit coming from the high margin digital business in the current period compared to the prior year. The digital platform segment represents 29% of total gross profit dollars in the fourth quarter of fiscal 2021 compared to 19% in the prior year comparable period.
Total SG&A expense for the company for the fourth quarter of fiscal 2021 was $17.9 million compared to $15.2 million for the same period of the previous year. SG&A expense, excluding share based compensation and acquisition strategic initiative professional fee for the fourth quarter fiscal 2021, was $16.1 million or 38% of revenue compared to $13 million or 30% of revenues in the prior year. The increase was primarily due to higher store accounts driving increased associated operating costs combined with the reduction in same store sales.
Total adjusted EBITDA for the company for the fourth quarter of fiscal 2021 was negative $2.4 million compared to positive adjusted EBITDA of $35 million for the same period of the previous year. While the digital and wholesale segments delivered positive adjusted EBITDA and year-over-year growth in the current quarter, this was not enough to offset the decrease in adjusted EBITDA of negative $2.1 million from the retail segment and increased SG&A expense at quarter. The company reported a net loss of $19.5 million or a loss per share of $0.54 for the fourth quarter of fiscal 2021 compared to a net loss of $11.4 million or net loss per share of $0.55 in the comparable period of fiscal 2020. In the fourth quarter fiscal 2021, the company incurred restructuring impairment and other costs of $14.5 million, resulting from restructuring efforts as we optimize our retail portfolio and strategy. Of this total, a $10.9 million noncash impairment charged pertaining to acquired retail licenses for certain locations in Ontario, Alberta, Saskatchewan and BC as a result of the carrying value exceeding the expected recovery and recoverable amounts of these assets.
In addition impairment charges of $2.5 million for property and equipment and $0.9 million for right of use assets were incurred associated with certain retail locations that the company tends to no longer operate. Our balance sheet remains strong. And as of January 29, 2022, our cash balance on hand was $19.8 million. During the fourth quarter fiscal 2021, the company entered into a loan agreement with Couche-Tard for maximum aggregate amount of $30 million, which could be drawn in three separate tranches of $10 million. As at January 29, 2020, a total of $20 million was withdrawn under the loan agreement. As Trevor mentioned earlier this week, we announced ACT’s intention to exercise all of the Series B warrants outstanding to trading dates following the release of our fiscal 2021 financial statements. Following the exercise of the Series B warrants, the outstanding $20 million loan and accrued interest will be repaid in full and ACT’s ownership of Fire & Flower will increase to approximately 35%.
Thank you. And I'll turn it back to Trevor and look forward to questions from the participants on the call.
Trevor Fencott
Thank you, Judy. Some concluding remarks before we move on to questions from research analysts covering Fire & Flower. So fiscal 2021 was a year of significant growth for the company as we advance our mission to deliver cannabis to the world. We're uniquely positioned as a cannabis consumer technology and retail platform with significant ability to scale in the US and internationally as new opportunities emerge. Our Hifyre digital business segment has demonstrated continued impressive growth and is at the core of our strategy to compete in retail while demonstrating leadership and e-commerce and delivery channels where we aim to capture a valuable significant number of customers from the legacy cannabis market. On the retail front, the industry first leaders and member pricing will expand the Spark Select program to meet the needs of the rapidly expanding value driven customer segment. We view this customer segment as important in building audience size that we've proven the ability to monetize [indiscernible] revenue channels.
Fire & Flower’s unmatched with our strategic partner Alimentation Couche-Tard who’s next series of warrants if exercised will be at a 25% premium to market and positions Fire & Flower with ample capital for expansion, both domestically and internationally. Our vision is aligned with Couche-Tard starred and investors and customers to look forward to many more Fire & Flower stores adjacent to high traffic Circle K convenience stores. From the standpoint of public markets, we look to our NASDAQ listing to bring greater exposure to our story and a broader US investor base to our market in the coming weeks. Lastly and importantly, I'd like to offer a sincere and heartfelt thank you to all the employees of Fire & Flower at every level of our company for their tremendous work of preparing -- propelling our shared vision forward, particularly through our pandemic and challenging times.
I'm going to end with sharing our newly refined vision. For those that have not had a chance to review our most corporate -- recent corporate presentation, our vision is to become the largest cannabis consumer platform by using technology to focus on customer needs and by transforming the way people learn about and purchase cannabis. We’ll own the relationship with our customers from acquisition, through to purchase, either in-store or online, through fulfillment to their doors by optimizing and simplifying their consumer experience.
So with that, I believe we're going to take questions.
Question-and-Answer Session
Operator
[Operator Instructions] So we take our first question from Frederico Gomes from ATB Capital.
Frederico Gomes
My first question is on your gross margin at the retail segment close to 26%. We've seen some of your competitors with margins of 16%, 17%, 18%. So just considering the expansion of your pricing program there, should you expect your margins to decline to that same range at the retail level? And you know would you say that's sustainable over the long term, or is it just a short term strategy to compete and gain market share?
Trevor Fencott
So maybe I'll provide some high level commentary and have Judy jump in as well, and two perspectives on this, and by the way great question, that's I think really on everyone's mind. So for us, we started as a data driven company and you know we view the competitive sort of landscape as employing kind of sort of blunt tools like blanket discounting, which is simple to execute. You can do it sort of quickly and it's effective in sort of gaining things like market share. But you know our belief is that this is not a sustainable model, it's disruptive and that happens as you start to go through these competitive cycles. But we really want to lean into our competitive advantages. We have better data than our competitors. We have better tools than our competitors to understand what product need to be discounted and at what price is necessary to satisfy the demands of a consumer cohort. So for us, I think we want to be a lot more sort of choosy in where we need to compete and where we don't, because you're leaving a lot on the table in our view if you're simply just executing a blanket discount strategy, which might make for some press releases but ultimately, I think is going to be challenging to be sustainable. So maybe Judy, do you want to add some extra color to that?
Judy Adam
I would just add to what Trevor was saying. I mean, I think we are definitely going to leverage our Hifyre technology and a very sophisticated algorithm that we have available to us to really target product and formats of different products that are most wanted by our consumers. So we're taking a really targeted sort of price reductions approach. And we feel that this is our competitive advantage is to have the technology and the ability to use it towards a very sophisticated pricing and product strategy program. And in that way, we're not looking to have a gross margin -- we’re trying to protect our gross margins as much as that we can. And feel that while we'll see some compression for sure over the near term, ultimately, as we increase traffic and sales volume, we'll see that start to stabilize.
Frederico Gomes
My next question is on your number of stores. So you had 105 stores open this quarter but right now you have only 101 stores as of today. So could you provide more color on the stores that you closed, and were they in any specific geography? I know that some of them were accessories and other portion in cannabis. And what are your expectations for total number of stores for this quarter Q1, as well as for the reminder of 2022?
Trevor Fencott
Again, maybe we'll sort of double team this question as well. I mean, we've been very public yet that we have a shared service agreement with Couche-Tard. We actually share a lot of information with the real estate team, our real estate team. And so we've been, obviously, undergoing continued portfolio review and looking at our entire breadth of our portfolio. So yes, some of them are accessory stores. I think that I think we closed but we need to always be evaluating the landscape and using the most sophisticated tools we have, which is, Couche-Tard has a tremendous amount of information on where to place stores and evolving geographies and stuff. So we're going to always have that as part of our arsenal. I think we are going to see some pairing in markets where we don't feel we can be competitive and then sort of moving into markets where we feel there is still a competitive advantage to be had. So that's sort of the one piece.
The other piece is our goal for growth is largely driven by an asset light model. So we have corporate owned stores, which are important as hubs. You've heard me talk about hub, spoke and delivery as part of our model. But spoke locations, co-located locations, are actually utilizing Circle K real estate, which is very asset light to us and very, very efficient. And they serve as distribution nodes that can serve as a market and maybe serve as a market where an experienced store like a full standalone store is not warranted given the market pressure. So those are the two things I think to keep in mind. And Judy, do you want to sort of add anything to that or kind of specific store level or strategy?
Judy Adam
We definitely did. We closed a couple of stores in Q1, couple of accessory stores and other corporate stores, it was kind of all across Canada. And in terms of the go forward, I mean, we still have aproximately -- planning to build approximately around 20 corporate stores still in fiscal 2022. We've been much more selective in our real estate, as Trevor mentioned, really focusing on filling in our gaps in areas and in territories but also looking at sites that will make -- we'll add to our delivery strategy as well. So really it fits well in terms of being delivery nodes. We'll continue to expand our retail footprint as well. It'll be more focused on our co-located sites with ACT, but scale was important for us in retail as well. So you'll see our store footprint continue to expand but they’ll be more tailored towards co-located sites with ACT.
Operator
We take our next question from Aaron Grey from Alliance Global Partners.
Aaron Grey
Just want to talk about Spark Select, right? So you guys stopped being very choosy on where you look to discount. Just at a broad level, as you look at some of your consumer base, maybe you have some newer that have shifted away to other retailers, others that might be going to other retailers for select products. Given you're only going to have it this discount model for select products and not all. How do you think about, number one, the retention of the existing customer base that you still have and then may be bringing back some consumers that might have left back into the fold? And how that might play into just having some select products at discount versus the whole store as some of your competitors might?
Trevor Fencott
I mean, again, this goes back to our origin story. So from the very beginning, we've always been tech focused, knowing that this was going to be the end state. We built the company knowing that this was going to happen. And so we were the earliest to have a loyalty program, we got the data from day one, we've engaged our program -- our customers from literally the onset of legalization here. And so we've got a lot of information about what consumers’ preferences are, individual preferences are and we can cohort those groups very efficiently. So this is really no different than any other kind of tech enabled business like mobile gaming or any sort of subscription based sort of tech platform, those kinds of things, there's always win back strategies. You have to always be adapting your strategy, because really your job is to service your customers’ needs and wants. Like that's it, that's the job and that's what the tech was built to do.
So we have very, very good insight on kind of what matters to the various cohorts of our consumer base, and we can reach out directly to them. That's why in the early days you would have heard me talking a lot about this direct line of communication to your customer is the most important thing in cannabis, the thing that was missing in candidates. Well, we invested heavily in that, I think now it's definitely paying dividends because that deep knowledge, which is beyond just an email address or phone number, or some kind of transactional touch point, this relationship is something that can be bolstered through win back strategies but also to know what’s important to people. Not everyone’s price sensitive on all products, or some people very price sensitive on certain ones and then not others. So that's -- you have to know that about your customer to win in this environment, but that’s why we built the company that’s way.
Aaron Grey
And then the second one for me, just as you're pushing out the Spark Select offering, I was curious your existing customer base, they'll become knowledgeable of it. But how do you look to the market out to a broader customer base, hopefully, bringing new customers into the fold? So just maybe some marketing tactics you guys look to unfold with it?
Trevor Fencott
And again, we've always been concerned about what I call the cannabis echo chamber, which is like, look, you can add -- you can talk to customers in this sort of environment, it was very difficult to get the voice outside the cannabis community. But this goes to our program of things like selling gift cards, gift cards at Circle K stores, those kinds of things are outside the cannabis echo chamber.They are things where it's an automatic sale, when you get a gift card it has to be done online, that’s the way to ingest people into the Spark Perks program, things like our acquisitions of PotGuide and Wikileaf. And I'll often talk about the top of funnel that is the way to get people more engaged to have them understand. So for example, our brand store in Palm Springs, there are Spark Select members in Palm Springs, local for that market and that particular store there. So we totally agree that you have to get outside of the cannabis echo chamber, but we've made those moves proactively with PotGuide, with Wikileaf. Those are ways to kind of get the word out there and we've invested in it, just sort of simply -- word of mouth is also very important and we know that that's going to be part of the Spark Select program as well. Again, we've invested pretty heavily in getting the word outside the cannabis ecosystem.
Operator
Our next question comes from Alex Gelmych from Echelon Capital Markets.
Alex Gelmych
I'm wondering if you have any comments on the planned use of proceeds from the exercise of the Couche-Tard Series B warrants?
Trevor Fencott
So I mean, the first thing we're going to do is pay down the line of credit $20 million -- line of credit and clean up our balance sheet, which should leave us with net proceeds. If you had to estimate the 20 day VWAP, we think that the proceeds are certainly north of $40 million minus $20 million that leaves us with rough math and $20 million net proceeds from this, which will significantly enhance our balance sheet as well. So the short answer is we’ll just pay off the line of credit and keep the rest of the cash, deploy it, or strategic purposes.
Alex Gelmych
And then a follow-up if you don't mind. I'm curious about the consolidation of PotGuide and Wikileaf into the digital segment, and how much contribution you saw from these two companies in the first full quarter consolidation?
Trevor Fencott
I'll speak to kind of at a strategic level and then Judy can come in with the numbers. But again, strategically for us it's very important to own that customer journey and relationship from acquisition, which is top of funnel for us, things like PotGuide, like Wikileaf all the way down to delivery to their door. So that completes the vertical integration. So for us it's a lot about kind of eyeballs, outside traffic, outside influence, bringing people into the system, mobilizing our Hifyre reach ad technology outside of the cannabis eco chamber. So in that sense it's being very successful bringing people in. But in terms of economic contribution, maybe I'll flip to Judy, because I think we had a stub, they were only integrated for a bit of the quarter.
Judy Adam
Actually, we had a full quarter for PotGuide in Q4. I mentioned earlier in my remarks that our US sourced revenue is now around $600,000 for Q4, half of that would have from PotGuide and the other half would have came from licensing fees in Hifyre into the US, primarily from our amendment to the FAF US agreement.
Operator
Our next question comes from Jason Sandberg from PI Financial.
Jason Sandberg
Just looking at your retail sales decline on a same store sales basis. The number in the fourth quarter was a little bit worse than what it was in Q3. I'm just wondering whether we should read into this and assume that retail market will continue to get worse during the same store sales growth? Do you believe that you've hit the bottom and you're now moving up? I know one of your competitors have said good things about their January -- their month of January sales. Just wondering if you can give any insight in terms of what that retail same store sales growth we should expect moving forward?
Trevor Fencott
I mean, I think there's a couple of elements to that. I mean, the first thing to watch is obviously going to be new market entrant. So when we continue to add, I think Judy had the stat there’s like a thousand stores were added in Ontario in the past 12 months. So if that pie continues to grow at such an aggressive rate and again, we don't expect it to grow as aggressively as that, because I think that that sort of represented the last of the queue that the pent up demand there. But if it did continue to grow and there's nothing stopping people from opening stores, that's going to have an effect on same store sales across the industry. That's the industry sort of base expanding. And then I think there's the other piece of it, which is where we go with price compression and you know what the customer sort of want. So there's moving between retailers based on that.
So I mean, I think with our visibility, we're launching our Spark Select member pricing program, which we think is going to be competitive and kind of the retaining and winning back customers and sort of market share. But again, the X factor is how many more licenses come out there. I think what we're also seeing now though is actually store closures. So if that's the case, the store closures start to outpace new store openings, like new licenses being granted. I think we can expect -- reasonably expect that the markets that have starting to stabilize. And again, there's no question in our mind that this year is what we call a shakeout year. This is going to be a lot of -- a lot of companies are going to kind of, I think, suffer. But at the end of it, we're going to reach a position of equilibrium where the strong players and where’s the other end, and we certainly think we're going to be one of those strong players. So I know it's kind of -- it's a roundabout way of answering it, but the key data factor, I think, is going to be new market entrants versus market exits.
Operator
[Operator Instructions] We take our next question from Justin Keywood from Stifel GMP.
Justin Keywood
I'm just wondering the impact of inflation. If that’s possible that we price through in any type of price increases going forward and how the company is managing that?
Trevor Fencott
Well, price -- inflation actually hits a number of different parts of it to varying degrees. So in terms of like the product cost, we haven't seen that come in yet, I don't believe from the production standpoint. We haven't seen it reflected in product prices, although it's possible. In terms of like price at retail, sort of the conventional thinking is that this is more our product, it's more like sort of alcohol or consumable in that sense. I think where -- well, there's certainly things that we watch very carefully are things like inflation index to things like wages. We have a large labor force. Those are things we keep careful tabs on. But I think it's kind of early in the piece for us in terms of like a prolonged inflationary period. I don't know, Judy, if you want to add any sort of color to that, but that's sort of certainly my kind of high level thinking.
Judy Adam
Yes, nothing further to add to what you said, Trevor. I think you covered it.
Justin Keywood
And then I wonder if you just take a step back. Obviously, there's some competitive pressures in a saturated market, and I heard the expansion initiatives earlier in the call. But I'm wondering if this is a time to be a bit more aggressive. And I assume Couche-Tard is well familiar in operating in hyper competitive environments. And I'm wondering if you have any feedback as far as how Couche-Tard is viewing the current landscape, and if there's perhaps a strategy to acquire and again, a bit more aggressive on market share gains?
Trevor Fencott
I mean, well, we both share the same view, which is we need -- that market share is important, we need to catch up. And that in these times as disruptive as they are, and as I keep saying, it's a shakeout period, there's a lot of opportunities during shakeouts. If you're well capitalized, if you have scale and if you have the staying power and strategy to kind of get to the end. And that we're very confident that we get to the end of this disruption cycle and come out the other side a lot stronger. And that could mean things like there's going to be opportunities for acquisitions that are perhaps priced appropriately at this point. There’s going to be lots of opportunity in a shakeout year. We're not blind to that reality. I know a couple of key competitors as well that are also strong and looking at things. So I absolutely agree that there's opportunity and adversity. We're big fans of that. And -- listen our track record sort of speaks for itself. We're getting cashed up with the Series B warrant exercise. We've got a strong, aggressive partner who understands that acquisition in adverse times, if you can afford it, if you're strong enough, that can really make an outsized difference on the other end of the disruption.
Operator
[Operator Instructions] We currently have no more questions registered. So Trevor, I will hand it back to you for any closing remarks.
Trevor Fencott
I just want to thank everyone for taking the time to listen to our story, and tune in again and ask your questions, much appreciate it. We look forward to talking to everyone in next quarter. Thanks so much.
Operator
Thank you for joining today's call. This now concludes the call. Please disconnect your lines.
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