Don't know why this is selling so low with 9 cannabis stores open and selling product. The largest Canadian private retail operator (NACNF) with 23 stores just reported 20 million in revenues in only 140 days.
If my math is correct that's about 174K per month per store. If F&F has similar numbers their 9 stores should be bringing in around 1.5M per month total, or 18M per year. That's a lot of cash flow to be selling under a buck.
It's not like they have a billion shares outstanding. The company last reported share count was only 102,434,413. Just seems like a bargain price to me at this level so I bought a few shares to watch. Especially with news of more stores opening in 2019.
I'll be closely watching this one. Too much revenue potential not to. Thoughts anyone? Always IMHO GLTA
Investors looking for value in the Canadian cannabis sector should go beyond the lineup of licensed producers and start thinking about retail, says Echelon Wealth Partners analyst Matthew Pallotta, who likes Alberta-based Fire & Flower Holdings (Fire & Flower Holdings Stock Quote, Chart, News TSX:FAF).
In a review on Tuesday of the company’s latest quarterly results, Pallotta nudged his target on FAF upwards, saying that the company is showing resilience in the face of tough headwinds in the cannabis space.
Retailer and distributor of consumer cannabis products, Fire & Flower released its third quarter ended November 2, 2019, financials on Tuesday, showing revenue for the quarter of $13.7 million and an EBITDA loss of $2.7 million.
By the quarter’s end, FAF had 30 retail outlets in operation across Alberta, Manitoba, Saskatchewan and the Yukon, with ten of these having opened up during the Q3. The company also closed over the quarter a strategic investment with Alimentation Couche-Tard of $25.9 million, which would see the latter obtaining a controlling interest in Fire & Flower if all securities issued are converted or exercised in full. Since the quarter’s end, FAF has received nine more retail store licenses and continued its application process for retail licensing in the province of BC.
Home / All posts / Fire & Flower has price target raised at Echelon Fire & Flower has price target raised at Echelon DECEMBER 18, 2019 BY JAYSON MACLEAN
fire & flowerInvestors looking for value in the Canadian cannabis sector should go beyond the lineup of licensed producers and start thinking about retail, says Echelon Wealth Partners analyst Matthew Pallotta, who likes Alberta-based Fire & Flower Holdings (Fire & Flower Holdings Stock Quote, Chart, News TSX:FAF).
In a review on Tuesday of the company’s latest quarterly results, Pallotta nudged his target on FAF upwards, saying that the company is showing resilience in the face of tough headwinds in the cannabis space.
Retailer and distributor of consumer cannabis products, Fire & Flower released its third quarter ended November 2, 2019, financials on Tuesday, showing revenue for the quarter of $13.7 million and an EBITDA loss of $2.7 million.
By the quarter’s end, FAF had 30 retail outlets in operation across Alberta, Manitoba, Saskatchewan and the Yukon, with ten of these having opened up during the Q3. The company also closed over the quarter a strategic investment with Alimentation Couche-Tard of $25.9 million, which would see the latter obtaining a controlling interest in Fire & Flower if all securities issued are converted or exercised in full. Since the quarter’s end, FAF has received nine more retail store licenses and continued its application process for retail licensing in the province of BC.
“We anticipate meeting our goal of 45 open and operating stores by the end of our fiscal year. Our industry-leading Spark Perks members program ensures that our customers are engaged with the Fire & Flower brand as their cannabis retailer of choice,” said Trevor Fencott, CEO, in a press release.
FAF’s quarterly numbers proved a beat of both Pallotta’s and the Street’s estimates, with the $13.7-million in sales beating the analyst’s $11.5-million forecast and the consensus $12.5 million. The $2.7-million EBITDA loss was also better than Pallotta’s $3.7-million estimate.
“The Company demonstrated some resilience in the face of several industry headwinds, including a slowdown in cannabis sales faced by Licensed Operators, and challenges faced in provinces with government-owned distribution monopolies, leading to difficulties with product availability,” wrote Pallotta.
“Increasing competitive pressures, particularly Alberta, have also challenged retailers’ performance on a per-store basis, which we forecasted in our Q319 earnings preview,” he said.
Pallotta said that the Ontario government’s new retail licensing system should support “significant growth” for Fire & Flower in 2020 and 2021. The new plan implies the issuing of about 180 new retail licenses by the end of 2020, making for a total of about 250 stores, and the analyst thinks that the new timeline for retail stores should allow FAF to open more stores than previously forecasted, causing Pallotta to adjust his expectations. The analyst noted that on the day of the Ontario licensing announcement last week, FAF was up about 11 per cent.
“Overall, despite these aforementioned challenges, the outlook for 2020 found some additional clarity, with Ontario government’s announcement last week of a move to an open licensing system in 2020. Based on these developments, we continue to view retailers as the more favoured vertical for investors in the Canadian cannabis space, relative to Licensed Operators,” he wrote.
Pallotta is now calling for fiscal 2019 revenue and adjusted EBITDA of $51.6 million and negative $11.6 million, respectively, and for fiscal 2020 revenue and adjusted EBITDA of $144.0 million and $5.1 million, respectively.
The analyst maintained his “Speculative Buy” recommendation but raised his price target from C$2.00 to C$2.10, which at press time reflected a 12-month projected return of 133 per cent.
Edmonton-based Fire & Flower noted that extracts and edibles have arrived at its retail stores in Saskatchewan because the Western province’s private wholesale model allows for easier distribution.
Fire and Flower set to open wholesale cannabis operation in Saskatoon Open Fields, the company’s wholly owned distributor, is able to negotiate directly with growers and has already started delivering gummies, mints, chocolates and vapes to retail stores in the Prairie province.
“With Fire & Flower being one of the first retailers in Canada to stock new cannabis formats, this exemplifies the clear benefits of the private distribution model, including price, access and diversity of product within the province of Saskatchewan,” said Trevor Fencott, Fire & Flower’s chief executive officer.
“There is significant demand for these new product formats in the market and we look forward to bringing these products to our loyal customers,” Fencott said.
The company expects to have new product offerings from Aphria, Aurora, Dosist, Cronos, The Green Organic Dutchman, High Park, Organigram, Redecan and Sundial on its shelves before the end of the year.
“Our team has worked diligently over the last year and we are thrilled to be launching our Solei, RIFF and Good Supply vaporizers in 510 and all-in-ones at Fire & Flower stores across the province of Saskatchewan,” said Bernie Yeung, vice president of sales and channel strategy with Aphria Inc.
“We are confident in our market readiness across the country and look forward to working closely with our retail partners to ensure we have the right brands and product offerings for consumers as we strive to combat the illicit market,” Yeung said.
Fire & Fower uses the Hifyre digital retail and analytics platform to analyze consumer preferences and trends and adjust its product selection accordingly. Calling itself “Canada’s cannabis shop,” the company added it does not have a set date for the arrival of products in provinces where the supply chain is controlled by government-owned distributors.
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Clouds hanging over Canada’s cannabis industry could begin to part in 2020 as pricier products and more stores in sparsely-served Ontario translate to stronger quarterly results, according to analysts at Stifel GMP Research. The optimistic take on the legal pot sector departs from the prevailing gloom after a rash of stumbles in 2019.
Only a handful of companies managed to report a profit last year as illegal dealers proved a tough opponent armed with much cheaper prices. The unlicenced pot scandal at CannTrust (TRST.TO)(CTST) cast widespread suspicion over the industry. Ontario, Canada’s largest province by population, ended the year with just 24 retail stores to serve more than 14 million residents. Meanwhile, legal producers grew enough cannabis to satisfy 81 per cent of total weed demand in Canada when their sales amounted to just 14 per cent of the market, according to one analysis.
The Horizons Marijuana Life Sciences ETF (HMMJ.TO) ended 2019 more than 37 per cent lower than it started the year. Steve Hawkins, president and CEO of Horizons ETFs, said it’s a “survival of the fittest” world for cannabis in a year-end release announcing the removal of seven companies from the HMMJ portfolio.
Mackie Research analyst Greg McLeish said in a recent report that of the 52 publicly-traded cannabis companies the firm tracks, 13 of them have less than six months of cash left on their balance sheets.
For Stifel GMP analyst Justin Keywood, the cannabis reckoning of 2019 was largely the result of transitory factors within the nascent industry.
“We believe licenced producers’ quarterly results should improve in 2020 (likely H1), which should bolster investor sentiment,” he wrote in a note to clients on Tuesday.
The new wave of edible, vape, topical and beverage products beginning to trickle into the market underpin his optimism. So-called cannabis 2.0 items officially began to hit the market in mid-December, but the actual rollout has proven slow.
Many licenced producers have not released their full suite of new products to retailers. Canopy Growth (WEED.TO)(CGC), for example, is staggering deliveries to provincial wholesalers, beginning with chocolate and vapes in January followed by its distilled cannabis beverages in February.
Retail cannabis sales increased at a pace of about 10 per cent month-over-month, according to data up to September. Keywood expects that momentum to continue. He also anticipates cannabis companies will see four to six months of accelerating sales to provincial wholesalers as retailers stock their shelves with new products that sell for significantly more than dried flower, and appeal to a broader range of consumers.
“Cannabis 2.0 effectively opens access to 50 percent of consumer demand, potentially doubling the addressable market,” he wrote.
“We estimate that vapes could be priced about 3.5 times higher than dry flower... while edibles could be even more attractive with about nine times higher average pricing than 1.0 products.”
Keywood believes the gross margin boost from edibles and vapes will be about 10 and 25 per cent, respectively.
ONTARIO RETAIL SLOWLY CATCHING UP
Frustration over Ontario’s lack of physical stores compared to other provinces has been a common refrain on quarterly earnings calls as executives attempt to explain weaker-than-expected results.
“At the risk of oversimplifying, the inability of the Ontario government to license retail stores right off the bat has resulted in half of the expected market in Canada simply not existing,” Mark Zekulin, then-CEO of Canopy Growth, told analysts in November.
Ontario’s approach to cannabis has suffered major growing pains. The province changed course from plans for a fully-government operated system to a public-private hybrid model. It initially capped the number of stores at 25 due to supply concerns, before abandoning its cap and lottery-based licence system in December.
That’s resulted in 24 stores open today, compared to roughly 300 in Alberta, a province with about one-third the population. The new open allocation system is expected to see 20 new stores opening per month beginning in April.
“We see the changes as late but necessary to take share from the illegal market,” Keywood wrote.
Fitting with the optimistic view on retail, Stifel GMP chose Fire & Flower Holdings (FAF.TO) as its top Canadian cannabis pick for 2020.
The retail-focused company operates a network of about 30 cannabis stores, mainly clustered in Alberta and Saskatchewan, and plans to grow to 135 locations in 2021.
Last July, convenience store giant Alimentation Couche-Tard (ATD-B.TO) announced plans to invest nearly $26 million for a 9.9 per cent ownership stake in the pot retailer, with the option of purchasing 50.1 per cent.
Fire & Flower CEO Trevor Fencott said the relationship will help fuel the company’s “aggressive growth.” Keywood sees the company as an emerging player in Ontario, where it currently operates two stores.
“We expected a move to a more privatized model in Ontario and see FAF as being a large beneficiary with already 13 strategic lease locations in high traffic areas (mainly in Toronto) ready to go,” he wrote.
“Fire & Flower could supply both its own stores and potentially many other retailers, leading to a very strategic position. We see the Ontario government favouring FAF for this functionality over other companies that do not have a similar operating history.”
Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.
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