I’m not at all a fan of chasing penny stocks, especially the micro-cap ones that have already experienced parabolic upside moves. That said, not all low-priced stocks are built the same. Fire & Flower (TSX:FAF) is one of the most promising long-term growers out there. Despite its under-$1 price tag ($0.91 per share at the time of writing), the $303 million company isn’t a name poised to rocket and tank like many penny stocks out there.
Under $1: Don’t sleep on this Canadian stock
The Edmonton-based cannabis retail store actually has some durable competitive advantages up its sleeves, as I’ve pointed out previously. Undoubtedly, having a proven blue-chip behemoth as a dance partner is a huge sign that Fire & Flower stock is not a speculative penny stock that could implode at any minute. With real fundamentals, an invested partner in Alimentation Couche-Tard, and a long growth runway, Fire & Flower stock seems like one of the most investible small caps for beginner investors who only have a small sum to put to work.
Bringing the fight to the competition
Today, Fire & Flower stock is fresh off a 38% correction. And I think it’s one that investors should be buying, as the partnership with Couche-Tard takes it to the next level.
Undoubtedly, the cannabis retail scene has been viciously competitive of late. Many mom-and-pop shops in the space are under mounting pressure, with big-league retailers hungry for a massive slice of the pie. Couche-Tard continues exercising warrants, growing its stake in the small-cap pot company, likely because it sees an opportunity to do the cannabis retail market what it did to the North American convenience store market.
If there’s a company that knows how to consolidate an industry and apply competitive pressures to the mom-and-pop shops, it’s Couche-Tard. With Couche-Tard’s managers and retail industry expertise, Fire & Flower seems like it’s in a great spot to disrupt a now-crowded market that’s overdue for some consolidation.
Couche-Tard is one of the best dance partners you could ask for!
After recent warrant exercises, Couche-Tard’s stake in Fire & Flower has grown to a 22.4% stake. Yes, the stake in the small-cap firm isn’t yet sizeable enough to move the needle in Couche-Tard shares today. But I think it’s a mistake to ignore the budding partnership that could profoundly reward shareholders in both firms over the long term.
Thus far, the Couche-Tard/Fire & Flower co-location project has shown signs of success. Undoubtedly, the pilot project’s proof of concept showed tremendous promise.
If such success can be scaled up remains to be seen. Regardless, I think there’s a high chance that Fire & Flower could become a leading cannabis retailer over the next decade, as Couche-Tard continues providing the funds and the talent needed for the firm to continue pressuring the competition. Having a Circle K located next to (maybe one day there will be a Fire & Flower inside every Couche-Tard-owned convenience store?) a Fire & Flower is a massive advantage that many other pot retailers lack.
The bottom line on the under-$1 stock
At the end of the day, it’s all about convenience and value for habitual consumers of any item, whether we’re talking cigarettes or cannabis-related goods. In any case, I think both Couche-Tard and Fire & Flower have a lot to gain from a relationship that may ultimately end up in a full acquisition. As for the mom-and-pop competitors, the tough road is likely to get that much tougher.
Of course, investors looking to maximize their long-term gains from such a successful relationship ought to side with the under-$1 stock while it’s still in small-cap territory. Just be aware of the added volatility that you’ll need to endure over the years with FAF and take advantage of any dips that come your way.
