Fire & Flower: A Small Pot Stock Poised for Strong Growth

Fire & Flower is a cannabis retailer well-positioned for growth thanks to its digital and delivery initiatives.

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Pot stocks are a riskier investment

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Fire & Flower Holdings (TSX:FAF) is an independent retailer of regulated cannabis products and accessories. The company has 83 locations in Alberta, Manitoba, Ontario, Yukon, and Saskatchewan. Although the company is not yet profitable, I think it’s well-positioned for strong growth in the coming years.

Fire & Flower Results: Strong Growth in 2021

For the company’s 2021 fiscal year, consolidated revenue grew 37%, to a record $175.5 million. Consolidated adjusted EBITDA was $5.1 million, in line with the prior year.

Hifyre, the company’s digital business segment, 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.

For the fourth quarter, consolidated revenue and adjusted EBITDA came in at $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 prior-year quarter and $79 million for the prior year.

Fire & Flower acquired Pineapple Express Delivery, PotGuide, and Wikileaf to expand logistics capabilities and web traffic.

The company opened 32 stores during the year, with a total of 105 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,” said Trevor Fencott, who has since resigned as chief executive. “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.”

Nasdaq Listing and Partnership With Alimentation Couche-Tard

After the quarter, Fire & Flower completed one of the final steps in preparation for a listing on the NASDAQ, including the filing of a 40-F registration statement and DTC eligibility for common stock.

On April 20, the company announced its intention to exercise Series B warrants by its strategic partner Alimentation Couche-Tard (TSX:ATD), owner of Circle K convenience stores, resulting in after-exercise ownership of approximately 35%.

Fire & Flower also announced the expansion of the industry-first Spark Select program, a new product and pricing strategy, in hopes of attracting a broader customer base in response to the rapidly growing value-driven cannabis consumer segment

Expansion of 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 enable same-day delivery and a new one-hour delivery option. Firebird Delivery will soon be launched in Alberta, Manitoba, Saskatchewan, and other markets.

Is Fire & Flower a Good Investment?

Shares of Fire & Flower have has fallen about 35% year to date. They rebounded slightly after closing on May 11 at a 2022 low point of $2.52. This cannabis stock remains a speculative buy at the moment, but allocating a small portion of your portfolio to Fire & Flower might be rewarding in the long term.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Stephanie Bedard-Chateauneuf has positions in Fire & Flower Holdings and Alimentation Couche-Tard. The Motley Fool has positions in and recommends Alimentation Couche-Tard Inc.

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