Fire & Flower Holdings Archives - Green Market Report

Debra BorchardtJuly 25, 2022
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5min9530

Cantor Fitzgerald analyst Pablo Zuanic downgraded Fire & Flower (OTC: FFLWF) and Auxly Cannabis Group to Neutral from Overweight and cut his price targets for both. Challenges within the Canadian cannabis market were cited as the overarching reason.

Canadian Problems

Zuanic noted that the market seems to have hit a saturation point. He wrote in his report, “There are now over 3,300 stores in Canada (~1,600 in ON; 765 in AB, 435 in BC, 89 in QB). Store density in Canada (85 stores per 1mn people, with ON at 108) is above that in most states in the US, ex CO (129), OR (171), and OK (590).”  He went on to write, “Price deflation in Canada (flower prices down 36% in the last two years), has not all been caused by competition among licensed producers (LPs), but also by some retailers cutting prices and pursuing a discount strategy. Thus, overall, we think this is a tough market climate for retailing.” At this point, Cantor only gives three cannabis companies an Overweight rating and those are Aurora (ACB), Organigram (OGI), and Village Farms (VFF).

Fire & Flower

Zuanic dropped his rating on Fire & Flower to Neutral from Overweight and lowered his 12-month price target to C$2.60 from C$9.50 (last published 4/26/22) on reduced estimates and increased operational risks. It was last trading at $1.65 or C$2.11. He wrote, “Our recent surveys show that Fire & Flower stores (factoring-in its Spark membership offers) are now pricing in line with High Tide’s stores (NASDAQ: HITI), below Nova Cannabis, and well-below the OCS online store. While we believe this makes sense, we think competitive dynamics have forced Fire & Flower to take more draconian measures on the pricing front than management may have initially envisaged. The transition (likely increased sales but lower margins) generates uncertainty and makes us wonder about the company’s ability to make meaningful improvements to cash burn; we think this is also reflected by the company’s decision to delay its NASDAQ listing.”

Following the April quarter, the cantor analyst noted that sales fell 4% seq to $41 million, with retail store revenues dropping 7% sequentially and that same-store sales fell 26% year-over-year to $30 million. In addition to that, the store count fell to 101 stores at the end of April from 105 at the end of January. He also pointed out that tech revenues were down 28% to $3 million, and wholesale and delivery was up (but on lower margins).

That said, we appreciate Fire & Flower’s asset-light strategy, prudent brick & mortar growth plans, its inroads in tech services and delivery, and the strategic benefits of the partnership with Circle-K (ATD.TO/NC). However, given heightened competitive challenges and further potential shareholder dilution down the road, we now prefer to rate the stock Neutral.

Auxly Cannabis

The analyst lowered his 12-month price target on Auxly to C$0.08 from C$0.20 on reduced estimates and a lower multiple used. The stock was last trading at $0.06 or C$0.075. Zuanic wrote, “The heavy debt load and likely equity-holder further dilution, combined with worsening scanner trends prompt us to downgrade our rating to Neutral. We do see much improvement on cash burn. Based on our math, Auxly has the highest debt-to-sales ratio among LPs. This includes convertible debt held by Imperial Brands (IMB.LN/NC) due Sep 2024; but with a conversion price of $0.81, we think terms will be renegotiated.”

The analyst also lowered his sales estimates based on the latest Hifyre data, which showed Auxly losing further market share in the vape and flower segments (vape is >40% of sales, and the company’s vape share is now 16% vs. 24% a year ago), and sales dropping at a faster pace at retail. He also pointed out that Auxly has been lowering prices, which is not a good sign for profitability. Having said that he believes Auxly could still be an attractive target (given 2.0 share, pre-rolls gains, and supposedly more-efficient flower cultivation), but the convertible debt held by Imperial Brands may deter interested parties.


William SumnerJuly 24, 2019
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It’s time for your Daily Hit of cannabis financial news for July 24, 2019.

On the Site

Executive Spotlight: Nick Ortega, Co-Founder & CEO of Claybourne Industries

Nick Ortega is the Co-Founder and CEO of Claybourne Industries, a cultivator and distributor specializing in growing brands throughout California. Claybourne’s house brand, Claybourne Co, is known for its innovative flower products such as The Claybourne Power PackTM and the Claybourne Top Shelf 1oz jar.

Fire & Flower Holdings

You may not be able to purchase cannabis from your local gas station, but that hasn’t stopped the international convenience store chain Alimentation Couche-Tard (TSX: ATD.A ATD.B) from staking a claim in the industry. Today it was announced that the company would purchase a stake in Fire & Flower Holdings Corp. (TSXV: FAF) $25.9 million.

80% Of Vape Products Could Be Fakes

In a time of designer bags, jewelry, shoes, and a slew of other consumer goods being knocked off, the cannabis industry has also fallen victim to counterfeit products. Imagine going into what you believe is a legitimate cannabis dispensary or online shop and being sold what you think is a King Pen, Brass Knuckles, or Heavy Hitter vape, only to find that in comparison to what you’re inhaling, “you’re better chewing on lead paint.”

In Other News

Curaleaf

In the wake of the news that Curaleaf Holdings (OTCMKTS: CURLF) had received a warning letter from the United States Food and Drug Administration over “unsubstantiated health claims,” the national pharmacy retailer CVS has announced that they will no longer sell Curaleaf products. In a statement, Mike DeAngelis, CVS’ senior director, corporate communications, said that the company has no plans to resume selling Curaleaf products once they are pulled from the shelves. In response to the FDA letter, Curaleaf representatives say that the company “will work collaboratively with the FDA to resolve all issues addressed in the agency’s letter.”

Green Growth Brands

Green Growth Brands Inc. (CSE: GGB) (OTCQB: GGBXF) announced that it had raised C$50.2 million in a bought deal offering led by Canaccord Genuity Corp. At C$2.45 per unit, Green Growth Brands sold 20.5 million units of the company. Each unit is comprised of one common share and half of one common share purchase warrant. The company has also extended to the underwriters an over-allotment option to purchase an additional 3,075,000 units at the offering price, totaling C$7.53 million. The closing is expected to close on August 21, 2019.


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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