Fire & Flower Announces Second Quarter 2019 Financial and Operational Results

Published: October 2, 2019

Fire & Flower Announces Second Quarter 2019 Financial and Operational Results

Fire & Flower Holdings Corp. announced its financial and operational results for the thirteen weeks ended August 3, 2019.

Financial and Operational Highlights for the thirteen weeks ended August 3, 2019

  • 22 branded cannabis retail stores open and operating across the provinces of AlbertaSaskatchewan and Ontario. Entered into agreements to acquire 13 additional licensed cannabis retail stores in the provinces British ColumbiaAlberta and Saskatchewan.
  • $15.6 million in system sales which includes corporate and licensed stores representing a 43% increase over Q1-2019.
  • Total revenue of $11.1 million at a gross profit of 36.5%, compared to $9.5 million in Q1-2019 at a gross profit of 38.5%.
  • Closed a bought deal private placement on June 26, 2019 of 27,188 convertible debenture units at a price of $1,000 per unit for total gross proceeds of $27.2 million.

Subsequent Financial and Operational Highlights post August 3, 2019

  • On August 7, 2019, entered into a strategic investment with Alimentation Couche-Tard Inc. (“Couche-Tard”) that would result in a minimum of $380 million of growth capital for the Company’s global expansion and Couche-Tard taking a controlling interest in the Company, if all securities issued to Couche-Tard in connection with the strategic investment are converted and exercised in full.
  • On August 27, 2019, entered into asset purchase agreements with wholly-owned subsidiaries of Cannabis Cowboy Inc. in relation to 8 cannabis retail stores in the province of Alberta and in the key urban market of Calgary.
  • Opened and operating an aggregate of 7 additional cannabis retail stores in the provinces of AlbertaManitoba and the Yukon Territory.

“Fire & Flower’s financial and operational results for the quarter demonstrate that the Company is continuing to build the infrastructure required to support the rapid growth of our retail network and deliver on our objectives,” shared Trevor Fencott, Fire & Flower’s Chief Executive Officer. “Our strategic partnership with Alimentation Couche-Tard is transformative for the Company and the HifyreTM digital retail platform continues to showcase Fire & Flower as a leading data-driven, ‘retail 2.0’ company.”

Selected Summary of Quarterly Results

Thirteen weeks ended

Twenty-six weeks ended

Statement of Loss and
Comprehensive Loss
(in thousands of dollars, except
per share amounts)

August 3,
2019 ($)

August 4,
2018 ($)

$ Change
% Change

August 3,
2019 ($)

August 4,
2018 ($)

$ Change
% Change

Revenue

11,080

11,080
NM

20,618

20,618
NM

Cost of goods sold

(7,039)

(7,039)
NM

(12,910)

(12,910)
NM

Gross profit

4,041

4,041
NM

7,708

7,708
NM

Loss from operations

(5,931)

(4,147)

(1,784)
(43%)

(11,225)

(6,616)

(4,609)
(70%)

Other expenses

(561)

(58)

(503)
(867%)

(9,288)

(58)

(9,230)
(15,914%)

Net loss and comprehensive
loss

(6,492)

(4,205)

(2,287)
(54%)

(20,513)

(6,674)

(13,839)
(207%)

Net loss per share, basic and
diluted

$   (0.06)

$   (0.06)

$     –
NM

$   (0.19)

$   (0.11)

$   (0.08)
(73%)

NM – Not Meaningful

During the thirteen weeks ended August 3, 2019, the Company generated revenue of $11.1 million including cannabis and cannabis-related accessory sales of $9.7 million, wholesale sales of $0.9 million and digital development revenue of $0.5 million. During the thirteen weeks ended May 4, 2019, the Company generated revenue of $9.5 million including cannabis and cannabis-related accessory sales of $7.7 million, wholesale sales of $1.3 million and digital development revenue of $0.5 million. Revenues are expected to continue to increase as the Company acquires new licences, opens additional retail cannabis stores, and continues to commercialize the HifyreTM digital retail and analytics platform subject to the issuance of new licences and the entry of the Company into new markets.

Total gross profit for the thirteen weeks ended August 3, 2019 was $4.0 million or 36.5% of revenue with retail and wholesale operations delivering $3.6 million, or 33.6%, gross profit, compared to $3.7 million with retail and wholesale operations delivering $3.2 million, or 35.6% of gross profit for the thirteen weeks ended May 4, 2019.

The Company recorded a net comprehensive loss of $6.5 million, or a net loss per share of $0.06 for the thirteen weeks ended August 3, 2019.

Strategic Investment by Alimentation Couche-Tard

On August 7, 2019, Fire & Flower closed a strategic investment by Alimentation Couche-Tard, a global retailer with vast international infrastructure of 16,000 stores in 25 countries around the globe. This transformative transaction allows for Couche-Tard to obtain a controlling interest and provides more than $380 million of growth capital (if all securities issued to Couche-Tard in connection with the strategic investment are converted and exercised in full) for global expansion.

Benefits Of The Strategic Investment

  • Accelerates Fire & Flower’s pace of growth and expansion.
  • Leverages Couche-Tard’s vast international infrastructure and experience for global expansion opportunities.
  • Provides significant, new possible commercialization and innovation leadership opportunities for Fire & Flower’s proprietary Hifyre™ digital platform.
  • Provides access to Couche-Tard’s leadership team.

In connection with the strategic investment, the Company has issued:

i.

$25,989,985 principal amount of 8.0% unsecured convertible debentures;

ii.

30,634,322 series A Common Share purchase warrants;

iii.

56,126,890 series B Common Share purchase warrants; and

iv.

110,703,925 series C Common Share purchase warrants.

For further information, see “Description of the Business – Strategic Investment” in the AIF filed on SEDAR on August 2, 2019.

Retail Platform Update

Fire & Flower continues to evolve its retail platform through a data-driven approach using the proprietary HifyreTM digital retail and analytics platform. The Company continues to focus on its existing markets of AlbertaSaskatchewanManitoba and Ontario and intends to enter British Columbia as market regulations permit. The Company anticipates it will accomplish the following milestones across all addressable markets.

Target Date

Total Number of Stores

FY 2020 Q1

55

FY 2020 Q2

65

FY 2020 Q3

75

FY 2020 Q4

85

FY 2021 Q1

95

FY 2021 Q2

105

FY 2021 Q3

120

FY 2021 Q4

135

HifyreTM Digital Retail and Analytics Platform

Through its wholly-owned subsidiary, Hifyre Inc., the Company continues to commercialize and expand its digital retail and analytics platform that collects and analyzes consumer data to develop insights around purchase preferences. The HifyreTM platform provides real time reporting and analysis to the Company’s marketing, retail experience and merchandising teams and is supplied to Licensed Producers to assist in demand forecasting, product development and sales reporting. This platform is integral to Fire & Flower operating as a data-driven “retail 2.0” Company.

Fire & Flower’s financial statements and management discussion and analysis for the period are available on Fire & Flower’s website at www.fireandflower.com/investor-relations/.

Fire & Flower is a leading purpose-built, independent adult-use cannabis retailer poised to capture significant Canadian market share. The Company guides consumers through the complex world of cannabis through education-focused, best-in-class retailing while the HifyreTM digital platform connects consumers with cannabis products. The Company’s leadership team combines extensive experience in the cannabis industry with strong capabilities in retail operations.

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