A Canadian cannabis company has come onto our radar recently and we believe that this national dispensary is set to catapult this fall. Fire and Flower Holdings Corp. (TSX: FAF) has been making big head ways lately and has received a large financing from a Canadian blue chip retailer.
On August 07th 2019, Fire & Flower announced that it had closed a Strategic Investment from Alimentation Couche-Tard Inc. (TSX: ATD.A). The blue-chip retailer will invest approximately $26 Million and the principal amount of debenture is convertible by Alimentation Couche-Tard into 24,289,706 Common Shares and would represent 9.9% ownership in Fire & Flower on a pro forma fully diluted basis and if warrants are exercised, Couche-Tard would increase its ownership interest to 50.1% and would provide $380 Million of growth capital if fully exercised.
Alimentation Couche-Tard is the leader in the Canadian convenience store industry. In the United States, it is the largest independent convenience store operator in terms of the number of company-operated stores. Alimentation Couche-Tard operates over 16,000 convenience stores across Canada, the United States, Europe, Mexico, Japan and Indonesia and a leader in convenience stores across Europe.
This investment from Alimentation Couche-Tard is a great step for not only the company but is set to benefit its shareholders greatly. The investment from such a large corporation such as Couche-Tard presents investors with mitigating risk as a large company in now involved with Fire & Flower and proves that it is no longer in the start up phase but rather an expansion phase.
A lot of investors have recently been focusing on MSO’s (Multi State Operators) as investors are eyeing the legalization of Cannabis in the United States but there might be a new Multi State Operator from Canada that might be joining the ranks along the likes of iAnthus (CSE: IAN) MedMen (CSE: MMEN) and that just might be Fire & Flower (TSX: FAF). Now that Fire & Flower Holdings has received an investment from one of the worlds largest convenience store operators, we would not be surprised if Couche-Tard will help FAF to expand its retail footprint in the United States or internationally. Due to legalities in the sale and distribution of cannabis in Québec, Alimentation Couche-Tard essentially lost its opportunity to participate in the cannabis craze in Québec but now it will be applying their vast knowledge and experience in logistics and will help in expanding Fire & Flower’s retail operations and these are matters worth looking into. On August 8th 2019, Fire & Flower announced that the company received two additional retail store licenses in Edmonton, Alberta and now Fire & Flower now owns or has an interest in 28 cannabis retail store licenses. Fire and Flower intends to have a total of 45 stores open by January 2020, and a total of 85 stores open by January 2021.
It is also important to note for investors that officers and directors of Fire & Flower own 23,934,336 shares of the current 117.6 million shares outstanding including 6.2 million warrants, 3.2 million options and $150,000 of 8.0% unsecured convertible debentures which have a conversion $1.20 per share. We always like to see insiders of a company owning a large portion of the company as interests are usually quite aligned with the company’s stakeholders and now with the backing by Alimentation Couche-Tard, we believe that Fire & Flower is poised to see significant growth this year as Alimentation Couche-Tard will begin playing a more hands on approach.
Lately, shares of Fire and Flower have seen a rise in its trading activity due to the recent investment by Alimentation Couche-Tard Inc. The trading activity is also attributed to Fire & Flower announcing a number of developments which seem to be more active then usual. Already in the month of August FAF has announced 3 press releases and we expect that the company will continue to be vocal as the company’s shares are creating higher highs coupled with higher lowers which signifies shares of FAF may continue its rise as the company continues to announce major developments.
For speculative and entertainment purposes we’ll look at a possible valuation on Fire and Flower Holdings Inc. Currently Fire & Flower currently owns or has an interest in 28 Cannabis retail stores in Canada and if an investor were to value each cannabis store at say, $10,000,000 per store this would give Fire & Flower a total value of $280,000,000. Now, Fire and flower has 117,619,511 common shares outstanding and at its current share price of $1.39 this gives Fire and Flower a market cap of $163,491,120. If we give an estimated value of $280 Million to Fire and Flower for 28 stores with each store valued at $10 Million, then this would value each share of Fire and Flower at CAD $2.38. ($280,000,000/117,619,511 shares = $2.38) This would represent an increase of 71.22% from its current levels. This speculative valuation price target of CAD $2.38 is currently inline from Altacorp Capital Inc. In May, AltaCorp Capital Inc. an institutional Equity research company set a “Speculative Buy” with a 12-month price target of CAD $2.50.
With the recent backing by Alimentation Couche-Tard and the expansion of Fire & Flowers’ retail stores, we are very bullish on shares of FAF going forward and we would not be surprised shares of FAF to break past the $2.00 mark by October and remains on our breakout watchlist and it should be on yours!
Forward Looking Statements: This article may contain "forward-looking information" (as defined in applicable Canadian securities legislation) that is based on expectations, estimates and projections as of the date of the content is published on this website. Wherever possible, words such as "anticipate", "believe", "expects", "intend" and similar expressions have been used to identify these forward- looking statements. Information in this article has been furnished for your information only, is accurate at the time of posting, and may be superseded by more current information. Except as required by law, we do not undertake any obligation to update the information, whether as a result of new information, future events or otherwise. This article should not be considered as personal financial advice. Full Disclosure: The company Fire & Flower Holdings Inc. is not a paid client of Equity Insight and directors of Equity Insight may buy, hold or sell securities before, during or after this publication.