The cannabis sector has been a journey filled with volatility since 2017, however since the recent outbreak of the Coronavirus over the past month, cannabis stocks received the same treatment or worse than the broad market. But there might be some positive developments in the industry especially retail outlets. A recent publication from mjbizdaily highlighted many interesting points on the recent buying frenzy taking place due to possible quarantine for Covd-19.
A cannabis retailer Spirit leaf which operates under the Inner spirit holdings (CSE: ISH) banner has reportedly seen sales increase over 20% last weekend when compared to the previous weekend and the company has achieved a record number of customers served.
The Ontario Cannabis Store (OCS), a provincially owned cannabis retailer has also recorded an 80% increase in sales when compared to a usual Saturday. Although some provincial retailers have seen a surge, we expect that independently owned retailers in the marketplace such as Fire & Flower (TSX: FAF) and Meta Growth (TSX-V: META) will also experience higher sales volumes.
Fire and Flower announced on March 04th that the has launched its Sparks Perks™ and Fastlane™ service in both Ottawa and Kingston. Members of Spark Perks program have access to the Fastlane service, which allows consumers to simply order their cannabis products online and pick up and pay in store. Fire &Flower reported that on average consumers will typically spend 44% more, make more frequent purchases and purchase approximately 300% more per year than members who are not part of the Fastlane™ program. However due to precautionary measures, FAF announced on March 18th that it has temporarily closed 7 of its stores in Alberta leaving the company with more than 40 retail locations still open to serve customers. Stores are expected to remain closed until March 29th at the earliest and purchases in Ontario will be done strictly through the its Fastlane service in an effort to mitigate the spread of Covid-19.
Shares of FAF traded a high of $1.22 per share on January 22nd 202, although since then the company has lost 70% of its value as shares closed at $.355 cents per share on March 19th 2020. Another key point that highlights FAF’s attractive value at these levels is the fact that the company issued 12,173,912 shares in connection to the repayment of convertible debentures which came due on July 31st 2020. FAF issued the shares through a forced conversion on the debentures and a closing trading price of no less than $.70 cents. If investors were to go to page 17 of the company’s most recent MD&A, they will see that the lowest price of convertible debenture is $1.07 and these debentures are owned by retail giant Alimentation Couche-Tard. This would represent a 201% increase in share price to reach the convertible price of $1.07. We view the share price to be of great value to investors as it presents an opportunity to purchase equity at a much lower price than a conglomerate such as Alimentation Couche-Tard.
With the recent surge in cannabis sales due to self-isolation from Covid-19 and with the expansion of retail stores in Ontario in the coming months, we believe that LP’s and retail companies such as FAF are well positioned for growth and could increase as market fears diminish.
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