As countries around the world implement new regulations that are aimed at slowing down the spread of the coronavirus, businesses are working tirelessly to introduce new models that would avoid a lengthy shutdown.
In 2014, we started to closely follow the cannabis industry and we are impressed with how the industry has evolved since then. Cannabis companies have not been immune to the coronavirus and this is an opportunity that we are highly focused on. Last month, we read several reports that highlighted the increasing demand for medical and recreational cannabis as consumers have stocked up on product in case the coronavirus disrupts the market.
Canada has been a hotbed of activity for the cannabis industry when this is a market that we have been bullish on. Although the Canadian government dropped the ball on the rollout of the recreational cannabis market, the country is ahead of the curve when compared to the US (especially as it relates to the international cannabis opportunity).
In late 2019, the Canadian cannabis industry recorded a major milestone and Health Canada approved the sale of cannabis 2.0 products to consumers. These products include cannabis infused products (edibles and drinkables), vape pens, cannabis concentrates, topicals, salves, and more. Although the change in the types of products that can be sold to consumers represents a significant development, the increase in revenue associated with these products has been lower than normal.
We believe that this trend is transitory and expect the Canadian cannabis industry to continue to record impressive growth on a going forward basis. Today, we want to highlight 3 Canadian cannabis retailers that have been on the frontlines of the coronavirus crisis and believe that these are opportunities to be aware of.
Fire & Flower: A Canadian Cannabis Retailer to be Watching
Fire & Flower Holdings Corp. (FAF.TO) (FFLWF) is a leader in the Canadian cannabis retail market and has been executing on a multi-faceted growth strategy to increase market share. Although the company has been nothing short of an execution story, Fire & Flower has been trading lower with the market and this is an opportunity that we are following.
Earlier this week, Fire & Flower Holdings announced that it will launch a curbside pickup program across its retail network in the province of Saskatchewan. The curbside pickup program is a new service offered through the Hifyre™ Spark Perks™ digital retail platform. Fire & Flower is already offering same day delivery in Saskatchewan and we will monitor how the platform gains traction in the province.
Fire & Flower highlights its rapid deployment of industry-leading health and safety practices that include contactless curbside pickup and delivery services in the province of Saskatchewan as a model for safe and effective retail operations during the COVID-19 public health crisis.
The temporary closure of legal cannabis retailers in certain markets, particularly in the province of Ontario, may bolster the illicit market and the potential sale of unregulated potentially harmful products without oversight of health and safety practices, inventory tracking, product testing and sales and marketing to young persons.
Fire & Flower believes that private retail delivery services and curbside pickup programs can provide safe access to legal cannabis products while slowing the spread of the coronavirus. These programs will also put pressure on the illicit cannabis market in Canada and we expect to see strong demand for the company’s platform. Fire & Flower’s core focus has provided it with a significant competitive advantage in an environment where social, political and economic conditions are fundamentally changing retail companies can operate.
Going forward, we expect the Canadian cannabis retailer to be impacted by Ontario’s decision to remove cannabis retail stores from the list of essential workplaces so that they were no longer permitted to operate during the health crisis for a 14-day period following the announcement. The company has temporarily closed its Ottawa and Kingston locations and we will monitor how the shuttering of stores impacts the business.
High Tide Temporarily Closes Ontario Retail Stores
Another Canadian cannabis retailer that has been impacted by the shutting down of cannabis retailers in Ontario is High Tide Inc. (HITI.CN) (HITIF). During the last year, we have been closely following the Canadian cannabis retailer and will be keeping an eye on how it performs during these unprecedented times.
Similar to Fire & Flower, High Tide has been forced to close its cannabis retail stores in Ontario and this is a development that our readers should be aware of. In an effort to cut costs, the company has temporarily laid-off all of the retail staff from the Ontario locations. Once the stores are operational again, we expect to see these employees rehired by High Tide and will monitor how it is able to bring its staff back to work.
During the last year, High Tide has been focused on diversifying its business model and we find this to be significant. Later this month, the Canadian cannabis retailer plans to launch CBDCity.com. The website will primarily serve customers in the United States and the European Union, and we will monitor how the platform is able to gain traction.
High Tide believes that it is well positioned from a capital standpoint and expects the senior secured credit facility that was advanced by Windsor Capital and the proceeds from the eventual sale of the common shares of Halo Labs to position the company to satisfy its core operating expenses and capital expenditures. We find this to be an important aspect of the story and will monitor how the company is able to conserve capital during these times.
Choom Holdings: An Acquisition Story to be Watching
In 2018, Aurora Cannabis (ACB.TO) (ACB) was in the middle of a spending spree and was highly focused on the Canadian cannabis retail opportunity. After spending several billion dollars on two Canadian cannabis producers, Aurora Cannabis made an investment in Choom Holdings (CHOO.CN) (CHOOF) to be better levered to the Canadian retail landscape and this is an opportunity that we have been closely following.
Choom Holdings has been highly focused on the Canadian cannabis retail market and has been working to enhance its position in this market. Last week, Choom Holdings announced a major milestone and reported to have completed the acquisition of a retail cannabis store in Niagara Falls, Ontario.
The acquisition of the cannabis retail store falls in line with the company’s plan for a nationwide rollout and we will monitor how the management team is able to execute on this opportunity. The Niagara Store has had a robust and stable operating history and Choom reported it to have unaudited gross sales of approximately $7 million for the 9.5 months since opening on June 15, 2019. We are favorable on the amount of revenue that the store has generated since inception and will monitor how it is able to perform during these tough times.
Choom is led by a management team that has a proven track record of success in the cannabis industry and we are favorable on this aspect of the story. The company is well positioned to record strong growth once the coronavirus fears have abated and this is an opportunity to keep an eye on.