Fire & Flower Inc Hits $10 Million Mark in Recreational Sales

Fire & Flower Inc is a cannabis retail franchise operating in Western Canada. CEO Trevor Fencott has nothing but praise for the company’s stores, which have just surpassed $10 million in sales since legalization. Fire & Flower had 5 locations open on October 17 and has since doubled its retail footprint. While the company is currently private, it has plans for an RTO, and to go public shortly after on the Venture exchange, under the ticker ‘FAF’. Fencott describes the process of obtaining product from LPs and provincial organizations such as the AGLC and OCS. Fencott emphasizes that these provincial bodies are still learning about cannabis and that Fire & Flower often acts as a type of “Whole Foods of Cannabis” because it curates a confusing selection of products for consumers. He provides his perspective on the Ontario retail lottery and shares his compliance concerns about sole-proprietors in the space. Fire & Flower continues to expand in Western Canada and has submitted 37 additional license applications in Alberta.

Transcript:

Fraser Toms:  Hey, we have a very exciting guest right now: we have the CEO of Fire and Flower Inc., Trevor Fencott. Thanks for joining us.

Trevor Fencott:    Thank you for having me.

Fraser Toms:  SO your company is a cannabis retailer, and just looking at your latest press releases, you guys have done 10 million in sales since legalization, is that correct?

Trevor Fencott:    That’s right. So we were open right on October 17^th, we had five stores open at that point in Saskatchewan and Alberta and we’ve increased it to nine, so yeah, we reached that within 90 days of legalization. So we’re quite proud of that.

Fraser Toms:  Okay, great. Well, we’ll get back to that in a second, but first, just to let our viewers know, currently, as of right now, you guys are a private company?

Trevor Fencott:    Yes.

Fraser Toms:  Plans to change that?

Trevor Fencott:    Absolutely. So we announced that, I think, in the fall, that we are doing an RTO with Cinaport Acquisition Corp too, which I believe has their AGM on the 30^th, and then we will be trading shortly after that.

Fraser Toms:  And the ticker symbol on the Exchange?

Trevor Fencott:    Will be FAF, and it will be the Toronto Venture Exchange.

Fraser Toms:  Awesome. We will definitely keep an eye out for FAF. Cool. So the whole retail space is a topic of curiosity for me. I’ve gone in these licensed producers’ facilities and shopped from top to bottom, and I get a sense for how the business works. But then once they’re finished and the product goes into a container, it’s sort of almost a mystery at that point. So what’s that process like from your perspective, just broadly, first, and then I’ll shoot at you with some –

Trevor Fencott:    So it depends on the province, is the short answer. So for example, in Alberta, it would go from the licensed producer’s warehouse, it would ship direct to the AGLC, the Alberta Liquor Gaming Commission there, into their warehouse, and then to us as a retailer. So we would order, each store in Alberta has to order from them directly and place an order for that store in particular.

In Saskatchewan, though, for example, where we have two of our stores up and running, we also have a distribution centre. So in Saskatchewan, we’re allowed to be, effectively, the wholesaler. So we act as the AGLC or the AGCO in Ontario. So we buy directly from the licensed producer. So in that sense we go out to visit all the LPs and we look at their product, we do a rigorous evaluation on kind of their product quality, and anticipated ability to supply us, because there is no margin for error; if we don’t get supply in Saskatchewan, we will not have it, so there is no other appeal.

And we have actually, by the way, never stocked out. So we’ve been very effective at getting product. And we also sell that product on, once we buy it from the licensed producer in Saskatchewan, we sell it on to the other independent retailers that are licensed in the province as well.

Fraser Toms:  Okay, that’s interesting. So in Saskatchewan, I guess, what was your perspective – like, with the 10 million sales number, prior to that, before legalization occurred, did you have any expectations, or were you sort of in the dark?

Trevor Fencott:    No, we had some information. Like the MJBiz fact book had certain aggregated stats from the US, but they’re not tremendously useful because they’re selling products that we can’t yet sell in Canada, so things like extracts or vape-able products. But they did indicate that it was around sort of $1,200 USD per square foot across all their domains, which is basically any regulated domain there.

So for us, we use that for planning purposes, but what we’ve found is that the demand has far exceeded supply, and our stores were built under the, you know, the premise of cannabis for all Canadians. So when people hear that stat that 22 percent of Canadians consume cannabis, everyone sort of assumes that they know who that 22 percent is, like, oh, I know that guy! But it’s actually 22 percent across, and I think that number is low, across all of our demographics. Like people who consume cannabis are judges, are police officers, are surgeons – like it’s really a very democratic substance.

So we found certainly first-day lineups when we analyzed those kind of like a core sample, we found that we were about 50 percent male/female, which I think surprised some people. We were 50 percent plus or minus old and young in terms of demographic, and sort of white collar/blue collar mix was pretty even. So it was a very, very democratic spread. So we’ve seen the demand be very, very high.

Fraser Toms:  Yeah, okay. Well, I was also curious, and I don’t know how it changes from province to province, but your selection process in terms of what you want in the store, is it based on, you know, who’s producing the most, or do you just take everything, or how do you go through that selection?

Trevor Fencott:    That’s a great question. So for us, we are a cannabis retailer, but we’re primarily a retailer. So you have to run a proper retail business. So I would be the cannabis person at the head, but for example, you know, everyone at the company has come from regulated retail, like Liquor Stores North America or Holt Renfrew or Canadian Tire. So this is a very sophisticated buying process – like, to be a retailer, the margins are not going to be excessively high, so you have to really manage that. So our head merchant, which is a position in a retail company, comes to us as a Walmart buyer, right? So this is a very sophisticated, okay, what do you think the market is going to be? Yeah, exactly, and so these conversations are the same thing, which is reliability of supply counts on a balance score card; price is obviously an important factor; quality of product.

What we’ve found is that, and we’re just in the learning stages of the industry, so we will figure this out as an industry, but what we’ve found is the provincial buying bodies are just ramping up on their cannabis knowledge. So for example, for us, once we buy it, we re-categorize it inside the store. So for example, knowing what we know about licensed production, it’s very difficult to produce a plant, a whole flower, at 22 percent and above THC; it’s just very difficult, because that plant is not being stressed out at all, no, you know, the lights haven’t been turned on at the wrong time – you’ve visited a lot of these facilities yourself.

It’s gone almost perfectly, and that to us is a premium product, versus what we’re seeing is a pass-through where licensed producers are sort of saying Hey, provincial buyers, this is a premium product, but you know, we know that no product is not going to be a premium product. A pre-roll product is going to be largely a blend.

So we’re having to kind of re-categorize it for our consumers, because our job is to be the Whole Foods of cannabis, which is really about curating a very confusing customer product category, like health foods – I mean, you could endlessly read all day about the keto diet and magnesium, like what do I need – so they do a good job of curating that for their health and wellness customers, and we need to do that in cannabis. So we need to take what’s being offered to purchase from the AGLC, or when we’re in Ontario, the Ontario buying body, and kind of re-categorize it, saying, by the way, this is probably what a premium product actually is, and this is what a good-better-best…we’ll do our own work on explaining to our consumer how that breaks down.

Fraser Toms:  How have you found branding? So from my point of view, I feel like our government has almost completely neutered the LPs, but are you seeing branding effectiveness at all? Is it speaking to consumers, are they asking for a certain brand? Is that working at all?

Trevor Fencott:    It’s, unfortunately, I think that is one of the things that we need to learn as a country. When we look at regulating how we talk about the product, obviously we want to protect children, we want to do it in a social responsible way, and that’s what Fire and Flower stands for, but, you need to give consumers enough information to make an informed decision. And I feel the way we’ve got it so far is over at one end of the spectrum, and what it’s really doing is not allowing consumers to have an intelligent conversation about the product they’re potentially purchasing. And it’s certainly not allowing them to make proper distinctions between this and the black market.

So in the absence of allowing licensed producers to talk about what might make their brand special or different – and there differences between these brands – we instead find people coming in with a very low awareness of what an actual product would be from a licensed producer. They know licensed producer company names, but they don’t rally – very low awareness, I think we tracked it at one point, it was sub-1 percent awareness of an actual brand on an exit interview.

So to us, they’re coming in and they’re either using an alcohol analogue, which we would argue is kind of an appropriate way to look at this; we’re regulating it in a similar fashion, this is not a narcotic anymore in that sense, it’s much more like alcohol, so let’s let people have a dialogue about cannabis the same way they would about wine in a vintages section of a wine store.

So we see people coming in saying When I – well, thank you very much for your education, this is really helpful, Fire and Flower, really happy that you’re engaging with me, I drank Heineken though when I drink beer. Is there anything for me there? Or, for example, I want OG Kush – a strain name, as opposed to a product name. and I think that’s potentially going to be a problem, because if people keep identifying with black market strain names, which are not verified and possibly not even accurate, who knows what an indica sativa or what an OG Kush really is, you can’t let people talk about a product that’s been validated at an LP level and under the Health Canada system, it’s going to be very difficult to displace the black market.

Fraser Toms:  Yeah. Well I mean, if I were to come in, I’d probably ask for something high in CBD, but beyond that, I wouldn’t have much more to say, so.

Trevor Fencott:    And that’s right, and if you think about it, even just CBD, there’s extracted CBD, there’s whole flower, there’s a whole plant was a CBD plant that’s been extracted, there’s many, many things that we should be able to talk about along with brand that are important to consumers.

Fraser Toms:  Yeah. And I mean later this year, and I don’t know if you have any more knowledge than the average Joe in terms of what is going to be allowed, so vapes is a huge, huge market – I was kind of shocked that they didn’t allow that from the jump. But is that something that’s a catalyst for the retailer, is there higher margins there?

Trevor Fencott:    I think so. I think anytime you are dealing with a product that is processed in some way, that is not a basic ingredient or wheat or barley, I think you’re going to get higher margins, and you’re going to allow retail to capture some of that.

Candidly, I think that the decision to not include vapes in the first round of regulation, I think makes sense, because this is a different kind of product, and I think we have to be able assure our customers that the same safety standards are being followed. And frankly, with another ingestion mode, whether it’s glycol or medium-chain triglyceride, some science has to be done, here. Certainly, I think, to make our customers comfortable that look, somebody’s studied this, it’s not just simply cannabis in another form; the processing has been studied, what’s in it has been studied, and that it’s going to be safe. So I’m actually as a consumer as well as a parent, I’m actually happier that we are taking a little bit of time to figure this out before we – there’s no rush, we should do it right, rather than do it quickly.

Fraser Toms:  Okay, fair enough. And you’re a Toronto guy, and I got to ask you about the retail situation here with the lottery.

Trevor Fencott:    Yes.

Fraser Toms:  Uh…how do you feel about that? I mean, you’ve got multiple businesses going; I’m sure a lot of research, the talent that you’ve acquired, the Walmart, all that stuff, the individuals, over 60 percent were individuals, not incorporated businesses. Do you feel like they have a chance to succeed and just in general, what do you think about the decision that were made in this province?

Trevor Fencott:    Well, I guess first I should say, I grew up in Toronto, I actually reside in Oakville, which ironically it’s not lost to me that Oakville opted out of the cannabis. But imagine that it’s going to be interesting to see how that plays out, because I think they want to opt in because they want to get the benefit of all the tax dollars that are pouring in there for training.

But on the lottery, I think that it makes sense the way we look at it, it’s just like a beta test, and we’ve beaten multiple markets, now. We were here in Alberta, we started in Saskatchewan, like, we’ve really been kind of pioneers from the beginning in this part of the industry, and what we’ve seen is that the lottery – and this is not our first lottery, I think it’s our third lottery; we did Edmonton’s lottery, we had a Saskatchewan lottery, there’s lots of lotteries. And what we’ve seen is, it’s a good way to start something on the fairness of opportunity part, but it’s actually a very bad mechanism to secure an outcome. So for example, in Saskatchewan, what we’ve seen is of the 51 licensed lottery winners, I think there’s only actually 7 stores that are operating in the province. So it’s very good to kind of allocate an opportunity, especially in a resource-constrained environment, which is why I think that what Ontario did, the government did, for the initial lottery makes a lot of sense, because we are in a supply constrained environment. And it’s better to get, you know, 25 stores up and running; if you don’t have enough food, don’t invite more people to your house to dinner, right? So that makes sense to me.

But we view it as a beta test, and if that’s the government’s intention, then I think that that’s the right way to do it, whereas these 25, though, are going to need help, and we’ve obviously had discussion with many of the groups, just like our competitors, in and fact, they’re probably everyone have had these kind of discussions. People love lotteries; it’s a very romantic notion of winning the lottery, but it’s very difficult to set up a store, particularly in nine weeks. We obviously applied as well, and we picked our stores with the express purpose of, can we get this up and running, permanent, built out and operational, software system installed, point of sale installed, there’s a lot of moving pieces to a regulated retailer, by April 1. And that’s how we made our decision.

So we look forward to the opportunity to helping lottery winners get to that point, first of all on time, but also, I think, what the Ontario government needs to maybe look at from there is that how do you make sure that once they’re up – that’s assuming you can get them up in time, that they’re run in a compliant way. And that’s really the challenge. For example, it is non-trivial to be able to balance your inventory at the end of the month to a regulated cannabis standard. It’s not like I lost four chocolate bars, okay, well, I guess, whoops, we won’t do that again; it’s like, you lost 5 grams of something, somewhere. You need to account for that.

And then, of course, selling to minors, and I think the perennial problem with operators that are sole proprietors is going to be the potential infiltration of the black market. It’s very difficult to see that if you have groups, as we’ve seen sort of our west, that are maybe waiting for the supply issue to stabilize, and they’ve paid rent, and they’ve taken out the second mortgage and this is their next career move, it’s difficult to underestimate the kind of temptation to kind of engage in the black market. And for us, that’s simply not the case. We’re well-financed, you know, we’re long term players, and I guess that’s how we look at the Ontario market: from a long term view.

Fraser Toms:  Right, that makes sense. Okay, just very briefly, what are you excited for in the coming weeks and months?

Trevor Fencott:    Well, I think in the coming weeks and months, we’re very excited about – I mean, we’re starting to see the supply issue ease up, which is great. And I think that we’re going to see a lot more growth in Alberta, which is why when I’m asked a question about Ontario, I think it’s responsible to have the lottery as your beta test, but we have so much wood to chop in the west. Like, we’re a western-focused company because that’s where the opportunity is at the moment.

So for us in Alberta, we have 37 sort of license applications in, we have seven of these stores licensed – sorry, we have seven selling cannabis, but we’ve been building out. This is a when supply comes online, not if it ever does. We all agree that as a country we’re going to have a five times oversupply of cannabis, depending on who you talk to, a year or two years, but it’s going to happen. So we’ve been continuing to build. So what I’m very excited about is the possibility of stores that we have built out in Alberta coming online and become revenue-generating assets, and obviously very, very excited about Ontario opening up and the possibility of working with some of these lottery winners to help, I think, establish a benchmark of compliant, socially responsible regulated cannabis sales.

Fraser Toms:  Okay, awesome Trevor, well, we’d love to have you back, especially when you’re up and running and a public company and we can pore over the SEDAR documents. So thank you for joining us.

Trevor Fencott:    Thank you for having me.

Fraser Toms:  We’ll have you back soon.

Trevor Fencott:    Awesome, thanks.

Original article: Fire & Flower Inc Hits $10 Million Mark in Recreational Sales

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