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Cannabis’ Next Frontier: Regulated Retail. Meet the Pioneers

Jon Brown Jon Brown, Stockhouse
2 Comments| February 19, 2019


Cannabis’ next frontier is the regulated retail marketClick to enlarge

The industry already has a name for it – Cannabis 2.0.

Following the movement to produce cannabis generally (Cannabis 1.0), this wave focuses on companies having a direct relationship with consumers (with this market being recreational adult-use). What remains missing is a recognizable brand for consumers to associate with cannabis while the “Coke” or “Pepsi” style product brands of the “3.0” stage are being developed. As an in-market retailer, Fire & Flower Inc. (TSX:V.FAF, Forum) is already building its brand with consumers.

For investors following the next wave of cannabis investments, independent retailer and licensed producer (LP) Fire & Flower Inc. aims to be a Brand synonymous among Canadians as the trusted retail source for cannabis.

Headquartered in Alberta, this Company offers a distinct customer experience and is well positioned as a mass premium retailer in the market. It also boasts deep regulated cannabis experience. Most LPs coming into the retail space lack true retail experience or bench-strength, while other companies are getting into cannabis are repurposed from existing non-cannabis businesses looking for growth opportunities where they do not have expertise.

Click to enlarge

“Retail is the next frontier of the cannabis value chain and because of its accessibility, we anticipate consumers will purchase more diverse products, much more regularly than the medical market.” Company CEO Trevor Fencott told Stockhouse Editorial in a sit-down interview, noting that recreational cannabis has become a part of Canada’s social fabric and Fire & Flower was founded with that in mind.

Data is emerging from legal cannabis sales and the market’s potential is clear. Statistics Canada reported recently that the first full month of its legalization in Canada saw $54 million worth of marijuana bought from stores. In Bloomberg’s coverage, CEO Fencott was even quoted saying that demand at this point is outstripping supply.

The demand is immense. 22% of Canadians (one in five) surveyed say they consume cannabis and that percentage covers all demographics of Canadians, from judges to police officers, surgeons, lawyers, the old and the young, men and women, all mixed together. It was with this wide mix in mind that F&F was founded. The Company’s intent is to capture a large segment of this broad demographic through its position as a mass premium brand. It is already paying off. Since Cannabis became legal in Canada just over three months ago, Fire & Flower has achieved $10 million in sales. More on this later.

Cannabis for everyone

Fire & Flower is distinct as it is operating in the middle of the market ecosystem with roots in both retail and the legal Canadian cannabis industry. As a revenue-generator on the retail side, the Company is extending its branding across Canada with a focus on becoming a go-to independent cannabis retailer for consumers.

How does it differ from other cannabis businesses? Where many companies have licensed-production arms, they aren’t as adept at the retail end and because they are vertically-integrated, producing their own product, their ability to put customers first by independently curating products from a wide number of LPs is questionable. A number of new companies have repurposed their business to enter cannabis for growth opportunities. F&F’s home province of Alberta is a busy one. Elsewhere, Alcanna Inc. (TSX: CLIQ) has added cannabis to its existing private liquor store business, National Access Cannabis (TSXV: META) has added retail to its medical cannabis education and biotech business and Inner Spirit Holdings (CSE: ISH) has added cannabis retail through the Spiritleaf franchise to WatchIt!, its retail watch sales business. F&F wants to be a purpose-built cannabis retailer and boasts cannabis and retail experience behind the counter from the top.

Click to enlargeCEO Fencott (pictured left) was co-founder of licensed producer Mettrum (now Canopy’s Spectrum Cannabis) and his team was selected for their similarly deep backgrounds. Partner, Chairman & Director Harvey Shapiro was formerly the chair of cannabis company Emblem Corp. (TSXV: EMC), while CFO Nadia Vattovaz was former VP of Finance at Canadian Tire Corp. (TSE:CTC) and Holt Renfrew, and COO Mike Vioneck was Director of Operations at Liquor Stores North America, which is now Alcanna. Combined, this team handles the regulated retail and business operations sides of the game, which is a unique way of interacting with the market, from retail to credibly providing an unbiased and curated experience for customers.

“The Apple Store is the Apple Store, I love it, but I wouldn’t go there if I wanted a broad variety of devices that may or may not be appropriate for me, you would go there, because you only love those products not for variety and a curated experience,” CEO Fencott stated.

This idea already resonates with consumers. The “Whole Foods of Cannabis” image takes a confusing subject and simplifies it by covering the basics like product strains organized in an easy-to-understand fashion through a high-touch retail environment. The “elevated experience” is gaining momentum among major retailers from Amazon to Wal-Mart to help leading companies keep their edge in a world of growing competition. Trans-actual operations are finding it harder to keep up, so if there is one company outside the space that CEO Fencott would point to as a comparable business to what Fire & Flower is accomplishing, it would be the Whole Foods of cannabis. “The trust level with the customer is very important,” he added.

Introductions and re-introductions

Along with those who already consume cannabis, a further 17% of Canadians surveyed earlier stated they would try cannabis once it became legal. Give or take that number is still accurate three months later, a lot of interested people will be coming through Fire & Flower’s doors either vaguely familiar or unfamiliar with cannabis.

“That is our privilege, but also our responsibility,” CEO Fencott noted, as he stressed the importance of branding and merchandise to attracting consumers to gain their trust.

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(Image via Fire & Flower.)

“People want to eat healthy foods, they go to Whole Foods because they trust that brand and trust the experience, this is where cannabis is. No one goes in looking for a certain brand, there is no Coke or Pepsi of cannabis, that is still years away,” he said. “They will need new products explained. In a year, edibles and vaping will be new topics of conversation. For consumers today, the brand of the retailer is far more important than the brand of the product. A good experience with the retail brand builds return customers. Coming to F&F means the consumer trusts the brand over the black market.”

The curation of products must be precise but also streamlined for this strategy to succeed. Fire & Flower wants products from as many categories as possible, not just ranged from cheapest to most expensive. It’s an overwhelming world to understand so the Company has been taking an approach to present choices to consumers in line with the expectations around their own experiences.

Stepping into this finely-curated experience, a consumer would be greeted by one of F&F’s stand-out features, its “cannistas” in the centre of the shop. Much like a coffee shop barista, the cannistas specialize in the cannabis experience and can recommend exactly the strain a customer is looking for. It reflects the knowledge and experience the Company has.

To become the most recognizable and successful brand of independent retail stores throughout Canada, management’s strategy is to attain a roughly 15% category market share. This is a metre stick to help the Company achieve its goals as the landscape evolves. It was inspired by Alberta’s 15% license cap and has been a helpful guide to help management approach a market. Where fewer licenses are available, they must ensure they have high-quality operations in place, whereas in Alberta, they are ultimately striving for the maximum number of licenses possible and a close relationship with the provincial and municipal governments. The Company also utilizes multi-store branded operators as a significant advantage to secure a market share.

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(Click to enlarge.)

Fire & Flower is also growing its business through strategic partnerships and acquisitions. The Company recently closed the acquisition of digital development company Hifyre, creators of the industry-first regulated cannabis ecommerce & digital physician/patient management platform for Mettrum Health Corp. (now Canopy’s Spectrum Cannabis). Hifyre specializes in regulatory compliant digital platforms and information systems. Management felt they would have been acquired already, since they were working with several other LPs for backend patient & physician systems. A tech company focused on creating deep experiences in regulated cannabis, this was a no-brainer for F&F to snap-up. It means it has an extremely successful digital cannabis platform under its proverbial belt and further helps establish the Company as a dominant data-driven retailer.

Its strategy is already generating revenue. In the first three months since cannabis became recreationally legal in Canada, Fire & Flower successfully generated $10 million in sales across nine shops that opened for business since October 2018. While it is a healthy share of the market, it is a tight race where the Company is keeping pace. Within that time across twice as many locations, National Access Cannabis also earned $10 million, while Alcanna reported that in the first five days of legal cannabis sales, its five NOVA Cannabis brand stores realized combined revenues of approximately $1.3 million.

Looking ahead

F&F leadership sees the future for the Company within Alberta, where the economic opportunity is, while stretching its reach as far across the country as possible, focusing on Western Canada in 2019. The Company plans to roll out more than 50 stores across the Country this year.

Fire & Flower Inc. is soon-to-be listing on the TSX: Venture Exchange under the ticker symbol FAF and further news is expected to be released in the coming weeks. Investors should keep the Company on its radar to see what it does next to stand out in a market rife with opportunity.

FULL DISCLOSURE: This is a paid article produced by Stockhouse Publishing.





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