Fire and Flower is a pot stock with huge upside, AltaCorp says

In an update to clients on Monday, AltaCorp Capital analyst David Kideckel applauded the move by Canadian cannabis retailer Fire & Flower (Fire and Flower Stock Quote, Chart, News TSX:FAF) to start curbside pickup in Saskatchewan, saying it’s another way FAF can use its Hifyre digital retail platform to its advantage.

Lineups were large this weekend at Ontario’s pot shops with the province deciding to close the door on face-to-face cannabis retail as the push to control the spread of COVID-19 continues.

But in Saskatchewan where cannabis stores are still considered an essential service, at least for the time being, Fire & Flower has announced the start of contactless curbside pickup to complement its same-day delivery service in select markets across the province.

Edmonton-based Fire and Flower said the measures will not only offer residents safe access to cannabis products in the age of COVID-19 but will help keep people in the legal cannabis market rather than providing more energy to the black market.

In the press release, CEO Trevor Fencott said FAF’s Hifyre and Sparks Perks customer program help bring customers into the FAF fold.

“Fire & Flower's core focus as a technology-enabled retail 2.0 company has provided us with a distinct competitive advantage in an environment where social, political and economic conditions are fundamentally changing the ways that retail companies can safely conduct their business,” said Fencott.

In his update, Kideckel called the move to curbside a positive for the company, saying that especially during the current business environment, FAF’s tech prowess is a difference-maker.

“According to management, Spark Perks now has over 90,000 members, which is a substantial increase from ~50,000 members back in December 2019. We believe this rapid increase in membership is evidence of the compelling value proposition of the Spark Perks program and an indication of Hifyre’s differentiated capabilities,” Kideckel wrote.

Kideckel currently rates FAF a “Speculative Buy” with a one-year target of $1.95, which at press time represented a projected return of 355 per cent.

The analyst is forecasting fiscal 2020 revenue and adjusted EBITDA of $127.8 million and $4.7 million,
respectively.

Fire & Flower last reported earnings in December when the company’s third quarter ended November 2, 2019, featured revenue of $13.7 million, up from $11.1 million in the company’s Q2, with a gross profit of 34.7 per cent.

By the quarter’s end, FAF had 30 cannabis stores in operation, having opened up ten in the Q3 alone.
Subsequent to the quarter’s end, FAF said it has received nine more shop licenses in Alberta and is now in the final stages of application for stores in British Columbia.

As to the closure of bricks and mortar pot shops in Ontario, Kideckel said the move will only boost the illicit market.

“Ontario is already one of the provinces with few retail stores per capita in Canada, which makes cannabis access more difficult for consumers. We believe that this is one of the main bottlenecks for sales growth in the Canadian cannabis industry,” Kideckel wrote.