Couche-Tard pot shops 'a winner' ahead of U.S. expansion: Fire & Flower

Jeff Lagerquist
·3 min read
Fire & Flower reported $43.2 million in revenue for its fourth quarter ended Jan. 30 before the opening bell on Tuesday. (Provided)
Fire & Flower reported $43.2 million in revenue for its fourth quarter ended Jan. 30 before the opening bell on Tuesday. (Provided)

Alimentation Couche-Tard's (ATD-B.TO) foray into the Canadian cannabis market is proving pot is a strong seller next to corner store staples like pop and chips, according to the convenience retail giant's cannabis partner.

Fire & Flower (FAF.TO) reported Tuesday strong sales at its pair of pot shops in Alberta co-located with Couche-Tard's Circle K convenience stores. The pot retail chain, which is 19.9 per cent owned by Quebec-based Couche-Tard, announced a pilot project to blend cannabis sales and convenience retail last July, with plans to roll out additional co-located stores in the future. 

Chief executive officer Trevor Fencott said on a post-earnings conference call that cannabis sales have been "superior to traditional retail in most respects," given the comparatively small square-footage allotted to pot inside the Circle K pilot project stores.

"That has to be a winner on any metric," he told analysts on Tuesday morning. "Looking at traditional convenience store dynamics, and looking at a partner with a large existing portfolio of real estate, you can sort of fairly quickly intuit that it might be attractive to have more of those types of stores in your portfolio."

Couche-Tard has more than 14,200 stores in 26 countries and territories. However, the company recently announced plans to shed nearly four per cent of its North American footprint, following a strategic review. 

Fire & Flower has incurred millions in restructuring and impairment charges related to its decision to abandon plans for some locations. The company currently operates 80 cannabis stores in Canada, and is in a tight race for scale with rival pot retail chain High Tide (HITI.V), which recently announced its 85th branded retail location

Fire & Flower submitted an application to list on the Nasdaq exchange in February, demonstrating its increasing focus on the U.S. market, as lawmakers in Washington advance reforms on cannabis.

Fencott says his company and Couche-Tard are aligned in their view that cannabis sales will one day be "convenience-driven." That could come into play as his company looks to expand into the U.S. through a recently announced deal with American Acres Managers, a private Canadian firm with marijuana retail plans in Arizona, California and Nevada.

"I definitely think it's part of both of our aspirations as we go beyond Canada, and even beyond the U.S. Certainly with a partner that is in 25 countries around the world, our shared vision is we'll be in every country where cannabis is legal at retail in the order they come online," Fencott said.

"It just looks like the U.S. is the most close opportunity."

Couche-Tard CEO Brian Hannasch recently said he is "pleased" with his company's cannabis investment, and is examining how best to approach new markets where recreational cannabis could become fully legal.

"If we look at the bigger opportunity, certainly we're not yet legal in some of our big markets, like the U.S. But to the extent that they become fully open, and to the extent that we believe we have a better mousetrap, we'll certainly look," he said on a March 18 earnings call. 

Fire & Flower reported $43.2 million in revenue for its fourth quarter ended Jan. 30 before the opening bell on Tuesday, an increase of 30.5 per cent over the previous quarter. Same-store sales, a key retail metric, increased by 36.8 per cent over the fourth quarter of 2019. The company reported a quarterly net loss of $11.4 million.

Toronto-listed Fire & Flower shares climbed 2.91 per cent to $1.06 as at 1:23 p.m. ET.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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