Fire and Flower Throw in the Towel, Citing Significant Losses
An initial order for creditor protection has been granted by a Canadian court to Fire & Flower Holdings and its cannabis-related businesses due to significant net losses of more than $150 million ($200 million) that have accrued since 2018. The Companies Creditors Arrangement Act (CCAA) was used by the Ontario Superior Court of Justice to grant this order, which enables the company to continue operating as it currently is and interact with stakeholders to consider options for future business ventures. The court has also approved a debtor-in-possession loan of CA$ 9.8 million to Fire & Flower as part of this procedure. This credit was provided by an affiliate of Alimentation Couche-Tard, a significant Canadian convenience store chain and stockholder in the cannabis retailer.
Fire & Flower Seeks Solutions to Sustain Operations
In a recent news release, Fire & Flower emphasized the significance of creditor protection, which allows the company to collaborate with the monitor, FTI Consulting Canada. This collaboration aims to streamline operations and facilitate a court-supervised sales process, with the ultimate goal of obtaining a going concern for its operations and maximizing the value of its assets. By leveraging this strategic approach, Fire & Flower seeks to secure the continuity of its operations and navigate the challenging landscape it faces.
To support its operations during this process, Fire & Flower has been granted a debtor-in-possession loan of CA$ 9.8 million from an affiliate of Alimentation Couche-Tard, a major Canadian operator of convenience stores and an investor in the cannabis retailer. This financial support will fund the company's operations and enable it to execute its plans effectively.
Fire & Flower is among a growing number of Canadian cannabis companies turning to Canada's corporate insolvency law to address financial challenges. Notably, between January 1 and December 22, 2022, 14 out of the 35 Companies' Creditors Arrangement Act (CCAA) filings in Canada involved companies operating in the cannabis industry in some capacity. With a network comprising more than 90 corporate-owned stores, Fire & Flower will employ approximately 618 full-time and 806 part-time employees by the end of 2022. Recognizing the need for additional funding to sustain its business, the company recently announced a comprehensive review of strategic options, including exploring various financing alternatives.
The Financial Challenges and Root Causes for Fire & Flower's Losses
Management of Fire & Flower stressed in a regulatory filing dated May 15 that the company's ability to continue as a going concern depended on crucial elements, including growing revenues, improving profitability and cash flows, and securing funding from debt, warrants, and other capital market alternatives. According to a news statement from the company, after careful consideration, the board decided that it would be best for Fire & Flower to apply for creditor protection under the Companies Creditors Arrangement Act (CCAA).
Fire & Flower attributed its substantial financial losses primarily to difficulties it encountered in its cannabis retail business. These difficulties included increased margin pressure, heightened competitiveness, and higher operational costs. Additionally, according to the company's filing, the regulatory limits on the cannabis business have resulted in fewer sales and higher expenses than had been projected for their retail locations.
Annual losses have been disclosed by Fire & Flower since 2018. The company and its subsidiaries suffered losses of $45.4 million and $83.4 million, respectively, in the fiscal years ended January 29, 2022, and December 31, 2022. Also included in these net losses were more than CA$25.2 million for the fiscal year that ended on February 2, 2019, more than CA$35.6 million for the following year, and more than CA$17.5 million for the next year. Fire & Flower reported a net loss of over $8.7 million CA as of the quarter ending March 31, 2023.
Fire & Flower's cash situation has worsened over the last two years. Cash held by the corporation and its subsidiaries as of January 30, 2021, was worth CA $30.6 million; this amount fell to CA $19.8 million a year later. According to their statement, as of March 31, 2023, the cash balance was only CA$ 8.2 million, while current liabilities totaled more than CA$ 50.8 million.
Among the subsidiaries cited in the court order were Hifyre, a digital retail and analytics platform; Friendly Stranger Holdings, which Fire & Flower purchased for roughly CA$24.6 million in 2020; Pineapple Express Delivery; and Pineapple Express Delivery, which Fire & Flower acquired for around CA$7.2 million in 2021. On the Toronto Stock Exchange, shares of Fire & Flower are traded under the ticker FAF.
Subsidiaries Affected by Fire & Flower's Creditor Protection Order
Fire & Flower's recent grant of creditor protection under the Companies Creditors Arrangement Act (CCAA) also has implications for its subsidiaries. The court order encompasses various entities associated with Fire & Flower, including Hifyre, Friendly Stranger Holdings, and Pineapple Express Delivery.
Hifyre, a digital retail and analytics platform, is one of the subsidiaries named in the court order. As Fire & Flower's digital arm, Hifyre provides technological solutions for the cannabis retail industry. The company's involvement in the creditor protection process raises questions about the impact on its operations and the potential for restructuring.
Friendly Stranger Holdings, which Fire & Flower acquired for approximately CA$24.6 million in 2020, is another subsidiary affected by the creditor protection order. Friendly Stranger Holdings is a well-known cannabis retailer in Canada, operating multiple stores nationwide. The implications of the order on Friendly Stranger Holdings raise concerns about the continuity of its operations and the potential impact on its employees and customers.
Additionally, Pineapple Express Delivery, acquired for around CA$ 7.2 million in 2021, is among the subsidiaries impacted by Fire & Flower's creditor protection. Pineapple Express Delivery offers cannabis delivery services, and its inclusion in the court order raises questions about the future of its delivery operations and the potential for restructuring or consolidation.
The involvement of these subsidiaries underscores the interconnectedness of Fire & Flower's business ecosystem. The creditor protection order's impact on these entities must be carefully managed to ensure a comprehensive and coordinated approach to their respective operations, financial stability, and long-term viability.
As Fire & Flower and its subsidiaries navigate the creditor protection process, stakeholders, including employees, suppliers, and customers, will closely monitor developments to assess the potential implications for their relationships with the company and its subsidiaries. The outcome of the process will play a significant role in determining the future landscape of Fire & Flower's subsidiary companies within the cannabis industry.
Bottom Line
Fire & Flower Holdings, a Canadian cannabis retailer, has obtained creditor protection following significant net losses of over $150 million since 2018. The company will continue operating under court supervision, exploring options with stakeholders for future ventures. A debtor-in-possession loan from Alimentation Couche-Tard's affiliate will support ongoing operations. However, Fire & Flower's financial challenges, including increased competition and regulatory constraints, have contributed to their losses. The creditor protection order also affects subsidiary companies, raising concerns about their viability. As developments unfold, the outcome of the process will shape the future of Fire & Flower and its subsidiaries in the cannabis industry.
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