Fire & Flower Stock Should Stay Hot After Couche-Tard Spark

Fire & Flower Holdings Corp. (TSXV:FAF), one of the Canadian marijuana stocks, recently announced a sizable investment from Alimentation Couche-Tard Inc. (TSX:ATD.B)

SmallCapPower | July 25, 2019: Fire & Flower Holdings Corp. (TSXV:FAF), one of the Canadian cannabis stocks, announced on July 24, 2019, that it had entered into a subscription agreement with Alimentation Couche-Tard Inc. (TSX:ATD.B) (TSX:ATD.A).

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The sub agreement allows for Couche-Tard to provide Fire & Flower with an investment in aggregate of up to $380M. The initial tranche of the agreement is a convertible debenture for a 9.9% ownership that converts at $1.07 per common share when Fire & Flower hits a milestone of 45 licensed stores operational by December 31, 2020. The initial 9.9% convertible represents 1.5x and 11.4x takeout multiples based on F2021E revenues and EBITDA of $175.6M and $23.1M (consensus estimates), respectively. This implies a slight premium to small-cap Canadian cannabis companies with market caps between $70M to $200M, which are trading at 1.0x and 5.6x F2021 revenues and EBITDA multiples.

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In addition to the initial convertible tranche, Couche-Tard will receive three series of warrants, which if exercised in full, would increase Couche-Tard’s ownership interest to 50.1% on a fully-diluted basis (assuming conversion of the convertible) and provide $380M in growth capital to Fire and Flower. The warrants are at the following escalating excise prices: Series A is at $1.40, Series B is at $1.875, and Series C is the lesser of: A) $6.00; and B) the greater of 1) $2.00; and 2) the 20-day volume-weighted average price of the Common Shares on the last business day prior to the exercise of the Series C warrants.

About Fire and Flower

Fire and Flower currently operates 17 cannabis retail (9 in Alberta, 6 in Saskatchewan, and 2 in Ontario). The Company has licenses for an additional 6 retail location in Alberta, which are fully built but are awaiting provincial licenses, two of which are currently operating as cannabis accessories stores. On July 23, 2019, Fire and Flower announced that it had received a license for a retail store in the Yukon, bring the total branded retail locations the Company owns to 24.

About Alimentation Couche-Tard

Alimentation Couche-Tard is one of the world’s largest convenience shop retailers with 16,000 stores in 25 countries. In Canada, Couche-Tard operates Circle K and Macs convenience stores. In the United States, it is the largest independent convenience store operator in terms of the number of company-operated stores. In Europe, Couche-Tard is a leader in convenience store and road transportation fuel retail in the Scandinavian countries (Norway, Sweden and Denmark), in the Baltic countries (Estonia, Latvia and Lithuania), as well as in Ireland, and has an important presence in Poland.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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