Fire & Flower Holdings Corp. (OTCQX: FFLWF) announced its financial and operational results for the fiscal first quarter ending May 1, 2021 with revenue rising 90.7% to $44.1 million. However, Fire & Flower also delivered a net loss of $61.6 million versus last year’s $12.7 million for the same time period. The company blamed the net losses on a $54.1 million loss on the revaluation of derivative liabilities in the current quarter.
“We started 2021 off strong by delivering our fourth consecutive quarter of positive Adjusted EBITDA while posting record quarterly revenues,” said Trevor Fencott, Chief Executive Officer of Fire & Flower. “Despite the challenges produced by the COVID-19 pandemic, our retail business continued to drive strong sales growth as we expanded our retail footprint by bringing Fire & Flower to British Columbia, opening two new stores in Vancouver, and bringing our total store count to 83 licensed cannabis stores. Our wholesale division continued to grow in Saskatchewan as more retailers look to our Open Fields Distribution business to supply their inventory. And last, driving our leadership position in Canada, and now emerging in the U.S., is the ongoing success of our proprietary Hifyre business, as it becomes increasingly recognized as one of the industry’s most advanced digital retail and data analytics platforms.”
The company said it was the fourth consecutive quarter of positive Adjusted EBITDA of $2.3 million as compared to an Adjusted EBITDA loss of $1.4 million for the first quarter of 2020. In addition, the company reported a gross profit percentage of 37.5% compared to 32.6% for the same period in 2020.
Balance Sheet Improvements
Fire & Flower completed a $15 million at-the-market equity offering and strengthened its balance sheet with a $53 million debt-to-equity conversion helping to further reduce interest costs. A wholly-owned indirect subsidiary of Circle K owner, Alimentation Couche-Tard Inc. converted approximately $24 million principal amount of debentures, which increased their equity stake in the Company to 19.9%. Total debt was reduced from $37.5 million on January 30, 2021, to $7.2 million. The company has a cash balance of $32.7 million as compared to $30.6 million on January 30, 2021.
Fencott added, “We are strategically leveraging the significant growth opportunities that exist within each of our business segments and continue working towards listing our shares on the Nasdaq. We expect this upcoming listing will help generate additional exposure for our common stock in the U.S. while providing additional liquidity to our shareholders. As we head into the second half of the year with strong momentum from the reopening of provinces and consumers coming back into the stores, we are confident we are positioned to deliver sustainable growth throughout 2021 and beyond.”
The company said in its filing that on May 1, 2021, the derivative liabilities related to the Investor Debentures conversion option, Series B Warrants and Series C Warrants were
revalued using the Monte-Carlo and trinomial tree model simulation valuation technique and the following inputs and assumptions: stock price of $1.10; risk-free interest rate range of 0.33% – 0.24%; and expected volatility of 78%-83% based on historical trading data of the Company and its peers (January 30, 2021: $0.80 stock price, 0.14% – 0.16% risk-free interest rate range, and 80% – 82% expected volatility range).
Also noted in the filing that during the thirteen weeks ending May 1, 2021, the company’s 8% secured convertible debentures with $29,407 in principal amount outstanding (the “April 2020 Debentures”) were early converted and settled at the conversion price of $0.50. Coupon interest of $1,139 was also settled in common shares at the conversion price of $0.50. A total of 61,091,318 common shares were issued for the principal conversions and interest settlement. The common shares issued had a value upon conversion of $64,955, which was comprised of the carrying values, as at the date of conversion, of the debenture liability ($16,754) and the corresponding conversion option derivative liability ($48,201). The conversion option derivative liability was valued by taking the difference between the intrinsic value and the fair value of the debt portion. The intrinsic value and discounted cash flow approach utilized for the valuation of the debt portion had the following key inputs and assumptions: stock price of $1.36, and discount rate 26%-32%.