Fire & Flower Holdings Corp. (TSX-V:FAF) year-end financials were revealed last week and the company generated $13 million in sales with its first-ever recorded revenue. But with soaring costs, the Alberta-based cannabis company saw a net loss of almost $38 million for the year.
With a gross margin of just 38 per cent, it means just $5 million was left over to cover the company’s operating expenses. And with nearly $6 million in share-based payments alone, it didn’t take much for Fire and Flower to land in the red. General and administrative costs were the biggest line item at $17 million for the year as salaries were up over $6 million, while legal, professional and consulting fees added $4 million more in expenses for 2019.
The Edmonton company also recognized a $10 million loss on the revaluation of a derivative liability, which may sour investors. In addition, lease termination costs added another $4 million, while finance costs were another $2 million. The costs for leases are significantly up from a year ago, but they’re likely to be even higher next year as the company continues to roll out more stores.
Expected growth for next fiscal year
Fire and Flower was one of the few retailers in Ontario that were ready to go on April 1 with the opening of its Ottawa location. Canada’s largest province had a notably slow start to brick-and-mortar retail openings, and Fire and Flower was one of only several retailers able to open so far. And while it had a solid first-day performance in Ontario, those results were not included in the yearly results that ended Feb. 2.
In addition to Ontario, Fire and Flower expanded its footprint in Saskatchewan with the purchase of four more cannabis stores this month. The licensed cannabis retailer is quickly becoming one of the largest in the country.
Fire & Flower has successfully achieved it’s strategic milestones targeted over the past fiscal year in the dynamic and rapidly evolving cannabis retail consumer market. Our demonstrated track record of delivering on our objectives positions Fire & Flower to be a leading, best-in-class cannabis retailer.
– Trevor Fencott, CEO of Fire & Flower
However, Fire and Flower may have to find a way to keep its costs down or expansion could prove to be its undoing. With more than $14 million in cash used from its operating activities, and capital spending of $22 million, the Alberta company has used a large sum of cash the past year. The spending spree has caused it to issue more than $27 million of unsecured debentures, and $19 million in shares and other securities to keep things afloat.
Some analysts have noted this is not a sustainable model for Canadian pot firms. And with Fire and Flower’s stock losing more than 10 per cent of its value in just the past month, it could give the company more strains if it needs to raise any more cash to keep going. As exciting as the opportunities might be for Fire and Flower, it may need to decrease spending or expansion could stall in a hurry. And with more competition on the way, it’s may be a tall task.
*All figures in CAD