Industry updateInner Spirit leads cutthroat Canadian cannabis retail sector with 70 stores

In tight competition with High Tide and Fire & Flower, the firm edges ahead in the retail footprint race with its expanding franchise model
Nick Laba Nick LabaJanuary 7, 20217 min

With an industry-leading store footprint, Inner Spirit Holdings Ltd. (CSE: ISH) is striving to maintain its edge in Canada’s cutthroat cannabis retail sector.

In a statement Thursday, the firm said it hit $105 million in system-wide retail sales and will increase its total number of stores to 70 with two new openings in Ontario this month.

The Calgary based-company is in direct competition with High Tide Inc. (CSE:HITI), another weed retail giant that said it would take the top spot with 63 locations after announcing last August it was acquiring Meta Growth. Following the all-stock deal, the combined entity claimed it would have 115 Canadian stores by the end of 2021.

Fire & Flower Holdings Corp. (TSX: FAF), which lists 64 locations on its website, said it planned to have 66 stores after buying legacy-to-legal chain Friendly Stranger for $24 million last November.

While year-end fiscal reports will be more telling, High Tide appears to be winning the battle in terms of profitability, reporting net income of $4.3 million and adjusted earnings before interest, taxes, depreciation and amortization of nearly $4 million in its third-quarter 2020 financials. Both Inner Spirit and Fire & Flower both recorded positive adjusted EBITDA but net losses in their most recent earnings reports.

Read more: High Tide to acquire Meta Growth, creating Canada’s biggest pot retailer

Read more: Fire & Flower to buy legacy-to-legal retailer Friendly Stranger

Inner Spirit says it opened an Edmonton Gateway location on Dec. 28, with plans to open stores in downtown Hamilton on Jan. 8 and Toronto Stock Yards on Jan. 15.

In its fourth-quarter and full-year 2020 financial results, planned for release in early April, Inner Spirit says projected annual revenue of $26 million with gross margins of 46–48 per cent is in large part due to its franchise model. Of its this-month total of 70 stores, 57 are franchised and 13 corporate-owned.

Because the majority of the firm’s Spiritleaf stores are owned by private operators, it brings in only a $25,000 upfront franchise fee and a 5 per cent royalty fee on gross sales, according to Inner Spirit. The company also collects another 1 per cent of gross sales from its franchisees that gets put into Spiritleaf’s advertising fund.

According to the statement, additional Spiritleaf  locations to open in 2021 have been conditionally secured in British ColumbiaAlbertaSaskatchewanManitobaOntario, and Newfoundland and Labrador. The company says it plans to operate more than 100 stores by end of year, with around 80 per cent of them franchised.

Read more: Inner Spirit’s retail franchise model nets first EBITDA profit

The firm made significant progress on its business strategy last year, as it opened a new store every two weeks on average, president and CEO Darren Bondar says.

“We expect 2021 will be just as eventful as we plan to increase our store-opening cadence and enter new markets, all while operating safely during the ongoing pandemic,” he said in the statement.

Inner Spirit reminds the public it’s operating with enhanced customer service measures during the pandemic, which it says are further streamlined with its Collective rewards program. The loyalty initiative has a reported 185,000 members.

Top photo via Inner Spirit

 

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