This Canadian pot action copies the American moves of Canopy Growth


When Canopy growth (NASDAQ: CGC) announced its intention to acquire Area of ​​assets in 2019, it was an innovative and unique way for the company to position itself for growth in the US market before legalization. Even though the deal still can’t be done due to the US federal marijuana ban, it’s a way for Canopy Growth to show investors how it plans to succeed and grow when the pot turns. legal.

Recently another cannabis company, Fire flower (OTC: FFLW.F), announced that she too would take a similar step. Below, I’ll take a look at the details of his deal and whether you should consider buying any stocks from this future. stockpot broth.

Image source: Getty Images.

Fire & Flower licenses its brand and technology

As the leading retailer in Canada, Fire & Flower has a valuable brand that it will allow American Acres, a private cannabis company, to use for its dispensaries in California, Arizona and Nevada. This move is a good one as it will test the waters in those US markets to see how the Fire & Flower brand resonates with customers south of the border, effectively giving the company a try before actually expanding there. low. Fire & Flower expects its first (branded) store to open in the first half of this year in Palm Springs, California.

Canopy Growth took a similar approach when management announced in October 2020 that it would launch its cannabis-infused drinks on the US market in the summer of 2021. Although technically these are not Canopy Growth’s products as they are not cannot legally cross the border. , Acreage will create them using the company’s beverage formulations. Fire & Flower unfortunately cannot do the same as it is a retailer, but by making its brand available to American Acres it can at least test the waters from a brand perspective.

In addition to using the name of Fire & Flower, American Acres will also be using its Hifyre technology. Hifyre is a sales and analytics platform that helps cannabis retailers identify trends and personalize the shopping experience for customers. Thanks to the platform, the company also uses Hifyre SPARK, a loyalty program which now has more than 100,000 members.

By deploying the technology in the United States with its brand, Fire & Flower could potentially expand its loyalty program without even technically being in the market yet. It can also help provide insight into how the company may need to modify its Hifyre platform to meet the needs of US customers and regulators.

The deal also gives Fire & Flower a purchase option

One of the main reasons investors are optimistic about this deal with American Acres is that it also gives Fire & Flower the opportunity to acquire the business at a discount. Like the Canopy-Acreage Agreement, the acquisition is subject to federal legalization of marijuana in the United States; although it could also be triggered if an exchange on which the Fire & Flower company operates allows the deal to be done, in all likelihood this will be after the market becomes legal. And according to Canopy Growth CEO David Klein, this could be very soon. The exchanges probably won’t want to take the plunge until legalization, as the Toronto Stock Exchange (which is one of the exchanges on which Fire & Flower trades) has warned cannabis companies in the past not to break laws in the United States. United States, noting that if they do, they run the risk of being deregistered. In February, the company also announced that it had filed a trade request on the Nasdaq.

While the deal remains on hold, it is similar to Canopy Growth’s approach in that it prepares Fire & Flower when the US pot market opens up to Canada-based marijuana companies. By putting their ducks in a row and implementing a strategy before that happens, Fire & Flower can be ready to take advantage of legalization as soon as they do. With convenience store operator Couche-Tard Food holding 15% of the business of Fire & Flower, the company already has a great deal of expertise that it can tap into once it is able to accelerate its growth strategy and dive into the United States. -Tard has more than 7,100 stores in the United States (including the well-known Circle K brand), covering 47 states.

Should you buy Fire & Flower shares?

These developments are exciting for Fire & Flower, but the only downside here is that, since American Acres is privately owned, it is difficult to assess how attractive this opportunity is to the cannabis retailer. If the number of stores is minimal and American Acres does not have a lot of market share, Fire & Flower may not make much of the gain from this deal, other than a quick way to enter the market. American market.

Pot stock is an attractive buy given Fire & Flower’s partnership with Couche-Tard and its market leadership position in Canada, but investing on the sole basis of this trade could be a risky decision that sets expectations too much. high.

This article represents the opinion of the author, who may disagree with the “official” recommendation position of a premium Motley Fool consulting service. We are heterogeneous! Challenging an investment thesis – even one of our own – helps us all to think critically about investing and make decisions that help us become smarter, happier, and richer.

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