Fire & Flower Holdings Inc., High Tide Inc., and Canopy Growth Corp.’s Tweed have begun wading into the U.S. cannabis market in recent weeks, taking similar cues from pot producers who have also entered the U.S. despite regulations that prevent Canadian-listed companies from fully operating in the space.
“The companies are using Canada as their testing ground to get to the real prize, which is ultimately the U.S.,” said ATB Capital Markets Analyst David Kideckel, in an interview.
“Compared to a lot of other Canadian large cap licensed producers that have announced grandiose U.S. entry plans, stores like Fire & Flower are being very targeted and measured in their approach.”
Fire & Flower announced on Monday it signed a deal with American Acres Managers for the option to acquire the U.S. retailer once the country legalizes cannabis federally. Meanwhile, High Tide expanded its e-commerce presence in the U.S. CBD market through its platforms and its acquisition of online accessory seller Smoke Cartel for US$8 million.
Fire & Flower is following a similar pathway to the U.S. that Canopy pioneered after the pot giant struck a deal to acquire Acreage Holdings Inc. in April 2019. While Canopy is eagerly waiting for the U.S. to trigger legislation that will allow the Smiths Falls, Ont.-based firm to do business there, it has licensed its Tweed retail brand for Acreage to open branded stores in certain U.S. states.
Fire & Flower Chief Executive Officer Trevor Fencott told BNN Bloomberg in an interview that the company never had plans to operate just in Canada and the deal for American Acres has the blessing of the company’s largest shareholder, convenience store giant Alimentation Couche-Tard Inc. Couche-Tard owns about 12 per cent of Fire & Flower, with warrants that would take full control over the company once they are exercised.
“The LPs are really trying to deploy capital south of the border. We are trying to deploy value south of the border,” Fencott said. He declined to provide financial terms for the American Acres deal but added that Fire & Flower’s customer data tools will give it an advantage when competing in the U.S.
“We built our model to work at the highest levels of competition,” he said. “Let’s go where there’s a massive fragmentation markets like California and Colorado.”
While High Tide isn’t opting for a full-scale move to bricks-and-mortar U.S. locations just yet, the company’s focus is affixed to its e-commerce strategy, said Raj Grover, the firm’s CEO. Right now, roughly 23 per cent of the company’s sales come from the U.S. with more expected once the Smoke Cartel deal closes, he added.
He told BNN Bloomberg in an interview that several U.S. cannabis retailers have already reached out to High Tide directly for potential partnership opportunities.
“I can’t even get more products in the U.S.,” Grover said. “We have unlimited demand right now.”
ATB’s Kideckel notes there’s plenty of market share to be gained as the U.S. market is still relatively nascent, but Canadian companies with strong balance sheets will find success working in the U.S.
“At the end of the day, if the Canadians bring something to the to the table that the Americans value, and there’s money to be made, both for the company and for shareholders, I think that’s going to win the day here,” he said.