Fire & Flower FFLWF Stock Forecast & Analysis

Fire & Flower, FFLWF Stock, is one of the Canadian cannabis stocks that I follow closely because of its size and locations.  Because of this, I wanted to put together the Fire & Flower FFLWF stock forecast & analysis.  Fire & Flower has over 100 retail locations.  And, those locations are in partnership with Circle K where the dispensaries are right on the convenience store’s properties.

The Circle K company has rights to acquire up to 51% of stock in FFLWF stock which, to me is a back-stop for price stability.  Still, that does not seem to matter as FFLWF stock has fallen like all other cannabis stocks.  There is a lot of value inherent in FFLWF stock as you can see in the FFLWF stock forecast that, the value has not been materialized in the stock market.

These kinds of value plays will play out well for the long term value investor.  Those looking to get into a consumer product brand at the ground level that will eventually be available throughout Canada have a great opportunity.  The fact that mainstream investors have not fully appreciated the inherent opportunity will mean that when these stocks turn back upward, the rush into these stocks will be furiously explosive.

A slowing economy

Un-immune to economic forces, Fire & Flower saw a decline in revenue for the quarter.  This has been the case with nearly all cannabis companies in the first quarter of this year.  The consumer is being taxed by inflation.  And, the rise in interest rates to combat inflation is already weighing on the broader economy.

I am expecting that the next quarter will see even further declines in revenues across the board with cannabis companies.  And, it may be that we see even further declines going in to 3rd quarter revenues.

But, eventually the economy will bottom out with the decline. Then, there will be a sustained period of growth right back upward.  I have been continually updating content on the economic situation keeping everyone abreast.  It is the consumer that needs to be focused on to see where the economy is going from here.

In the meantime, the contracting consumer will push the economy lower with the stock market following closely behind.

Fire & Flower and Price:Book ratio

One of the biggest standouts to me with Fire & Flower is that market capitalization is ~$85M where total equity is ~$115M.  FFLWF is trading well below book value.

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You can find investor relations and financial data on Fire & Flower website.  This is for the latest period, Q1 2022 which ended on April 2022.  Fire & Flower operates in an off period from the fiscal calendar.

Fire & Flower Financial Data

Look for bigger opportunities in the future for Fire & Flower.  They are pushing forward with their franchising opportunities.  This will continue to build the foundation for Fire & Flower.

Fire & Flower Gross Profits

  • Fire & Flower Revenue

The recent consumer contraction that is affecting the entire economy has shown up in the revenue drop this quarter.  Unfortunately, this trickled all the way down the financial statements into EBITDA & Net Earnings profitability.

However, look at the numbers above.  In gross margins alone, should Fire & Flower hit 50%, versus the 30% they are sitting at, and Fire & Flower simultaneously hits $150M projected for the upcoming year, this drives gross profits to $75M; they are at a mere $45M TTM.  That extra $30M will look good lower down the financial statements.

As I mentioned, I expect further contracting in the economy.  This will mean most, if not all, cannabis companies will continue to see a decline in revenue.  Simultaneously, that will affect profitability.

But, cannabis stocks have not been appreciated for their profitability nor their financial footprint.  As I mentioned, the book value is skewed in favor of someone looking to take advantage of the mythical rational market where everything is priced accordingly.

Fire & Flower Operating Profits

  • Fire & Flower Operating Costs

As with gross margins, there is room for improvement with operating efficiencies.  However, as Fire & Flower scales up, margins will grow into this metric and add more to the bottom line.  Fire & Flower is cost conscious.  But, they need to continue to add dispensaries and drive organic growth to get their metrics at more competitive levels.

Mostly, Fire & Flower wants to be about 30% – 35% at this point.  With $150M in expected revenue this year, this is very likely.  Then, as with all cannabis companies, they will want to scale up to a point where operating costs are approximately 15% – 20%.  Being at 50%, there is room to move.  Should Fire & Flower achieve 35% off of $150M, that puts operating costs at $52.5M.  Then, with the gross margins at 50%, should Fire & flower achieve that level, this drives operating profits to $22.5M.

EBITDA is negative at this stage.  Therefore, getting to $22.5M in operating profits would be a huge achievement at roughly 15% of revenue.

Fire & Flower EBITDA & Net Profits

  • Fire & Flower Ebitda

With the drop in revenue, and the drop in gross margins as well as the decline in operating efficiencies, you can see how that took a toll on profitability metrics for Fire & Flower.

Companies need to scale up and they need to continually focus on cost cutting.  Getting consistent and efficient at growing cannabis while keeping costs low is one of the trickiest hurdles to leap through.

But, as Fire & Flower turns things around when the economy picks back up, these metrics will improve very quickly.  For now, all cannabis companies need to wade through the economic crunch we are in.

Fire & Flower Cash On Hand

  • Fire & Flower Cash On Hand

Unlike a lot of other cannabis companies, Fire & Flower is sitting well with regard to cash on hand, cash relative to debt, and the burn rate.  Cash is the lifeblood of a company and, you will want to always to be checking in on the cash situation.

The best part to me is that Fire & Flower is going to be moving forward with their franchising opportunities.  This means that outside investors will be able to step in and build the foundation for Fire & Flower without any investment needs from Fire & Flower.  The continued revenue increases will translate into higher margins and profitability.

Fire & Flower Total Equity

  • Fire & Flower Total Assets

I am always looking for increasing revenue.  And, with franchise partnerships moving forward, Fire & Flower will have outside investors coming in that will continually help to increase revenues.  This will push total equity higher and higher and, ultimately this will also drive FFLWF stock upward.

Through time, as Fire & Flower continues to build its foundation, they will see increasing revenues along he way from this increasing foundation.  This will ultimately drive the company forward and create a bigger opportunity for those looking to get in to FFLWF stock.

In the meantime, total equity looks set to move higher while market cap is below this level.

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Fire & Flower FFLWF Stock Forecast

Fire & Flower FFLWF Stock DCF

Putting together the FFLWF stock forecast was something that I did not think would show as much upside potential as what the end result shows.  But, when you cruise through all of the numbers you can see that this all checks out.

Shares outstanding is not very high.  Cash on hand is.  Debt is low.  Margins have a lot of upside potential.  When you put this all together, working through the numbers, you can see that FFLWF stock actually does have a lot of upside.  Even still, this is not one of my top picks nor does FFLWF have the absolute highest upside, as you can see in  The Most Undervalued Cannabis Stocks page.

I did not push margins too high with Fire & Flower because, being at Circle K does not elicit to me the highest price leader out there.  This is not to say that Fire & Flower will have inferior quality.  This more so says that if you are going to be filling up at your local Circle K, you are not going to be finding ultra-premium quality product there.

Given that, I kept margins low in the long run.  This means there could be upside potential there that will push FFLWF stock upward.

Is Fire & Flower FFLWF Stock A Good Investment?

Fire & Flower FFLWF Stock Forecast & Analysis ChartThe upside potential for FFLWF stock is very high.  Certainly, FFLWF is not a top pick, nor are they a stock that has the highest upside potential. But, the upside is very high and I expect that the market will come to realize the potential of FFLWF stock sometime.

In the meantime, Fire & Flower has a market capitalization of some ~$85M with total equity of ~$115M.  This says buy to me all day.  Plus, total equity will continue to move higher and, yet, market capitalization looks like it will continually move lower.

As mentioned, there is a backstop of sorts with the ability of the Circle K parent company to step in and acquire 51% of the company and then beyond that acquire the rest.  So far, there have been limited moves to picking up the entire company.  I do not expect that to be the case always.  Eventually, I think something will occur and through M&A, Fire & Flower will be fully acquired.

The revenue potential is certainly an opportunity and, when all of these cannabis companies start turning the corner, this is where I think the real potential lay with cannabis stocks.

I have said this, and I will continue to reiterate this: Investing is not an event; it is a process.  Building these cannabis companies is exactly that: a process.  As time goes, as these companies continue to build themselves up, the eventuality is that there will be a lot of upside across the board with cannabis stocks.  FFLWF is one of those opportunities.

Fire & Flower Financial Data

Fire & Flower FFLWF Stock Financial Statements

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