Canopy Growth Shares Why It Got into U.S. CBD Beverage Game

Canopy Growth Shares Why It Got into U.S. CBD Beverage Game

Fire & Flower, a network of 79 retail dispensaries in Canada and the developer of the Hifyre technology platform, has signed a licensing agreement with American Acres that will bring the brand to the U.S.

The strategic agreement offers a path forward for Fire & Flower in California, Arizona and Nevada (and beyond) by getting the brand in front of U.S. consumers and providing American Acres with a digital-forward data platform. The first Fire & Flower-branded store will open in Palm Springs, Calif., in the first half of this year.

“For us, the us is this amazing opportunity because we’ve already honed our craft in a really competitive environment,” CEO Trevor Fencott said. Competition is the backbone of the industry, and Fencott is eager to get into that game in more open environments—rather than the limited license markets elsewhere in the U.S. With consumer engagement and data in the foreground, he said there’s an opportunity to go deep with tech and compete on the retail side of the cannabis industry.

It wasn’t too long ago, in late 2017 when Fire & Flower got started, that product selection in Canada was practically nil: “We have dry cannabis or cannabis oil. What do you want?” was how Fencott recalled the early days of Canadian dispensary relationships, even into the adult-use legalization era.

Product selection in the U.S., he says, is more varied and innovative, generally, which allows a data-forward company like Fire & Flower to hone its craft even more.

He sees data as a pillar of cannabis retail, something necessary in this vast and burgeoning industry, particularly as product innovation drives new categories and new consumer demands. Specifically, Fencott points to businesses like Warby Parker and b8ta, “digital-native” companies that are competing in innovative ways around the likes of retail behemoth Amazon.

“These retailers really did a great job figuring out how to fight with the big gorilla,” Fencott said, gesturing toward Amazon. “And we just copied the playbook, which was to use technology to engage your customers super deeply and have that deep engagement drive higher basket size and lifetime value of customers. Then the other thing they did that was really different is they view their vendor partners as customers.”

The data inputs go both ways: As a company like Fire & Flower is tracking consumer sales trends and preferences, so too is it engaging its vendors and wholesalers as consumers of the brand. Fencott said that this is an important perspective on the relationship with sellers, one that provides a helpful feedback loop for just that sort of product innovation that was missing under the early years of Canadian market regulations.

And still, behind the data, the brick-and-mortar store is vital. Fencott that the businesses would do well to view their store as media.

The dispensary is a place consumer engagement happens, where new products can be advertised and explained. That physical location is key to understanding how consumers are interacting with this emerging industry.

The American Acres move follows a 2020 deal between Fire & Flower and Couche-Tard, a Canadian convenience store operator known in the States for its Circle K brand. As part of the deal, Fire & Flower opened two retail stores adjacent to Circle K locations in Alberta. Fencott says the agreement is a good example of a “spoke” coming off Fire & Flower’s retail “hub,” part of a broader corporate strategy to reimagine the cannabis landscape.

“That’s a massive retailer repurposing some of their existing real estate into something that is hyper productive from a revenue standpoint,” he says. (Last year, Couche-Tard pulled in $54 billion in revenue.) It also provides an opportunity for Fire & Flower to flex its data-driven inventory management muscles, with only 600 square feet in those retail locations to provide the focused suite of SKUs that the company knows will move fast.

It might be a bit of foreshadowing for the cannabis industry as federal reform hovers vaguely in the conversation out of Washington, D.C. How will the retail landscape change once federal legalization takes shape?

It’s not easy to answer that question right now, but Fencott said he’s planning to be in position for the opportunity when it arises. To that end, the American Acres licensing deal sets up further acquisition possibilities down the road.

“We can give you this Fire & Flower operating model. We can give you this tech platform that we know is making our stores more valuable up here,” Fencott said. “That’s a tremendously valuable advantage for a group like them, and, again, we have this existing relationship.”

On the flip side of the deal, Fire & Flower is getting a discounted path to acquisition in the U.S.—in more mature markets that have a mostly vibrant sense of competition among private businesses. It’s a synergistic relationship, Fencott said, one that allows both Fire & Flower and American Acres to see a clear roadmap to the future.

It’s also indicative of broader market trends, where cash- and stock-heavy acquisition deals may no longer be the only game in town. Capital markets are welling up again in 2021, and investors are taking stock of legislative winds out of Washington. Cash is available, generally speaking, to those businesses that want and need it.

From Fencott’s vantage point, however, the brand-building power of consumer data is nudging its way into the conversation—quickly.

Published at Tue, 09 Mar 2021 20:52:00 +0000

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