Between Fire & Flower ($FAF), High Tide ($HITI), and Canopy Growth ($WEED), there’s going to be a land race over the next year for storefronts. Whether existing or built, the primary focus of all three will be to get outlets up and running. And they’ll all be (presumeably) gunning for prime locations and quick execution.

$FAF recently went looking for something off the rack, and picked up three additional Ontario locations.

As with other retailers, the price for a storefront with sales history varies by performance and sector:

1. The purchase price of the 2673801 Acquisition consists of $750,000 in cash plus the net working capital of the business at the date of closing and 248,410 in common shares of FFHC.
2. The purchase price of the Busboy Ventures Acquisition consists of $700,000 cash plus the net working capital of the business at the date of closing and 2,198,655 in common shares of FFHC.

The numbered company went for a total of some $961k ($750k+(248k*.85)); Busboy’s 2 stores coming in at an average of $1. 3MM each (($700k+(2.2MM*.85))/2).

There might be some effects of negotiation in there, but I doubt it’s materially off from where $FAF put their valuation at. This is also where Couche-Tard’s ($ACT) capabilities will help out. A retail conglomerate with as many stores and sales history as $ACT will have several backtested valuation models – and one would expect they’ve also been adapted to retail cannabis – using inputs from $FAF’s data. If so, other sector participants and competitors now have 2 very good marks^1 on what a particular storefront is ‘worth’. At the very (very) least….it says what those locations are worth to $FAF.

We’ll see if those marks feed back into other deals. I am curious about the dynamic of 40 stores per month opening up in Ontario – and how many new license holders might be willing to take a quick out – rather than eat the risk of operationalizing.

Alberta dropped a large shoe the other day – removing ownership caps on the number cannabis stores that can be owned in the province. This is a huge change, and the impact this same decision on liquor in the province was to promote consolidation. Marginal independents were either swallowed whole or starved out. The result was increased sales concentration in chains – the same way that a Wal-Mart or a Costco has had on independent sellers of groceries or clothing. Indeed, these two (along with Sobey’s and CO-OP et al) now move a lot of booze in the province. Quality (often specialized) independents remain, but there has been consolidation within that segment as well as the most successful eventually find niches to expand into.

We’ll probably see retail consolidation accelerate on this news. $WEED’s announced 10-store foray into the province brought about a mini-dustup with Alcanna (Nova Cannabis) – and I don’t doubt that those 10 stores will quickly become 20 if there’s compelling numbers found.

At any rate, I’m sure $HITI’s CEO Raj Grover is working overtime in thinking of ways to spend $META’s bank account – and expect acquisitions to be on his Christmas wish list. Perhaps he’ll be moving sooner.

Now that the limited license availability in Ontario is being alleviated and a fully operational storefront can be estimated at around $1MM – $1.5MM (at least in these 3 examples), the ability of chains to grow is far better now than the multi-million dollar values seen under licensing restrictions.

Look for $HITI and $WEED and $FAF to be beating the streets for stores, it’s a safe prediction that there will be many more announcements to come.

The preceding is the opinion of the author, and is in no way intended to be a recommendation to buy or sell any security or derivative. Of the companies mentioned….the author holds position in $HITI & $META.

^1 – Readers will note I’ve used the word ‘mark’ before. A ‘mark’ refers to a visible price transacted independently between two parties. When used in commodities, is could refer to a far-dated month or long-dated strip of forwards – where the delivery period or future/forward is illiquid. A bid/ask is pretty much meaningless in illiquid periods/assets – the only way one can observe a transaction price is to see a deal actually done. In the case of cannabis stores in Toronto, the price of these three outlets give the rest of the market a ‘mark’ – the same way a home being purchased is compared to analogues in the neighbourhood or city its’ in to determine a listing price.