Fiore Cannabis: A Small Customer-focused Team Executes an Impressive Turnaround
April 12th, 2021
App, Exclusive, News, Top Story
The cannabis industry followed a familiar and predictable path over the past few years. In the early years, companies raised significant amounts of capital to build massive indoor cultivation operations in an attempt to scale at all costs. A handful of companies succeeded but most shut down due to a lack of capital, poor product quality or a combination of factors.
Fiore Cannabis Ltd. (CSE: FIOR) (OTCQX: FIORF) has been investing in the development of medical and recreational cannabis products since 2014, but recently, it began an ambitious turnaround aimed at achieving profitable growth. After divesting its Washington and British Columbia assets, the company has achieved a positive adjusted-EBITDA with its core California and Nevada assets in the beginning of the year.
Let’s take a closer look at the company’s impressive turnaround thus far and why investors may want to take a closer look at the stock right now.
Narrowing the Focus
By selling non-core assets, Fiore’s management team raised non-dilutive capital to invest in California and Nevada where the company can deliver top-quality products to a rapidly growing customer base. The narrower focus will help the team build out higher margin businesses with more growth potential.
CEO Erik Anderson discusses his management team
The company’s partnership with Allied Corp. (OTCQB: ALID) is a prime example of its lean approach. In March, the company closed a deal to sell a surplus cultivation license for its Apex cannabis cultivation and production facility in Las Vegas for US$1.5 million in cash—a sum that it will use to accelerate its Apex expansion.
As part of the deal, Allied will make the license productive and generate benefits for both companies over the long-term. Fiore will assist with the genetics and selection of cannabis strains for Allied’s operation, as well as consult on the marketing of products through Fiore’s established medical and retail partnerships—a high-margin opportunity for Fiore. At the same time, Fiore will use the proceeds of the sale to expand its own Apex facility and increase its cultivation footprint from 10,000 sq. ft. to about 80,000 sq. ft.
Quality Before Scale
The management team behind Fiore Cannabis has always prioritized quality over scale. Rather than building a huge footprint with a single master grower overseeing 100,000+ sq. ft., the company has started with a 10,000 sq. ft. facility that it’s incrementally growing out with the goal of one master grower for every 10,000 sq. ft. to ensure craft quality.
CEO Erik Anderson shares Fiore’s plans to grow
The company cultivates specific genetics using state-of-the-art processes and grows its products in small batches in organic living soil. Small batches enable the company to maintain quality and minimize losses, while the company cures its end product instead of using a more traditional dehydration method, creating a fresher end result for consumers.
As evidence of its focus on producing top-quality products, the company’s Fiore Super Glue won first place at the 2019 Las Vegas High Times Cannabis Cup. The Indica-dominant strain had the highest THC results from the harvest at 26.73% along with over 20mg of total terpenes, providing a very sticky feel with an impressive terpene profile.
Profitability & Growth
Fiore Cannabis achieved a positive adjusted-EBITDA in January, marking a key milestone in its turnaround. The company experienced a positive harvest for the month while its Green Leaf Wellness dispensary in Desert Hot Springs posted an operational cash flow positive result due to decreases in payroll costs, preferred pricing from vendors, and other efforts.
Fiore Cannabis Apex Facility – Source: BNN Bloomberg
The company plans to build out its Apex facility in Nevada to approximately 50,000 sq. ft. over the coming year, which could significantly expand its annual revenue run rate. In the meantime, the company hopes to achieve a positive adjusted EBITDA from operations during the first quarter of 2021 from its operations in Nevada and California.
While the company is open to accretive M&A opportunities, management’s focus is firmly on maintaining a portfolio of high-margin products, keeping its costs and CapEx low and growing at a sustainable and profitable pace over time. These characteristics set it apart from many other cannabis companies and pave the way toward long-term shareholder value.
Fiore Cannabis Ltd.’s (CSE: FIOR) (OTCQX: FIORF) focus on high-quality and high-margin products along with diligent cost management will keep it on the course to profitable growth. Investors interested in a profitable and growing multi-state operator may want to take a closer look at the stock as management continues to execute its turnaround.
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