David George-Cosh

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Fire & Flower Holdings Corp. is buying Friendly Stranger Holdings Corp. for about $30 million in a cash-and-stock deal, a move that may accelerate consolidation in the nascent cannabis retail space. 

With the acquisition, Fire & Flower is expected to pick up an additional 11 licensed cannabis retail stores in Ontario, while another four stores are waiting for licensing from the provincial regulator. The deal should give Fire & Flower 66 licensed pot shops across Canada, including 18 in Ontario, the country's largest consumer market, and another nine additional stores awaiting licensing, making it the largest cannabis retailer in the country. 

"These are venerable, recognizable cannabis brands with a loyal customer base that are otherwise not customers that we would have access to, so this broadens our customer base," said Trevor Fencott, chief executive officer of Fire & Flower, in a phone interview with BNN Bloomberg. The deal includes about $25 million in stock and another $5 million in cash, Fencott said. 

He added that the company will continue to operate Friendly Stranger's three retail brands, but will determine whether they will be changed under the Fire & Flower banner if internal data shows it would be a better fit. 

Deal activity in the cannabis retail space has picked up as some smaller retailers struggle to operate in an increasingly competitive market due to a patchwork of provincial laws and regulatory hurdles. There are more than 1,220 cannabis stores across the country, with nearly half located in Alberta, and more than 200 in Ontario. 

The acquisition also comes roughly two months after High Tide Inc. and Meta Growth Corp. announced plans to merge, creating the country's biggest pot retailer at the time with 63 stores across the country.  

Fencott said retail acquisitions will likely continue given the limitations of operating in Ontario, which is only licensing 10 new stores a week but has more than 700 businesses waiting for approvals. 

"I think the early salad days are over where people were like, "I'll just open a cannabis store, and then retire and the money hose will just start to flow,'" he said.  "If you're dealing with inefficient markets, you need to do anything you can do to take advantage of size and scale." 

In an interview with BNN Bloomberg last month, the president of Friendly Stranger, which has been operating for more than two decades as an accessory store, said that M&A in the cannabis retail sector is "inevitable," and that the company typically gets a few calls every week from other retailers looking to jettison their stores given the high cost of operating them. 

"The asking prices are still pretty high and above what you should be responsibly paying for one," James Jesty said, adding the average pitches are anywhere between $1 million and $2 million.