Fire & Flower Holdings Corp. (FAF:TSX) applied for and was granted court protection from creditors to "facilitate the development of an orderly process to streamline its operations and conduct a court-supervised sales process," reported Echelon Capital Markets analyst Andrew Semple in a June 6 research note.
"The intent of these actions is to maintain a going concern solution and maximize remaining value for stakeholders," Semple wrote.
Fire & Flower is Canadian retailer and distributor of consumer cannabis products and accessories.
Initial court order
Subsequent to Fire & Flower applying for creditor protection under the Companies' Creditors Arrangement Act, the Ontario Superior Court stayed proceedings against the company, approved a $9.8 million debtor-in-possession loan to the company from a subsidiary of Alimentation Couche-Tard (ACT) and appointed FTI Consulting Canada to monitor the company.
Fire & Flower's Board of Directors chose to pursue creditor protection after a financial adviser, hired last month, outlined the potential options for moving forward.
After the company announced, on May 26, 2023, it was undergoing a strategic and financial review, its stock price plummeted 66%. When Semple prepared this report, the cannabis firm's share price was about CA$0.29, and trading of its shares on the Toronto Stock Exchange (TSX) had been halted.
Echelon expects the TSX will place Fire & Flower under delisting review, the outcome of which it cannot predict.
Too many unknowns
Given Fire & Flower is under creditor protection and its future is unclear, reported Semple, Echelon revised its rating on it to Under Review from Speculative Buy. Also, because Echelon no longer can estimate an equity valuation on Fire & Flower given the various possible outcomes, the equity research firm abandoned its previous CA$2 per share target price on it.
To salvage value for shareholders, Semple indicated, Fire & Flower could perhaps generating proceeds from divesting certain assets or from additional financing commitments. Maybe the company could sell itself in its entirety, optimally to a group known to acquire cannabis retailers. Or ACT might buy the whole company out of CCAA proceedings "with potentially some value allotted to current equity holders."
However, Semple pointed out, even if a party were interested in acquiring all of Fire & Flower, such a transaction would likely be quite dilutive to existing shareholders. Another less optimal bleak scenario is that no party comes forward to buy the company, hindering its ability to stay afloat.
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