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Fire & Flower's CEO On Why Focusing On One Sector Is The Key To Success

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Fire & Flower's CEO On Why Focusing On One Sector Is The Key To Success

Looking at Fire & Flower’s (OTC: FFLWF) first-quarter results for 2020, it’s clear that the Canadian cannabis retailer was well-prepared to navigate the COVID-19 recession.

CEO Trevor Fencott told Benzinga that the 142% year-over-year increase in revenue for the quarter ending on May 2 was not a matter of chance.

The executive said the company’s infrastructure was built from day one to foster digitally native retail activity, facilitating a competitive advantage in times of social isolation.

For the CEO, big licensed producers fail at attempting to cover the entire spectrum of the market in a vertically integrated strategy.

In his eyes, focusing on one sector is the key to success.

Bringing A Tech Mentality To Cannabis

Although Fire & Flower has more than 45 brick-and-mortar stores, the company views itself as a tech company above every other category, including cannabis. 

Fencott honed his leadership skills in the tech industry before jumping in the cannabis game. Eventually, he and his partners looked to find low-tech spaces where they could apply the high-tech mentality they had acquired while developing video games and other tech endeavors.

In 2012, Fencott co-founded Mettrum Health Corp., a company that used digital solutions to transform the process by which patients were allowed to qualify for medical cannabis in Canada. Using blockchain technology, this process was updated from a paper-based bureaucracy to a completely digital exercise.

The company was the third producer to ever receive a license in the country and quickly grew to become the second-largest producer in Canada after Canopy Growth (NYSE: CGC) by number of patients, production capacity and every other metric, Fencott said. 

In 2017 Canopy acquired Mettrum for CA$430 million ($314 million) in stock.

Using Data To Overcome The Vertical Integration Model

Fencott stayed with the company through the transition. He ended up leaving Canopy in 2017, partly due to a lack of confidence in the company’s vertically integrated model.

Vertical integration is a flawed strategy that can be successfully replaced by the right use of data technology and strategic partnerships, the Fire & Flower CEO said. 

“The reason licensed producers in the beginning wanted to vertically integrate is that they thought 'we'll use our stores to make a market for our products and we'll learn about what customers do with our products,'" he said. "We'll use it as a little data laboratory.'”

But there are conflicts between channels, he says.

Since each licensed producer only sells its own products at any retail location, the data gathered from those operations is skewed from the get-go. Additionally, in order to grow, these companies normally choose to place their focus on growth and production operations — rather than data analysis.

Fencott left Canopy planning to start a retail cannabis company that focused completely on owning the consumer experience through a retail 2.0 approach. 

“Running a retailer is very different than running a production facility or a product company,” he said.

The Fire & Flower Business Model 

Looking at digitally native companies like B8ta and Warby Parker as case studies, Fencott designed a business model that uses the brick-and-mortar experience to improve consumer engagement, but maintains a firm root in the digital world.

These companies looked interesting because they were amongst the handful of businesses that managed to successfully compete with Amazon (NASDAQ: AMZN) at retail.

“What I saw with these really nimble tech 2.0 retailers, is that they view their vendors as customers. And so they use this understanding of their customer, the data driven approach to customers, to feed some of that data to their vendors to help them make better products for the retailer's customers, which in turn drove loyalty.”

In late 2017, Fencott founded Fire & Flower with this idea in mind, and in early 2018, the start-up bought the tech company that built the Metrumm platform to assist in the task.

For Fencott, the company's 2019 results proved that its business hypothesis was correct.

“What we know with mathematical certainty is that our digitally engaged customers spend 45% more than non-engaged customers. So that's how you compete and win when it gets tough, right? If your customers are more valuable, you're going to survive.”

On top of that, the company noticed that vendors and licensed producers were engaging with the company’s own data analytics platform, using it to better understand consumers and eventually bring more revenue to both Fire & Flower and its vendors, the CEO said. 

Fire & Flower’s revenue stream is not only sourced in retail and consumer engagement. The company sells its own retail platform to other businesses through a partnership with Cova, a provider of cannabis e-commerce solutions that supplies to over 60% of the Canadian retail stores and over 10% stores in the U.S.

“Most of our competitors actually are smaller mom-and-pop operations. They need to have e-commerce functionality and they need to have click-and-collect to survive in the pandemic. We want to help them and in exchange, we can monetize that,” Fencott said. 

Photo courtesy of Fire & Flower.

 

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