Mr. Stephane Trudel reports

FIRE & FLOWER ANNOUNCES THIRD QUARTER FISCAL 2022 FINANCIAL AND OPERATIONAL RESULTS

Fire & Flower Holdings Corp. has released its financial and operational results for the fiscal 2022 third quarter ended Oct. 29, 2022.

Third quarter fiscal 2022 and recent highlights:

• Consolidated revenue for the third quarter of fiscal 2022 of $43.8-million, an increase of 8 per cent sequentially, compared with $40.7-million in the second quarter of 2022;
• Average annual sales per store increase of 15 per cent from previous quarter and gross margin increase (from 24 per cent to 27 per cent) driven by the company's Spark Perks member pricing program and evolving merchandise strategy;
• Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) for the third quarter of 2022 was negative $2.8-million, an improvement of 53.4 per cent from the prior quarter;
• Significant sequential growth of 55 per cent in the Hifyre digital business segment with revenue of $3-million, compared with $1.9-million in the second quarter of fiscal 2022;
• Improvement in year-over-year same stores sales, continuing the positive retail trend enabled by the company's Spark Perks member pricing program;
• Entered into an $11-million loan agreement and potential amendments to the strategic agreement with Alimentation Couche-Tard, including a $5-million private placement, subject to shareholder approval;
• Agreement to acquire two retail cannabis stores from Alimentation Couche-Tard in Kingston, Ont., and the opening of a total of five Circle K co-located stores under licence agreements;
• Deployment of Hifyre technology in Denver, Colo., with the digital business segment recognizing additional software licence revenue from this location.

"I am excited to see that our team's hard work and focus on operations is demonstrating measurable operational and financial results at the end of the third quarter as well as in the recent weeks. The company continues to be focused on driving the goal of positive adjusted EBITDA and free cash flow. We aim to accomplish our goal through a disciplined approach to driving top-line revenue, gross profit dollars, and reducing selling, general and administrative expenses," shared Stephane Trudel, chief executive officer of Fire & Flower.

"Our strategic relationship with Alimentation Couche-Tard has been strengthened through our recent licence agreement for five additional co-located cannabis stores adjacent to high-traffic Circle K in the Greater Toronto market, expanding on the existing program in Western Canada. In addition, if approved by shareholders, Fire & Flower will benefit from favourable financing to execute on our plans for growth with a $5-million private placement, in addition to the non-dilutive $11-million loan that has been secured."

Financial and operational highlights for the third quarter fiscal 2022:

• Revenue of $43.8-million for Q3 2022, representing an increase of 8 per cent from $40.7-million in the previous quarter and a decrease of 3 per cent from $45.4-million in the prior-year comparative period. The quarter-over-quarter improvement was driven by growth in retail segment and digital segment sales offset by a moderate decrease in wholesale and logistics.
• Gross profit of $11.8-million (27 per cent of revenue) for Q3 2022, compared with $9.7-million (24 per cent of revenue) in the previous quarter and $15.7-million (35 per cent of revenue) in the prior-year comparative period. The sequential increase in gross profit dollars and margin percentage reflect the company's continued improvement in retail operational and financial metrics, and improvements in the Hifyre digital platform during the current fiscal quarter.
• Adjusted EBITDA of negative $2.8-million for Q3 fiscal 2022 represents a $3.2-million improvement from Q2, contributed by higher consolidated gross profit, and lower SG&A (selling, general and administrative) expenses in the current quarter.
• Net loss of $28.1-million for Q3 2022 compared with a net loss of $21.6-million in Q2 2022 and $2-million in the prior-year comparative period.
• Cash and cash equivalents balance of $17.3-million and positive net working capital of $12.5-million as at Oct. 29, 2022.

Retail:

• Retail revenue for Q3 2022 decreased 2 per cent to $33-million from $33.7-million in the prior-year comparative period. Retail revenue grew $2.6-million (9 per cent) quarter-over-quarter contributed by the Spark Perks member pricing program, despite a net reduction of two stores in Q3 2022.
• Same-store sales continue to improve quarter-over-quarter and, at negative 4 per cent, represent a significant improvement from year-over-year decreases of 26 per cent and 14 per cent for Q1 and Q2 fiscal 2022, respectively. The new Spark Perks member pricing program, which was launched in mid-May, 2022, drove increased traffic to stores, resulting in an increase of 15 per cent in average annualized sales per store compared with Q2 2022.
• Retail gross profit for Q3 2022 was $8-million (24.3 per cent of revenue) compared with $10.2-million (30.3 per cent of revenue) for the prior-year comparative period. The year-over-year decline reflects the investment in launching the new Spark Perk member pricing program in Q2 2022. Gross profit increased $1-million (13 per cent) quarter-over-quarter from $7.1-million, as a result of increased retail revenue from the Spark Perks membership program and improved inventory optimization. The retail segment continues to show improvement in both gross profit dollars and margin percentage subsequent to quarter-end, driven by an increased number of transactions and units sold per store.
• Adjusted EBITDA for retail for Q3 2022 was negative $2.8-million, a significant improvement from negative $4.5-million last quarter, while lower than the positive $900,000 for the same quarter of the prior year. The significant quarter-over-quarter improvement in adjusted EBITDA was due to an increase in revenue and gross profit, and a reduction in SG&A expenses.
• The company had 90 stores open and in operation at the end of Oct. 29, 2022, compared with 92 stores at the end of Q2 2022 and 97 stores at the end of Q3 fiscal 2021.

Wholesale and logistics:

• The current fiscal quarter and year results include the operations of open fields distribution wholesale business in the province of Saskatchewan and Pineapple Express Delivery, which was acquired on Jan. 21, 2022.
• Wholesale and logistics revenue in Q3 2022 was $7.9-million, in line with the same quarter of the prior year and a decrease of $600,000 from Q2 2022.
• Segment gross profit in Q3 2022 decreased to $1.1-million from $1.7-million in the same quarter of the prior year. Segment gross profit increased quarter-over-quarter by $200,000 from $900,000 in Q2 2022.
• Wholesale and logistics adjusted EBITDA was negative $100,000 in Q3 2022 compared with positive $1.3-million in the same quarter of the prior year. Adjusted EBITDA improved by $300,000 from negative $400,000 in the previous quarter, as a result of higher gross profit and lower SG&A expenses.
• The year-over-year decline in segment gross profit and adjusted EBITDA reflects increased cost of sales and launch of Firebird delivery in the current fiscal quarter.
• Opening of the open fields Manitoba cross-docking facility on Oct. 26, 2022, through receipt of its licence from the Liquor, Gaming and Cannabis Authority of Manitoba.

Hifyre digital platform:

• Digital revenue of $3-million in Q3 2022, an increase from $1.9-million in Q2 2022, and a decrease from $3.8-million in the same quarter of the prior year.
• Digital adjusted EBITDA of $1.4-million increased from $600,000 in Q2 2022 and decreased from $3.4-million in the prior-year comparative period.
• The sequential increase in revenue and adjusted EBITDA is primarily due to the resumption of data subscription agreements and increased project-based data and analytics work during Q3 2022, which the company anticipates to continue.
• Additionally, Hifyre began to commercialize the consumer insights and distribution modules to the Hifyre IQ data analytics platform customers and will continue to drive additional commercial efforts toward these products.
• Generation of meaningful recurring revenue from licensing of Hifyre software to dispensaries in the United States through the strategic agreement with Fire & Flower U.S. Holdings Inc.
• The year-over-year decline in revenue and segment adjusted EBITDA is primarily due to general market conditions for Hifyre customers, but the company has renewed various recurring revenue agreements and sequentially added project-based work, as evidenced by the quarter-over-quarter improvement in Q3 2022.

Subsequent operational highlights post Oct. 29, 2022:

• Appointment of John Chou as interim chief financial officer on Nov. 21, 2022.
• Expansion of the Alimentation Couche-Tard strategic relationship through the addition of four additional cannabis retail store locations under licence on Nov. 7, 2022.
• Entered into an asset purchase agreement on Nov. 7, 2022, to acquire two cannabis retail store locations in Kingston, Ont., from a wholly owned subsidiary of Alimentation Couche-Tard, through the issuance of 804,548 common shares and up to additional 804,548 common shares upon achievement of certain performance metrics. The closing of the transaction is subject to certain closing conditions including the receipt of regulatory approval.
• Expanded the company's footprint in the British Columbia market through the opening of a cannabis retail store in Kelowna, and in Manitoba with the opening of a store in Winnipeg.

Adjusted EBITDA for the second quarter ended Oct. 29, 2022, was negative $2.8-million compared with positive adjusted EBITDA of $2.1-million for the comparable quarter for 2021 fiscal year.

Webcast and conference call

Fire & Flower will host a webcast and conference call with Mr. Trudel, chief executive officer, and John Chou, interim chief financial officer, and Chris Bolivar, executive vice-president, commercial and growth, at 8:30 a.m. ET on Dec. 13, 2022. The webcast will discuss Fire & Flower's fiscal 2022 third quarter financial and operational results.

Dial-in information

Canada dial-in number (toll-free):  1-833-950-0062

United States (toll-free):  1-844-200-6205

International:  1-929-526-1599

Access code:  231739

Sign up for the webcast on-line.

Replay information (available until Jan. 3, 2023)

U.S. toll-free:  1-866-813-9403

Canada:  1-226-828-7578

International:  1-929-458-6194

Replay code:  152398

Upon completion of the live conference call, a replay of the conference call will be accessible on Fire & Flower's website.

Fire & Flower's financial statements, and management discussion and analysis for the period are available on Fire & Flower's SEDAR profile and on Fire & Flower's website.

About Fire & Flower Holdings Corp.

Fire & Flower is a cannabis consumer retail and technology platform with more than 90 corporate-owned stores in its network. The company leverages its wholly owned technology development subsidiary, Hifyre, to continually advance its proprietary retail operations model while also providing additional independent high-margin revenue streams. Fire & Flower guides consumers through the complex world of cannabis through best-in-class retailing while the Hifyre digital and analytics platform empowers retailers to optimize their connections with consumers. The company's leadership team combines extensive experience in the technology, cannabis and retail industries.

Through the strategic investment of Alimentation Couche-Tard Inc. (owner of Circle K convenience stores), the company has set its sights on global expansion as new cannabis markets emerge and is poised to expand into the United States when permitted through its strategic licensing agreement with Fire & Flower U.S. Holdings upon the occurrence of certain changes to the cannabis regulatory regime.

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