Mr. Stéphane Trudel reports

FIRE & FLOWER CONTINUES IMPROVED RETAIL PERFORMANCE IN FOURTH QUARTER AND FISCAL 2022 RESULTS

Fire & Flower Holdings Corp. has released its financial and operational results for the fourth quarter and fiscal year 2022 ended Dec. 31, 2022.

"2022 was a turnaround year for Fire & Flower, represented by three consecutive quarters of same store sales and gross margin growth. We look to 2023 as a transformative year where we anticipate achieving positive adjusted EBITDA during the first half of the fiscal year through a disciplined approach to our core retail business, driving top line revenue, gross profit dollars and reducing our overhead expenses. We are delivering higher gross margin percentages with increased retail foot traffic, consumer price credibility and using our advanced Hifyre data capabilities to ensure that we have the most in-demand products for our customers," shared Stephane Trudel, chief executive officer of Fire & Flower.

"Since we announced our Get-to-Green initiative earlier in 2022, we have focused on reducing operating expenses, simplifying our operations, increasing utilization of assets and improving our management of working capital. We expect to generate annualized SG&A [selling, general and administrative] expense and lease savings of approximately $6-million in 2023 through various initiatives, including rationalizing overhead and administrative functions, subleasing underutilized properties, and the recent restructuring of our Pineapple Express delivery and logistics business to drive profitability across all segments.

"We continue to look towards consolidation in the industry and are actively pursuing opportunities that are fully accretive to our business with the long-term goal of achieving 10 per cent market share through a high-quality and profitable retail network. In addition, our strategic relationship with Alimentation Couche-Tard continues through our co-located store program that already has provided key learnings to inform future developments in Canada, the U.S. [United States] and Europe."

Financial and operational highlights for the fourth quarter and fiscal year 2022

Consolidated revenue of $156-million for the 48-week fiscal year 2022 and $30.5-million for the nine-week Q4 2022. The quarter-over-quarter decrease was driven by the short quarter which was nine weeks compared with prior quarter which was 13 weeks.

Consolidated gross profit of $41.1 Million (26.4 per cent of revenue) for the 48-week fiscal year 2022 and gross profit of $7.4-million (24.3 per cent of revenue) for the nine-week fourth quarter of 2022.

Adjusted EBITDA (earnings before interest, taxes, depreciation and amortization) of negative $15-million for the 48-week fiscal year 2022 and negative $3.8-million for the nine-week Q4 2022. Adjusted EBITDA for the nine-week Q4 2022 was impacted by higher SG&A expenses including restructuring, integration costs and other one time charges.

Net loss of $89.5-million for the 48-week fiscal year 2022 and net loss of $29.9-million for the nine-week Q4 2022, including restructuring and impairment charges of $45.7-million and $21.5-million for the respective periods.

Cash balance of $12.4-million.

Retail

• Retail revenue for the 48-week fiscal year 2022 was $115.8-million and $22.9-million for the nine-week Q4 2022. Decrease in retail revenue quarter-over-quarter reflects the result of a shorter nine-week quarter compared with 13-week quarter for the comparable period.
• Year-over-year same-store sales improved for Q4 2022 for three consecutive quarters to an increase of 3.9 per cent, from decreases of 26 per cent, 14 per cent and 4 per cent, respectively, for Q1, Q2 and Q3 2022.
• Retail gross profit for the 48-week fiscal year was $29.1-million (25.2 per cent of revenue) and $5.8-million for the nine-week Q4 2022 (25.4 per cent of revenue). The retail segment continues to show improvement in both gross margin percentage and gross profit dollars when prorated and accounting for seasonality. The 25.4 per cent margin represents consecutive quarterly improvement from 23.4 per cent in Q2 2022 and 24.2 per cent in Q3 2022.
• Retail adjusted EBITDA for the 48-week fiscal year was negative $11.9-million and adjusted EBITDA for retail for the nine-week Q4 2022 was negative $1.9-million, representing quarter-over-quarter improvements when prorated.
• The company had 92 stores open and in operation at the end of Dec. 31, 2022, compared with 90 stores at the end of Q3 2022 and 102 stores at the end of Q4 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, the cross-docking service in the province of Manitoba which started in Q4, and Pineapple Express Delivery, which was acquired on Jan. 21, 2022.
• Wholesale and logistics revenue for the 48-week fiscal year was $30.7-million and for the nine-week Q4 2022 $5.9-million.
• Segment gross profit for the 48-week fiscal year was $3.5-million and $100,000 for the nine-week Q4 2022.
• Wholesale and logistics adjusted EBITDA was negative $1.7-million for the 48-week fiscal year 2022 and negative $1.1-million for the nine-week Q4 2022.
• The year-over-year decline in segment gross profit and adjusted EBITDA reflects increased cost of sales and a lower profitability of delivery, which the company has addressed through a restructuring of Pineapple Express and a focus on profitable business segments.
• 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. The total addressable Manitoba market is approximately the same size as the Saskatchewan market and Open Fields is leveraging its relationships with major cannabis licensed producers to extend service into this new market.

Hifyre digital platform

• Digital segment revenue for the 48-week fiscal year 2022 was $9.6-million and $1.7-million for the nine-week Q4 2022.
• Digital segment adjusted EBITDA of $4.4-million in 48-week fiscal year 2022 and adjusted EBITDA in the nine-week Q4 2022 of $600,000.
• The sequential decrease in revenue and adjusted EBITDA was primarily driven by a shorter quarter and timing of data revenue.
• Hifyre continues to commercialize the consumer insights and distribution modules to Hifyre IQ data analytics platform customers, driving additional incremental high margin revenue.

Updates subsequent to Dec. 31, 2022

• On March 15, 2023, the company expanded its market presence in Winnipeg by opening a store in the Sports Hospitality Entertainment District (SHED) in downtown Winnipeg and bringing the total number of Fire & Flower stores in Manitoba to eight.
• The company has executed upon a reorganization of certain administrative functions across all departments and of the Pineapple Express business to eliminate significant selling, general and administrative expenses as part of continuing cost-efficiency measures and achieving positive adjusted EBITDA in the first half of 2023.
• Fire & Flower is actively evaluating retail consolidation opportunities which are accretive to the cash flow of the business.

Webcast and conference call

Fire & Flower will host a webcast and conference call with Mr. Trudel, chief executive officer, John Chou, chief financial officer and Chris Bolivar, EVP (executive vice-president) of commercial and growth at 8:30 a.m. EDT on March 28, 2022. The webcast will discuss Fire & Flower's Fiscal 2022 fourth quarter financial and operational results and the company's plans for 2023.

Dial-in information

Canada and United States dial-in number (toll-free): 833-470-1428

International: 404-975-4839

Access code: 644072

Replay information (available until April 18, 2023)

Canada and United States (toll-free): 866-813-9403

International: 929-458-6194

Replay access code: 163848

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 leading, technology-powered, adult-use cannabis retailer 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 education-focused, best-in-class retailing while the Hifyre digital retail and analytics platform empowers retailers to optimize their connections with consumers. The company's leadership team combines extensive experience in the technology, logistics, 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.

Fire & Flower is a multibanner cannabis retail operator that owns and operates the Fire & Flower, Friendly Stranger, Happy Dayz and Firebird Delivery brands. Fire & Flower Holdings owns all issued and outstanding shares in Fire & Flower Inc. and Friendly Stranger Holdings Corp., licensed cannabis retailers that own and operate cannabis retail stores in the provinces of British Columbia, Alberta, Saskatchewan, Manitoba, Ontario and Yukon.

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