Let’s look at another entry from the Ontario Securities Commission’s refilings and errors list:
- Fire & Flower Holdings Corp….wishes to provide additional information in respect of the events and circumstances that led to the withdrawal of certain forward-looking information contained in the Company’s prior disclosure. Prior to the Company’s filing of its management discussion and analysis for the thirteen and twenty-six weeks ended August 1, 2020, the Company’s public disclosure included forward-looking information that the Company projected it would have 78 operating stores by the end of its fiscal 2020 year and be cash flow positive by the second half of its fiscal 2020 year…
- In the Q2 MD&A, the Company disclosed that its projected store count would be less than the number previously included in the FLI and that it does not intend to provide future forward-looking information with respect to its anticipated number of operating stores. In withdrawing the FLI, the Company considered a number of events and circumstances, including the following:
- Construction on certain of the Company’s anticipated Ontario stores commenced in February 2020 with expected completion in April 2020. As a result of COVID-19 related construction delays, construction of the first stores were not completed until May and June 2020. Additionally, commencing in June 2020, the Company received revised licensing timelines from the Alcohol and Gaming Commission of Ontario that indicated that the licensing of certain stores would be delayed beyond the Company’s original forecast.
- In Saskatchewan, the Company’s previous projection of store counts was informed by the province’s announcement in October 2019 that it would commence open licensing by September 2020. The Company assumed that municipalities in Saskatchewan would develop a regulatory framework for cannabis retailers that would allow retailers (like the Company) to construct retail cannabis stores and be ready for operations by the time the open licensing process commenced. By July 2020, municipal regulatory regimes in the province were still in development, resulting in delays in the opening of cannabis retail stores in certain municipalities where the Company had forecasted having stores open prior to the end of its fiscal 2020 year.
- In Manitoba, the Company expected that the timeline to obtain the necessary permits and licences and to secure the requisite real estate to commence operations would be similar to timelines in other provinces. However, the Company experienced delays from the applicable regulatory bodies with respect to the granting of certain licences and permits. Additionally, the Company determined that the commercial real estate market in Manitoba was different than what the Company had experienced in other jurisdictions, particularly with respect to the negotiation of leases which could be terminated by the Company on a shorter notice period in the event of licensing delays. Accordingly, the Company decided to delay the entering into of certain leases until there was greater certainty with respect to the licensing of stores in Manitoba.
- In British Columbia, the Company experienced a longer than expected delay in receiving permits to construct certain stores in Vancouver. Although the Company received approval in principle for two Vancouver stores in July 2020, the Company experienced further delays in obtaining building permits for such locations. As a result of the experience with the applicable regulatory bodies in British Columbia, the Company determined that regulatory approval would take longer than initially anticipated.
- As the Company’s cash flow is impacted by the number of operating retail stores, the delays to the opening of additional retail cannabis stores motivated the Company to withdraw the FLI with respect to timing of when the Company anticipates being cash flow positive.
The relevant Canadian regulation requires that if a reporting issuer decides to withdraw previously disclosed material forward-looking information, it must discuss the events and circumstances leading to that decision, including a discussion of the underlying assumptions that are no longer valid. The company hadn’t overlooked this entirely, originally disclosing among other things that “construction of certain proposed Fire & Flower stores, including in Ontario has been delayed primarily as a result of complications arising from the COVID-19 pandemic,” referring to details in obtaining the relevant authorizations, and summing up “as a result of the pandemic, construction activity necessary to build out our retail locations has also been delayed. Accordingly, the impact of COVID-19 and delayed licensing have resulted in, and may continue to cause, a delay in achieving positive operating cash flow.” However, it appears that the regulator found this insufficient, requiring more detail on the specific Ontario situation and also picking up on the rather clunky phrase “including in Ontario” to request more detail on the situation other than in Ontario.
The message, broadly, is that issuing forecasts and guidance is a two-way street, perhaps providing an immediate benefit from the market’s reaction to what’s being put out there, but entailing a commitment to fully acknowledge and explain when the future doesn’t transpire as expected. In this particular case, the additional detail provided by the company appears useful in understanding the company’s current status regardless of its link to the previous forecast – that is, it seems like operational “colour” that ideally would have been provided in any event. Really, it’s almost always better to tell the story, without skimping on the details…
The opinions expressed are solely those of the author