Pharmacy chain taps medical cannabis demand

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Even though it won’t carry cannabis directly, the owner of this leading chain of drugstores is now helping to connect registered prescription holders with cannabis growers. At the same time, it’s building relationships by offering guidance on marijuana use.


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LOBLAW COMPANIES LTD., $65.50, symbol L on Toronto (Shares outstanding: 369.0 million; Market cap: $24.2 billion; operates 1,085 supermarkets under a variety of banners: Loblaw, Zehrs, Provigo, Real Canadian Superstore and No Frills.

In March 2014, the company purchased the Shoppers Drug Mart chain for $12.3 billion in cash and shares. Shoppers now operates 1,337 drug stores across Canada.

Loblaw feels its Shoppers Drug Mart stores give it a strong platform to profit from the legalization of cannabis. That’s because their pharmacy operations have experience distributing controlled substances and counselling customers about their effects.

In January 2019, Shoppers began selling medical cannabis online to patients in Ontario.

The company’s stores will not carry cannabis. Instead, prescription-holding patients who register with Shoppers can purchase cannabis from one of the chain’s licensed producers. They will then send the medication to the patient’s home or doctor’s office.

As well, insurer Great-West Lifeco (Toronto symbol GWO) has agreed to participate in Shoppers Drug Mart’s Medical Cannabis Coaching Program.

Great-West has offered medical cannabis coverage since 2009. This new deal will make it easier for patients to access medical cannabis under their health insurance policies.

Shoppers will arrange delivery to the patient’s home. It will also provide follow-up services, such as counselling and other advice.

Meantime, Loblaw recently transferred its 61.6% stake in Choice Properties REIT, Toronto symbol CHP.UN, to its parent company George Weston Ltd., Toronto symbol WN. In exchange, Loblaw shareholders received 0.135 of a Weston common share for each share they hold. They will not have to pay capital gains taxes until they sell their new Weston shares.

Following the transfer, Weston now owns 65.4% of the REIT. As well, Loblaw shareholders hold 16.8% of Weston’s shares.

If you exclude costs related to that transaction and other unusual items, Loblaw earned $388 million from ongoing operations in the three months ended December 29, 2018. That’s down 2.5% from $398 million a year earlier. However, due to fewer shares outstanding, per-share earnings gained 1.0%, to $1.03 from $1.02. That nonetheless missed the consensus estimate of $1.04.

Revenue in the quarter rose 2.1%, to $11.22 billion from $10.99 billion a year earlier.

Same-store sales for the company’s supermarkets improved 0.8% as higher food volumes offset lower average prices. Same-store sales for Shoppers Drug Mart rose 1.9%. The gain reflects a 0.6% increase in prescription drug sales and a 2.8% rise in the sale of other merchandise.

Loblaw is a buy.


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