Alcanna is expanding into cannabis stores across Canada

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One of Canada’s biggest marijuana growers now owns 25% of this liquor store operator. Together, they aim to keep opening more cannabis stores across Canada as the cannabis supply situation improves. This should help the retailer offset slowing liquor sales.


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ALCANNA INC., $5.96, Toronto symbol CLIQ (Shares outstanding: 37.1 million; Market cap: $221.1 million;, changed its name from Liquor Stores N.A. in May 2018.

The company operates 241 retail liquor stores in Alberta, B.C. and Alaska. Its main banners include Liquor Depot, Liquor Barn, Brown Jug, Wine and Beyond, and Wine Cellars.

The company’s sales increased 17.8%, from $694.2 million in 2014 to $817.7 million in 2016. Most of that growth was achieved through acquisitions in the U.S. However, in 2017, the company sold most of its U.S. operations, and revenue fell 24.0% to $621.4 million.

Due to slowing sales at its core Alberta businesses, Alcanna has teamed up with big marijuana grower Aurora Cannabis (symbol ACB on Toronto). As part of the deal, Aurora has bought CLIQ shares (for $138 million) and now holds a 25% stake in the company. With additional investments, Aurora can raise its interest in Alcanna to 40%.

The deal also gives Alcanna exclusive rights across Canada to own and operate Aurora-branded cannabis stores under the Nova Cannabis banner. As part of that plan, Alcanna will convert some of its existing liquor outlets into cannabis retail stores; it will also establish new cannabis retail outlets.

In Alberta, the company has already opened five stores. It aims to open between 15 and 20 more stores in 2019, but will probably hold off until cannabis supplies improve.

Thanks partly to $8.0 million from cannabis sales, Alcanna’s overall revenue improved to $658.9 million in 2018.

However, excluding one-time items, Alcanna’s earnings dropped sharply from $0.59 a share (or a total of $14.0 million) in 2014 to $0.01 a share (or $356,000) in 2018.

In January 2019, Alcanna folded 50 of its liquor stores into a new partnership with Ace Liquor Corp., which has 12 stores and three under construction. Alcanna owns 71% of that partnership.

Thanks in part to those new stores, Alcanna’s sales in the quarter ended March 31, 2019 rose 16.2%, to $150.0 million from $129.1 million a year earlier. The cannabis stores contributed $6.4 million to the latest total.

Despite the higher sales, losses expanded to $0.24 a share (or a total of $9.3 million) from $0.06 a share (or $1.8 million). That’s largely due to the negative impact of new accounting rules that increased its deprecation expenses.

Alcanna’s long-term debt was $73.4 million on March 31, 2019. That’s a somewhat high 39% of its market cap. It also held cash of $22.1 million, or $0.60 a share.

Outside of Alberta, Alcanna aims to open a large number of cannabis retail stores where permitted. This includes Ontario, where Premier Doug Ford has now opted to sell recreational cannabis products through private retailers rather than government-operated storefronts.

Alcanna has now teamed up with a company that recently received one of 25 retail cannabis retail licenses from the province. Together, they recently opened a new store in downtown Toronto.

The company’s move to offset slowing sales for liquor by branching out into cannabis sales adds a lot of risk. However, its link-up with Aurora, an established online seller of medical marijuana with a strong reputation, will help to reduce some of that risk.

To free up cash for new investments in its cannabis and other operations, Alcanna recently cancelled its annual dividend payment of $0.36 a share.

Alcanna Inc. is okay to hold, but only for aggressive investors.


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