A second marijuana retailing alliance is helping this established North American and European convenience store operator gain quick entry into the rapidly growing cannabis retail market.
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ALIMENTATION COUCHE-TARD INC., $81.05, symbol ATD.B on Toronto (Shares outstanding: 564.4 million; Market cap: $45.2 billion; www.couche-tard.com) operates 12,661 convenience stores throughout North America and Europe.
The company continues to expand into the market for cannabis. Its latest move is an investment in Fire & Flower Holdings Corp. (symbol FAF on Toronto).
This includes an 8% unsecured convertible debenture worth $26.0 million. This debt is convertible into 24.3 million shares of Fire & Flower at $1.07 per share. If Alimentation Couche-Tard opts to convert the debentures, it will own 9.9% of Fire & Flower.
The company also received warrants, which if converted to Fire & Flower shares, will give it 50.1% interest in Fire & Flower.
Alimentation Couche-Tard will also appoint a member to Fire & Flower’s board of directors.
That firm is a licensed cannabis retailer in Alberta, Saskatchewan, Manitoba and the Yukon. It’s also a consultant and licensor to Fire & Flower-branded retail locations in the province of Ontario. The company aims to offer what it believes is education-focused, best-in-class retailing while its Hifyre digital platform connects consumers with cannabis products.
Earlier this year, Alimentation Couche-Tard, together with Canopy Growth (symbol WEED on Toronto), entered into a trademark licensing agreement with one winner of the Ontario Alcohol and Gaming Commission’s first 25 cannabis retailer licences.
The lottery winner began operating a “Tweed” branded retail store in London, Ontario, starting on April 1, 2019. That licensee has full ownership and control over the London store, but will sell Canopy Growth cannabis, using Alimentation Couche-Tard’s retailing expertise.
Through this partnership, the company aims to combine Canopy Growth’s cannabis expertise with its own experience selling other age-restricted products such as tobacco and alcohol.
Longer term, the experience gained from this initial store should position Alimentation Couche-Tard and Canopy Growth to expand elsewhere in Ontario when the provincial government allows more stores. It will also set them up to expand across Canada as well as the U.S. and internationally. Canopy Growth’s Tweed brand already has brick-and-mortar locations in Saskatchewan, Manitoba, and Newfoundland and Labrador.
Meantime, in its fiscal 2019 fourth quarter, ended April 28, 2019, the company’s sales fell 3.7%, to $13.11 billion from $13.61 billion a year earlier (all figures except share price and market cap in U.S. dollars). Excluding one-time items, earnings fell 11.9%, to $295.0 million, or $0.52 a share, from $335.0 million, or $0.59. The declines were mostly due to the high U.S. dollar hurting the contribution of its Canadian and European operations, plus higher expenses.
Couche-Tard continues to grow by acquisition, including the 2017 purchase of convenience-store chain CST Brands (symbol CST on New York) for $4.4 billion.
That growth strategy adds risk, especially with a list of acquisitions as big as CST. However, Couche-Tard has a long track record of successfully integrating those businesses.
The company’s outlook remains positive, and earnings should keep rising as it further integrates its acquisitions. Couche-Tard also plans to continue to launch fresh-food initiatives and promotions to boost sales.
The stock trades at 18.4 times the forecast fiscal 2020 earnings of $3.31 U.S. a share. Couche-Tard raised its quarterly dividend by 25.0% with the April 2019 payment, to $0.125 (Canadian) a share from $0.10. The shares now yield 0.6%.
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