This liquor store operator active in Alberta, B.C. and Alaska has teamed up with a major marijuana grower to open branded retail cannabis stores across Canada. This will cut its dependence on slowing alcohol sales.
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ALCANNA INC., $5.03, Toronto symbol CLIQ (Shares outstanding: 37.1 million; Market cap: $186.6 million; www.alcanna.com), changed its name from Liquor Stores N.A. in May 2018.
The company operates 236 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. 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. Under its current licence, it can open up to 12 more stores, 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.
The lower earnings in 2018 were partly due to higher expenses related to the launch of a discount liquor store banner, Deep Discount Liquor. That expansion included 10 locations close to competitors that already operate discount stores. The company’s higher spending on marketing to boost its sales in Alberta also contributed to the higher expenses.
Alcanna’s long-term debt was $73.1 million on December 31, 2018. That’s a somewhat high 39% of its market cap. It also held cash of $64.4 million, or $1.74 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 plan to open a new store in downtown Toronto. The government will, however, be the only online seller in Ontario, at least until April 1, 2019.
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.
Meanwhile, the $0.36 a share dividend yields a high 7.2%.
Alcanna Inc. is okay to hold, but only for aggressive investors.
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