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Alcohol Giant Enters Dispensary Game with $100M Deal

Cannabis dispensaries are one of the most profitable cannabis sub-industries.

report released in November of 2017 by Arcview found that cannabis dispensaries are as profitable as some of America’s best and most profitable companies.

“A new report released today shows that licensed marijuana stores are as profitable as Starbucks stores, if only they were taxed at the federal level like Starbucks, Apple, and other high-end specialty stores.  Cannabis dispensaries could average a 12% after-tax profit margin, which is in line with the top profit margin specialty retail stores like Starbucks.”

I’ll reveal one of the best ways to profit from the data in this report.

Alcanna (TSX: CLIQ, OTC: LQSIF) is headquartered in Edmonton, Ontario and is one of the largest retailers of alcohol in North America and the largest in Canada.

The company has a market cap of $265 million, owns and operates 229 retail locations in Alberta and Alaska, and did more than $621 million in revenue in 2017.

Alcanna is leveraging its scale and expertise to cash in on Canada’s high-growth recreational cannabis market.

In February 2018, Alcanna inked a $104 million deal with Aurora Cannabis (OTC: ACBFF) to build and operate a string of cannabis dispensaries.

“The Private Placement has been structured in two phases, with an Initial Investment made by Aurora (described further below) of $103.5 million for an approximate 19.9% ownership interest in Liquor Stores, with an Additional Investment (also described further below) that could bring Aurora’s interest in Liquor Stores up to approximately 40%. Liquor Stores intends to use the net proceeds from the Private Placement to establish and launch a leading brand of cannabis retail outlets, whereby it will convert some number of Liquor Stores’ existing retail outlets into cannabis retail outlets and establish new cannabis retail outlets. Liquor Stores will also use a portion of the proceeds to continue to strengthen its existing liquor retail brands by renovating existing liquor store outlets, and also for general corporate purposes.”

Last month, the budding relationship between Aurora and Alcanna expanded.

On August 8, Aurora announced Alcanna was given exclusive rights to open retail cannabis stores under the brand name “Aurora” across Canada, with plans to open 37 new cannabis retail stores – the max allowed under current regulations.

  • Alcanna will build, own and operate the new cannabis stores, where permitted, leveraging its experience and expertise as a responsible retailer of controlled substances.
  • The stores will operate under the Aurora name, providing immediate brand recognition based on the company’s reputation as a producer of high-quality cannabis products.
  • Alcanna is currently converting several of its existing liquor stores into cannabis retail outlets.
  • Additionally, Alcanna has leveraged its long-standing relationships with commercial landlords to secure a multitude of primary locations across Alberta.
  • When permitted by government, Alcanna is well-prepared to open a large number of retail stores in any province in Canada.
  • In Alberta, Alcanna anticipates opening 37 stores, starting October 17, 2018, the maximum number permitted to a single operator under provincial regulations in year one of legalized adult consumer use.
  • Alcanna will use its deep connections with general contractors and trades, enabling it to quickly mobilize construction teams at approved sites.
  • Alcanna will retain Aurora through CanvasRx, CanniMed and MedReleaf, which have deep experience working with cannabis users, and unparalleled data regarding efficacy and customer experience to assist in training its in-store associates known as Category Specialists.

This partnership is a big win for Alcanna. Aurora is one of the largest cannabis companies in Canada and the world. The partnership sets the stage for Alcanna to sell hundreds of millions in cannabis every year. I view the relationship as a strong profit trigger for Alcanna.

Alcanna Shares Trading 30% Below 52-Week High

Despite the strong outlook, Alcanna is trading 30% below the 52-week high.

Looking forward, I expect shares to rebound from this dip and rally back to the 52-week high by the end of the year as recreational cannabis goes legal this fall.

Alcanna Trades on Canada & US Exchanges

Alcanna trades in both Canada and the US.

In Canada shares trade on the Toronto Stock Exchange under the ticker CLIQ. I see an average daily trading volume of 54,000, so this ticker is plenty liquid.

In the US, shares trade on OTC markets under the ticker LQSIF. I see an average daily trading volume of 2,900. This ticker is much less liquid than the Canadian ticker.

If you have the option, go for the Canadian ticker. If not, the US ticker will suffice.

Risks to Consider

Alcanna isn’t a pure play on Cannabis. If performance at its liquor store drags, it could weigh on shares.

The Big Picture

Alcanna is one the largest alcohol retailers in North America, but now the company is making a strategic shift into the high-growth cannabis sector. Its partnership with Aurora is a huge win and sets the stage for millions in new revenue. Despite the strong outlook shares are trading 30% below the 52-week high. I believe shares will rebound and rally back to the all-time high by the end of the year with Canada set to legalize recreational cannabis on October 17.


Michael Vodicka
Editor, Cannabis Stock Trades

About the Author & Cannabis Stock Trades

Michael Vodicka is a globally syndicated equity analyst with more than 20 years of experience in trading and investing. His research has been featured in some of the industry’s most respected publications.

He has been investing and leading investors in the cannabis sector since 2013.

Michael Vodicka owns shares of Aurora Cannabis at time of writing.