Alcanna Inc (TSE:CLIQ) Opening Aurora (TSE:ACB) Retail Cannabis Stores

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Midas Letter
Alcanna Inc (TSE:CLIQ) Opening Aurora (TSE:ACB) Retail Cannabis Stores

Alcanna Inc (TSE:CLIQ) (OTCMKTS:LQSIF) CEO James Burns discusses the company’s massive North American profile – being the largest private retailer of liquor in Canada. Alcanna are 25% owned by Aurora Cannabis Inc (TSE:ACB) (OTCMKTS:ACBFF) (FRA:21P), with the option to increase to 40 percent ownership through the exercise of warrants. Alcanna provides Aurora with a proven retail strategy using their long history and established distribution channels in liquor and adult consumable products. Burns also discusses opening retail cannabis stores under the “Aurora” brand name across Canada and the future opportunity Ontario provides both companies.


James West:    Hey, welcome back to Midas Letter Live. My guest in this segment is James Burns. He is the CEO of Alcanna Inc., trading on the TSX under the symbol CILQ. James, welcome.

James Burns:   Thank you.

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James West:    James, tell me: what does Alcanna do?

James Burns:   At the moment, we are the largest private retailer of liquor in Canada; I think we’re probably number two in North America.

James West:    Wow. So you provide alcohol to retail stores, or do you own the retail stores?

James Burns:   We own the retail stores ourselves.

James West:    Okay. So in what provinces do you operate?

James Burns:   Alberta, BC and Alaska.

James West:    Okay. How many locations altogether?

James Burns:   Oh, it changes by the week; you open some, you close some, but around 230.

James West:    So you are about to become a distributor of cannabis where permissible by law?

James Burns:   Correct.

James West:    And so all of those locations are going to carry products from which providers?

James Burns:   Well, it’s up to – every province will be a little different, because in Alberta and British Columbia, the governments, the regulators, will be the ones purchasing the products from the suppliers, so it’s actually their decision. In Alberta, they’ve chosen for Year 1 13 LPs to buy from, so we will have to buy from what the government makes available.

James West:    I see.

James Burns:   We’re not allowed to contract directly with the licensed producer.

James West:    I see. And Alcanna is owned in part by a licensed producer?

James Burns:   That’s correct. Aurora Cannabis owns 25 percent of our company.

James West:    And do they have the right to increase that ownership?

James Burns:   Yes, they have warrants; they can go up to 40 percent if they exercise those warrants.

James West:    Interesting. So this is obviously a business that is revenue-positive, profitable?

James Burns:   Oh, yes.

James West:    Hmm. Okay, so, as a publicly traded company, I mean, I’m sorry, I’m just not familiar with it at this point, but do you pay a dividend?

James Burns:   We do. The company traditionally had been, it was a private company, it became an income trust when that vehicle was popular a couple years back. When that was shut down, it switched over its distribution to a dividend, and had traditionally been a relatively low-growth, dividend-paying stock, which we are trying to communicate to the public and to the world, to our shareholders, that the company is changing and will change into a very high-growth-oriented investment with heavy capital and people expenditures in the early year or two here. We have an exceptionally strong balance sheet thanks to Aurora and thanks to selling off some of our American assets that we used to do business in.

James West:    Right. So you’re deeply experienced in the distribution of liquor and adult consumable products.

James Burns:   Yeah, controlled substances, and we’ve been doing this for a very long time.

James West:    Oh, okay. So do you look at what’s happening in Ontario right now and sort of look at and say, okay, here’s our next opportunity?

James Burns:   Absolutely. Absolutely.

James West:    And you’ve got now the cash and the partnerships to, you know, fill up the country with these stores?

James Burns:   Yes, no, exactly. Ontario has announced, as you know, that they are going to go to a private cannabis retail network instead of the public sector one that the previous government had chosen. There’s no details yet as to how that’s going to be rolled out and exactly what any individual retailer is allowed to do, and so on, but we are very prepared and ready to go for whatever regime they put in place. We’ve got our real estate, you know, a great relationship with landlords across the country, and Canada is Canada. A few big landlords have most – the same ones out west that are here. So we’re talking to them right now. We have actually, to be honest with you, we had boots on the ground the day after the election, both for the liquor side, as the Ford government has announced that they are going to be moving to some sort of a private model in liquor as well. Again, details to be known, and whatever the government chooses to do in terms of retail regime for cannabis and liquor, we’ll be ready if we’re able. Very exciting for us.

James West:    Yeah. In Nova Scotia, the liquor store is attached to, like, one side is the liquor store, one side is the cannabis store, which I thought was interesting because I thought Federally the mandate was to not have liquor for sale where cannabis was for sale.

James Burns:   Yeah, that’s the government and the government, so I guess they can do what they want. You know, we were certainly anticipating, we have a lot of locations in Alberta, and if we could have demised a wall down the middle and had half the store doing one, half the store doing the other, it would have been more cost-effective, but that’s not permitted in Alberta. And some municipalities, you’re not allowed – you have to be separation of a certain distance between a cannabis and a liquor. So it is what it is. We’re fine.

James West:    Right, right. What was the last dividend you paid?

James Burns:   We pay about 4 percent yield.

James West:    Four percent, okay. Well, that makes it an income stock, doesn’t it?

James Burns:   Well, it is, a bit; it traditionally has been, and I believe a lot of our shareholders do buy it for the income. But going forward, it’s very heavy growth. I mean, the company was not well capitalized till about a year ago, and so it was able to renovate stores, to do things in a very gradual basis just as capital became available. That’s completely changed now, so we have the capital to grow the best parts of the liquor business and, obviously, to expand into cannabis in Alberta, BC, hopefully Ontario, and any province where we’re able to. Because we have – the expertise is there; we have the back of house already in Edmonton, you know, 150 people who know how to run stores and who have all the day-to-day hard work, that’s all set up.

James West:    Wow.

James Burns:   Adding 10 or 20 or 30 more isn’t that difficult.

James West:    So with Aurora as a major shareholder in the company, the government chooses which suppliers are eligible to be chosen from, but there’s obviously going to be an inclination on your part to carry Aurora or feature Aurora products?

James Burns:   Absolutely, and we’re proud to do so. We believe, you know, we’ve done our diligence as well, and we had other choices of licensed producers to have gone down the road with, and we were thrilled to have Aurora be the one that we finally came to terms with in February because Alberta is Alberta. Hometown just down the road, and they’ve got these world class, Sky-class facility which they’re building; I was in the one in Edmonton just last week, and it’s just mind-boggling the quality and the consistency and the part of the market that they are going to be able to provide.

At the end of the day, you know, retail is retail; you can’t tell customers what to buy. They’ll tell you what they want to buy. So you target segments of markets and different – but, you know, for the quality, and for the higher-end products, for the real, you know, the best of the best and the consistency, Aurora, in our view, will be the market leader. Our stores are going to be called Aurora, so we will obviously, you know, really try to feature those products, and Albertans in particular like to support hometown. But we’ll also be a house of brands; we’ll carry any products that fit the demographics of our customers, that our customers wish, which Aurora is absolutely fine with, and that encourage us.

James West:    Yeah, absolutely. Oh, so that’s interesting. So I didn’t realize that Aurora has actually already got a retail footprint in three provinces, with more to come in Ontario.

James Burns:   Yeah, yeah, through our stores. I mean, we own the stores, we’re on the license, and we’re on the lease and all that stuff, but they’re called Aurora. And, you know, part of the investment, it was Aurora’s choice of what the name would be, the brand, and they chose that, and we’re thrilled they did, so that’s a great honour for us, frankly, to be given the responsibility to look after and present to the public their brand, but it’s in our hands. So it’s a big responsibility, but we’re thrilled that they gave us that chance. So I think we’ll both do really well by it.

James West:    Yeah. No, this is the first opportunity I’ve seen in the cannabis market where you’re a profitable company with major revenue and presence, who pays a dividend. So it’s the first cannabis income stock.

James Burns:   Well, I guess so. You know, I think a lot of these companies have a very large market cap and they’re just getting started in terms of their operations, and we’ve been around for a long time. We do 22 million transactions a year, and $600 million of revenue, and make good money already. And we have the ability, both operationally and financially, to get into cannabis in a major way fast, but profitably fast and efficiently. We won’t have the growing pains; it’s just a few more stores. So the fundamentals of retail is the fundamentals of retail.

James West:    Sure. So are these stores going to be good to go October 17th?

James Burns:   You know what, it’s all about development permits and municipalities, and every municipality has put a different regime and is taking a different length of time to decide who can put stores up and where. So it’s really based on that. If it was just left up to market forces, if we were selling running shoes, yes, we would have them all up; it’s not. So it’s taking time. We’ll probably have maybe four or five on October 17th just by way of the permits that we’ve been able to get and get going, but we’ll have – in Alberta, you can only have 37, any one company, in the first year. So they’ve just restricted so no one gets too big too fast. And we anticipate we’ll have all 37 up and running sometime in the New Year.

James West:    Wow. It’s a fascinating story, and I plan to actually become an investor, I can tell you. so it’s been great to talk to you, James.

James Burns:   That’s great. You’re welcome, thank you so much.

James West:    And we will be happy to have you back on October 17th or thereabouts, to hear how it’s going.

James Burns:   How it rolls out? I’d love to come, thank you so much.

James West:    Awesome, appreciate it.

James Burns:   Okay, cheers.

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