Alcanna Reports 28% Growth in Sales and Gross Margin and the Sale of the Alaska Operations

Alcanna. (the “Alcanna” or “Alcanna”) (Alcanna) today reported its unaudited financial results for the three months ended March 31, 2020 and announced the sale of the Company’s Alaska operations.

First Quarter Financial Results and Business Update

During the first quarter of 2020, Alcanna continued to show significant growth over the prior year with total Company sales from continuing operations up 28.1% and total gross margin up 28.7%.  Canadian same-store liquor sales for the first quarter of 2020 were up 10.7%, which marks the sixth straight quarter of strong market share gains by Alcanna. Cannabis sales also increased by $9.3 million over the first quarter in the prior year, or 144.6%.

Alcanna’s liquor and cannabis stores in all regions experienced significantly higher than normal sales during the last three weeks of March 2020, which coincided with the World Health Organization’s characterization of COVID-19 as a pandemic. This “stockpiling” buying subsided once customers were assured by provincial and state governments that liquor and cannabis stores were being classified as essential services and would remain open. Nonetheless, Canadian same-store liquor sales to date for the first two months of the second quarter continue to be strong, trending approximately 12% higher compared to the same period last year. 

Alcanna believes this continuing stronger than expected sales growth is primarily the result of the forced closure of on-premise alcohol establishments such as bars,  restaurants and lounges, and the resulting shift of customer consumption habits to people staying and dining at home, and now the mass gathering and social distancing restrictions on these establishments as they begin to reopen. We believe these new consumer behaviour patterns will continue for the foreseeable future with on-premise locations being allowed only restricted operations and many consumers being uncomfortable in confined public places as long as the COVID-19 threat remains.

Margin improvement continued through the first two months of the second quarter with a reduction of promotional activities, the continued integration of the Company’s revised buying program, and integration of the new liquor business operations team.

Highlights

  • Total liquor division sales increased by 21.9% which is primarily attributable to the increase in same-store sales, the acquisition of Ace Liquor and Solo Liquor in 2019, and the opening of three new Wine and Beyond store locations in 2019. Same store sales were 10.7% higher in Q1 2020 and have continued that trend through Q2 to date.
  • The Company continued to slowly and carefully recalibrate margins in the Alberta liquor banners in the first quarter of 2020.  Every year in liquor retail there is a significant shift in sales mix between beer, wine and spirits, as well as between value and premium products in the first quarter of the year compared to the holiday season fourth quarter. While the blended margin for Q1 2020 is comparable to Q4 2019, this was largely due to the traditionally softer January and February period. The gross margin by the end of March was higher and continues to grow through the second quarter.
  • Alcanna now has 31 Nova Cannabis stores licensed and opened (Alberta: 30; Ontario: 1), of which nine (9) opened in Q1 2020, resulting in a 144.6% increase in cannabis sales compared to Q1 2019.  The gross margin as a percentage of sales in the cannabis division was 32.5% in Q1 2020, an increase from 23.6% in the prior year, primarily as a result of managing cannabis inventories strategically to carry products that are in high customer demand.
  • The loss before income taxes in the first quarter of 2020 was reduced by 49% compared to Q1 2019 as a result of the increase in sales and margin, improved labour management at the store level, and initiatives the Company implemented in Q3/Q4 2019 to reduce corporate overheads and create efficiencies from integrating banners and reducing duplicative overheads.

Sale of the Company’s Alaska Operations

Effective June 1, 2020, the Company entered into a definitive stock purchase agreement (the “Agreement”), and simultaneously sold  the shares of its indirect wholly-owned subsidiary, Liquor Stores USA North Inc., which owns and operates the Brown Jug banner of twenty-one (21) retail liquor stores and one (1) distribution centre (the “Alaska Operations”), to a subsidiary of Afognak Native Corporation (“Afognak”) (collectively, the “Transaction”). Under the terms of the Agreement, total cash proceeds are expected to be approximately US$21.4 million (approximately CAD$29.1 million at current exchange rates), subject to a retention amount of US$1.3 million (CAD$1.8 million) which is payable by Afognak to Alcanna at certain intervals over the next twelve (12) months upon the finalization of the working capital adjustment and subject to potential contingencies related to the Transaction. Closing costs for the Transaction are estimated to be approximately US$0.7 million (CAD$0.9 million).

The proceeds from the Transaction will be used by Alcanna for debt reduction, new investment in its Canadian liquor and cannabis retail businesses and for general corporate purposes. The Alaska Operations contributed approximately US$2.4 million to Alcanna’s earnings before income taxes in 2019 after adjusting for directly attributable corporate overhead. In the interim financial statements and the management discussion and analysis (the “MD&A”) for the three months ended March 31, 2020 and in this press release, the results of the Alaska Operations have been classified as discontinued operations, and the related assets and liabilities have been presented as held for sale as at March 31, 2020.

“Brown Jug has been a steady business for Alcanna for many years but we believe it requires significant capital expenditures to maintain its market position,” said James Burns, Vice Chair and CEO of Alcanna. “These capital investments could exceed the cash the Alaska Operations generates over the next several years. Alcanna believes that capital would be better allocated to growth opportunities here in Canada such as expanding our Wine and Beyond banner into British Columbia, filling in the few remaining trade area gaps for Wine and Beyond in Alberta, expanding Nova Cannabis into Ontario, and being prepared for other provinces, such as Ontario, to possibly open liquor retail to private sector participants are better allocations of capital for our shareholders.”

Afognak is an Alaska Native Corporation formed under the 1971 Alaska Native Claims Settlement Act and through the 1977 merger of two Alaska Native village corporations.  Today, Afognak and its subsidiaries have over 4,000 employees in nearly all 50 states of America as well as other countries worldwide. It provides a variety of contract services to the federal government and private business.

“It was important to Alcanna that if we sold our Alaska business, it was to a responsible buyer with the financial resources and corporate aspirations to take the business to the next level. Afognak met those criteria extremely well. We have had a tremendous team of people in the office and out in the stores in Alaska and we believe that Afognak will be an excellent owner of Brown Jug – Alaska’s oldest liquor retailer that has been in business for 83 years,” continued Mr. Burns. “Brown Jug is a ubiquitous brand in Anchorage, Wasilla and Fairbanks which Alaskans refer to simply ‘The Jug’. Having it returned to local ownership with a growth objective is a great thing for Brown Jug and its team and provides Alcanna with significant financial flexibility to invest in opportunities closer to home.”

FINANCIAL RESULTS

(In thousands of Canadian dollars
except per share amounts, unaudited)
Three months ended March 31
2020 2019
(restated)(i)
Sales162,117 126,515 
Operating profit before amortization and provisions7,703 (659)
Net loss from continuing operations(6,522)(9,425)
Basic and diluted loss per share from  
from continuing operations(0.16)(0.24)

 i) The financial results for the three months ended March 31, 2020 have been restated to exclude the results of the Alaska Operations, which have been classified as discontinued operations.

CONFERENCE CALL

Alcanna Inc. will host an analyst and investor conference call on June 2, 2020 to discuss the unaudited financial results for the three months ended March 31, 2020 and the sale of the Alaska Operations. The conference call will take place at 10:00 a.m. M.T.

To participate in the call, please dial (416) 340-2216 or toll-free (800) 273-9672. The required service confirmation number is: 4328661. An archived recording of the conference call will be available approximately 3 – 5 business days after the completion of the call, by dialling: (905) 694-9451 or Toll-Free Access: (800) 408-3053. The required passcode is: 7654213#.

ABOUT ALCANNA INC.

Alcanna is one of the largest private sector retailers of alcohol in North America and the largest in Canada by number of stores – operating 231 locations in Alberta and British Columbia. The Company also operates 31 cannabis retail stores under the “Nova Cannabis” brand, with 30 locations in the Province of Alberta and one in the Province of Ontario.

Alcanna’s common shares and convertible subordinated debentures trade on the Toronto Stock Exchange under the symbols “CLIQ” and “CLIQ.DB”, respectively.

Additional information about Alcanna Inc. is available at www.sedar.com and the Company’s website at www.alcanna.com.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements or information (collectively “forward-looking statements“) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “continue”, “anticipate”, “will”, “should”, “plan”, “intention”, and similar words suggesting future events or future performance. All statements and information other than statements of historical fact contained in this news release are forward-looking statements. In particular, this news release contains forward-looking statements pertaining to implementing the Company’s strategy and objectives related to the growth of its liquor and cannabis brands, and the impact that COVID-19 may have on sales and customer shopping habits in the future.

With respect to forward-looking statements contained in this news release, the Company has made assumptions regarding, among other things: the ability of management to execute the Company’s strategic plan and growth strategy, including its capital allocation strategy and specifically its ability grow its cannabis retail store locations and enhance profitability of its liquor business, and assumptions about the COVID-19 pandemic and the impact it might have on the economies in the jurisdictions that the Company operates in.

Although the Company believes that the expectations reflected in the forward-looking statements, and the assumptions on which such forward-looking statements are made, are reasonable, especially given the unprecedented uncertainty of the full extent and impact of COVID-19, there can be no assurance that such expectations and assumptions will prove to be correct. Readers should not place undue reliance on forward-looking statements included in this news release. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause actual performance and financial results to differ materially from any estimates, forecasts or projections. These risks and uncertainties include, among other things, the duration and severity of the COVID-19 pandemic on the business, operations and financial condition of the Company; the risk that Alcanna will be unable to execute its strategic plan and growth strategy, including the capital allocation and retail cannabis strategy, as planned without significant adverse impacts from various factors beyond its control; dependence on suppliers; potential delays or changes in plans with respect to capital expenditures and the availability of capital on acceptable terms; risks inherent in the liquor retail and cannabis industries; competition for, among other things, customers, supply, capital and skilled personnel; changes in labour costs and markets; incorrect assessments of the value of acquisitions; general economic and political conditions in Canada (including Alberta), and globally; industry conditions, including changes in government regulations; fluctuations in foreign exchange or interest rates; unanticipated operating events; failure to obtain regulatory and third‐party consents and approvals when required; changes in tax and other laws that affect us and our security holders; the potential failure of counterparties to honour their contractual obligations; stock market volatility; and the other factors described in the Company’s public filings (including the Annual Information Form) available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release are made as of the date hereof. Except as expressly required by applicable securities legislation, Alcanna does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

First Quarter Financial Results and Business Update

During the first quarter of 2020, Alcanna continued to show significant growth over the prior year with total Company sales from continuing operations up 28.1% and total gross margin up 28.7%.  Canadian same-store liquor sales for the first quarter of 2020 were up 10.7%, which marks the sixth straight quarter of strong market share gains by Alcanna. Cannabis sales also increased by $9.3 million over the first quarter in the prior year, or 144.6%.

Alcanna’s liquor and cannabis stores in all regions experienced significantly higher than normal sales during the last three weeks of March 2020, which coincided with the World Health Organization’s characterization of COVID-19 as a pandemic. This “stockpiling” buying subsided once customers were assured by provincial and state governments that liquor and cannabis stores were being classified as essential services and would remain open. Nonetheless, Canadian same-store liquor sales to date for the first two months of the second quarter continue to be strong, trending approximately 12% higher compared to the same period last year. 

Alcanna believes this continuing stronger than expected sales growth is primarily the result of the forced closure of on-premise alcohol establishments such as bars,  restaurants and lounges, and the resulting shift of customer consumption habits to people staying and dining at home, and now the mass gathering and social distancing restrictions on these establishments as they begin to reopen. We believe these new consumer behaviour patterns will continue for the foreseeable future with on-premise locations being allowed only restricted operations and many consumers being uncomfortable in confined public places as long as the COVID-19 threat remains.

Margin improvement continued through the first two months of the second quarter with a reduction of promotional activities, the continued integration of the Company’s revised buying program, and integration of the new liquor business operations team.

Highlights

  • Total liquor division sales increased by 21.9% which is primarily attributable to the increase in same-store sales, the acquisition of Ace Liquor and Solo Liquor in 2019, and the opening of three new Wine and Beyond store locations in 2019. Same store sales were 10.7% higher in Q1 2020 and have continued that trend through Q2 to date.
  • The Company continued to slowly and carefully recalibrate margins in the Alberta liquor banners in the first quarter of 2020.  Every year in liquor retail there is a significant shift in sales mix between beer, wine and spirits, as well as between value and premium products in the first quarter of the year compared to the holiday season fourth quarter. While the blended margin for Q1 2020 is comparable to Q4 2019, this was largely due to the traditionally softer January and February period. The gross margin by the end of March was higher and continues to grow through the second quarter.
  • Alcanna now has 31 Nova Cannabis stores licensed and opened (Alberta: 30; Ontario: 1), of which nine (9) opened in Q1 2020, resulting in a 144.6% increase in cannabis sales compared to Q1 2019.  The gross margin as a percentage of sales in the cannabis division was 32.5% in Q1 2020, an increase from 23.6% in the prior year, primarily as a result of managing cannabis inventories strategically to carry products that are in high customer demand.
  • The loss before income taxes in the first quarter of 2020 was reduced by 49% compared to Q1 2019 as a result of the increase in sales and margin, improved labour management at the store level, and initiatives the Company implemented in Q3/Q4 2019 to reduce corporate overheads and create efficiencies from integrating banners and reducing duplicative overheads.

Sale of the Company’s Alaska Operations

Effective June 1, 2020, the Company entered into a definitive stock purchase agreement (the “Agreement”), and simultaneously sold  the shares of its indirect wholly-owned subsidiary, Liquor Stores USA North Inc., which owns and operates the Brown Jug banner of twenty-one (21) retail liquor stores and one (1) distribution centre (the “Alaska Operations”), to a subsidiary of Afognak Native Corporation (“Afognak”) (collectively, the “Transaction”). Under the terms of the Agreement, total cash proceeds are expected to be approximately US$21.4 million (approximately CAD$29.1 million at current exchange rates), subject to a retention amount of US$1.3 million (CAD$1.8 million) which is payable by Afognak to Alcanna at certain intervals over the next twelve (12) months upon the finalization of the working capital adjustment and subject to potential contingencies related to the Transaction. Closing costs for the Transaction are estimated to be approximately US$0.7 million (CAD$0.9 million).

The proceeds from the Transaction will be used by Alcanna for debt reduction, new investment in its Canadian liquor and cannabis retail businesses and for general corporate purposes. The Alaska Operations contributed approximately US$2.4 million to Alcanna’s earnings before income taxes in 2019 after adjusting for directly attributable corporate overhead. In the interim financial statements and the management discussion and analysis (the “MD&A”) for the three months ended March 31, 2020 and in this press release, the results of the Alaska Operations have been classified as discontinued operations, and the related assets and liabilities have been presented as held for sale as at March 31, 2020.

“Brown Jug has been a steady business for Alcanna for many years but we believe it requires significant capital expenditures to maintain its market position,” said James Burns, Vice Chair and CEO of Alcanna. “These capital investments could exceed the cash the Alaska Operations generates over the next several years. Alcanna believes that capital would be better allocated to growth opportunities here in Canada such as expanding our Wine and Beyond banner into British Columbia, filling in the few remaining trade area gaps for Wine and Beyond in Alberta, expanding Nova Cannabis into Ontario, and being prepared for other provinces, such as Ontario, to possibly open liquor retail to private sector participants are better allocations of capital for our shareholders.”

Afognak is an Alaska Native Corporation formed under the 1971 Alaska Native Claims Settlement Act and through the 1977 merger of two Alaska Native village corporations.  Today, Afognak and its subsidiaries have over 4,000 employees in nearly all 50 states of America as well as other countries worldwide. It provides a variety of contract services to the federal government and private business.

“It was important to Alcanna that if we sold our Alaska business, it was to a responsible buyer with the financial resources and corporate aspirations to take the business to the next level. Afognak met those criteria extremely well. We have had a tremendous team of people in the office and out in the stores in Alaska and we believe that Afognak will be an excellent owner of Brown Jug – Alaska’s oldest liquor retailer that has been in business for 83 years,” continued Mr. Burns. “Brown Jug is a ubiquitous brand in Anchorage, Wasilla and Fairbanks which Alaskans refer to simply ‘The Jug’. Having it returned to local ownership with a growth objective is a great thing for Brown Jug and its team and provides Alcanna with significant financial flexibility to invest in opportunities closer to home.”

FINANCIAL RESULTS

(In thousands of Canadian dollars
except per share amounts, unaudited)
Three months ended March 31
2020 2019
(restated)(i)
Sales162,117 126,515 
Operating profit before amortization and provisions7,703 (659)
Net loss from continuing operations(6,522)(9,425)
Basic and diluted loss per share from  
from continuing operations(0.16)(0.24)

 i) The financial results for the three months ended March 31, 2020 have been restated to exclude the results of the Alaska Operations, which have been classified as discontinued operations.

CONFERENCE CALL

Alcanna Inc. will host an analyst and investor conference call on June 2, 2020 to discuss the unaudited financial results for the three months ended March 31, 2020 and the sale of the Alaska Operations. The conference call will take place at 10:00 a.m. M.T.

To participate in the call, please dial (416) 340-2216 or toll-free (800) 273-9672. The required service confirmation number is: 4328661. An archived recording of the conference call will be available approximately 3 – 5 business days after the completion of the call, by dialling: (905) 694-9451 or Toll-Free Access: (800) 408-3053. The required passcode is: 7654213#.

ABOUT ALCANNA INC.

Alcanna is one of the largest private sector retailers of alcohol in North America and the largest in Canada by number of stores – operating 231 locations in Alberta and British Columbia. The Company also operates 31 cannabis retail stores under the “Nova Cannabis” brand, with 30 locations in the Province of Alberta and one in the Province of Ontario.

Alcanna’s common shares and convertible subordinated debentures trade on the Toronto Stock Exchange under the symbols “CLIQ” and “CLIQ.DB”, respectively.

Additional information about Alcanna Inc. is available at www.sedar.com and the Company’s website at www.alcanna.com.

FORWARD-LOOKING STATEMENTS

This news release contains forward-looking statements or information (collectively “forward-looking statements“) within the meaning of applicable securities legislation. Forward-looking statements are typically identified by words such as “continue”, “anticipate”, “will”, “should”, “plan”, “intention”, and similar words suggesting future events or future performance. All statements and information other than statements of historical fact contained in this news release are forward-looking statements. In particular, this news release contains forward-looking statements pertaining to implementing the Company’s strategy and objectives related to the growth of its liquor and cannabis brands, and the impact that COVID-19 may have on sales and customer shopping habits in the future.

With respect to forward-looking statements contained in this news release, the Company has made assumptions regarding, among other things: the ability of management to execute the Company’s strategic plan and growth strategy, including its capital allocation strategy and specifically its ability grow its cannabis retail store locations and enhance profitability of its liquor business, and assumptions about the COVID-19 pandemic and the impact it might have on the economies in the jurisdictions that the Company operates in.

Although the Company believes that the expectations reflected in the forward-looking statements, and the assumptions on which such forward-looking statements are made, are reasonable, especially given the unprecedented uncertainty of the full extent and impact of COVID-19, there can be no assurance that such expectations and assumptions will prove to be correct. Readers should not place undue reliance on forward-looking statements included in this news release. Forward-looking statements are not guarantees of future performance and involve a number of risks and uncertainties that may cause actual performance and financial results to differ materially from any estimates, forecasts or projections. These risks and uncertainties include, among other things, the duration and severity of the COVID-19 pandemic on the business, operations and financial condition of the Company; the risk that Alcanna will be unable to execute its strategic plan and growth strategy, including the capital allocation and retail cannabis strategy, as planned without significant adverse impacts from various factors beyond its control; dependence on suppliers; potential delays or changes in plans with respect to capital expenditures and the availability of capital on acceptable terms; risks inherent in the liquor retail and cannabis industries; competition for, among other things, customers, supply, capital and skilled personnel; changes in labour costs and markets; incorrect assessments of the value of acquisitions; general economic and political conditions in Canada (including Alberta), and globally; industry conditions, including changes in government regulations; fluctuations in foreign exchange or interest rates; unanticipated operating events; failure to obtain regulatory and third‐party consents and approvals when required; changes in tax and other laws that affect us and our security holders; the potential failure of counterparties to honour their contractual obligations; stock market volatility; and the other factors described in the Company’s public filings (including the Annual Information Form) available at www.sedar.com. Readers are cautioned that this list of risk factors should not be construed as exhaustive.

The forward-looking statements contained in this news release are made as of the date hereof. Except as expressly required by applicable securities legislation, Alcanna does not undertake any obligation to publicly update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. The forward-looking statements contained in this news release are expressly qualified by this cautionary statement.

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