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Report on Business Cannabis Professional Alcanna sees tight pot supplies, licence restrictions plaguing industry for two years

  1. Shortage of desired cannabis products seen increasing
  2. Q4 2018 pot sales at $7.97-million in five Nova Cannabis stores
  3. Lottery winner in Ontario to open Nova Cannabis store in April

The owner of Nova Cannabis expects supply shortages, licence restrictions, and market confusion to negatively impact cannabis sales for the next two years, but is on track to see the first Ontario store bearing its name open in Toronto next month.

“The supply shortage here is getting worse, not better, in terms of products customers want to buy,” said James Burns, chief executive of Edmonton-based Alcanna Inc., which owns Nova Cannabis, on a conference call with analysts.

“We’re a long way away from any stable, sustainable, reliable supply of cannabis. These are teething pains.”

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In its fourth quarter 2018 ended Dec. 31, the first reporting period to include recreational pot sales from its five licensed Nova stores in Alberta after legalization in October, its cannabis retail sales reached $7.97-million. The cannabis segment contributed $2.4-million in gross margin at 30.7 per cent.

“We could have used the severe supply shortage situation, as we understand some other retailers may have done, and charged excessive margins, which are not sustainable in the long run in our opinion,” Mr. Burns said, adding the company opted instead to build customer loyalty by keeping prices near those charged online by the government.

The bulk of Alcanna’s business is liquor retail and it reported a net loss from continuing operations at $158.3-million for full-year 2018. Its share price closed at $5.63 on Friday, up from $5.13 the prior session, with a market cap around $208.7-million.

“Several standalone retail cannabis companies have achieved market caps within the range of our entire company based on a handful of stores in a very tight market. We believe those valuations are justified and commend those businesses because it reflects the tremendous opportunity in the cannabis business in the future, of which we are and will be a part of,” Mr. Burns said.

“That says essentially our entire liquor business is valued very little to zero at current share value prices and we find that very interesting and encouraging.”

In the risk section of its Management’s Discussion and Analysis (MD&A) report, Alcanna states: “Although the ultimate impact is currently unknown, the emergence of legalized recreational cannabis in certain Canadian provinces may result in a shift of discretionary income or a change in consumer preferences away from alcoholic beverages.”

Looking toward store expansions, the company noted it has three completed stores awaiting licences from Alberta Gaming, Liquor and Cannabis, which has temporarily halted the issuance of licences due to the supply shortage, while opportunities to profitably operate a viable retail cannabis business in British Columbia are uncertain.

In Ontario, a Nova Cannabis store will mark the brand’s foray into that province’s private retail cannabis sector on April 1 through a subsidiary with one of the 25 lottery winners in Toronto, granted the applicant receives all relevant licences. Alcanna has the option to purchase the applicant’s interest in the retail location when the lottery process expires. No value was provided.

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