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HIGHLIGHTS
  1. Nova Cannabis Q3 sales increase 47 per cent over previous quarter
  2. Alcanna’s gross margin on cannabis sales rose to 28.5 per cent from 24.3 per cent in Q2
  3. Nova Cannabis sold some product at a discount in order to move inventory

Alcanna Inc.’s revenue from Nova Cannabis stores rose nearly 50 per cent in its third quarter as more stores opened in Alberta, while its gross margins climbed but remained below 30 per cent as the company discounted prices to clear out slow-moving inventory.

Some other cannabis retailers active in Alberta have reported gross margins above 30 per cent.

Cannabis sales reached $12.9-million in the three-month period ended Sept. 30, up 47 per cent from the second quarter, after the Alberta regulator lifted its retail licence moratorium and issued hundreds of permits to store owners. Its gross margin on the sales rose to $3.7-million, or 28.6 per cent, compared with $2.1-million, or 24.3 per cent in the prior reporting period.

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Edmonton-based Alcanna’s, which operates primarily as a liquor store retailer, reported a net loss of $3-million in its third quarter of 2019, or 9 cents a share, down from a net loss of $4-million in the year-ago period, or 11 cents per share.

“We’re keeping the margins as high as the market will allow and in terms of being competitive,” said Alcanna chief executive James Burns, speaking to analysts on a conference call.

As legal cannabis supplies became more plentiful this year, following a nation-wide shortage, retailers are better positioned to use traditional business techniques such as discounting certain items to attract sales. Many products grown by licensed producers (LPs) and bought by retailers in the first year of recreational cannabis legalization had moderate levels of THC and CBD, while the most preferred items by consumers are high levels of those cannabinoids.

While retailers like Alcanna report improved revenue after being able to open more stores, and with many more expected to open within weeks, Canada’s burgeoning cannabis industry is struggling to maintain investor interest and access to the capital required for expansion.

The country’s two biggest cannabis growers – Canopy Growth Corp. and Aurora Cannabis Inc. – reported big losses and steep revenue declines, with blame placed on the slow roll-out of retail stores, particularly in Ontario, Canada’s biggest consumer market.

High Tide Inc., an Alberta-based pot retailer, said on Friday it issued unsecured convertible debentures with proceeds of $2-million for general working capital purposes as well as to fund the construction of its next Canna Cabana and KushBar stores.

Subject to the need for more growth capital, High Tide’s board has also authorized up to $5-million for an optional second tranche, it said.

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Higher margin expectation for 2.0 products

Looking ahead to the launch of the newly legalized concentrated cannabis products, which are expected to reach store shelves in January, margins on those items are expected to reach the mid-30s in terms of percentage, Mr. Burns said.

“We don’t really know the pricing yet, where LPs are going to sell to the buyers. We’ll be cautious and not order too much right away and see what the customers are asking for.”

As of Sept. 30, the company’s cannabis inventory was valued at $4-million.

The company has 15 Nova Cannabis stores in Alberta and one in Ontario, with a total of 31 expected to be open by the end of 2019. Thirty of these will be in Alberta.

Alcanna expects the Ontario cannabis retail market will expand to a merit-based licensing system in the first half of 2020, expanding upon the two lotteries that have been held so far for retail cannabis permits.

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“We are poised to take a part of that. We have our people in the field looking for sites,” Mr. Burns said.

“If we could open 12 to 15 [stores in] the back half of next year with permits getting the licenses signed, we’d be happy. We’d be targeting 74 more, but that’s not going to happen in a year. We’re not going to rush.”

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