CLIQ Alcanna Inc

Alcanna Inc. (the “Company” or “Alcanna”) (TSX: CLIQ) today reported its results for the three and six months ended June 30, 2019.

The Company achieved 20.9% growth in sales versus the second quarter of 2018 and same-store sales growth of 8.2% in its core Canadian liquor retail business. This marks the third straight quarter of strong market share gains by Alcanna. 

“Alcanna continued to participate in the Alberta market with lower gross margin percentage to regain market share lost to competitors in past years by not adapting to the realities of a changing industry. Once a strong customer base is re-established, margins can be carefully managed to restore bottom line results,” said James Burns, Vice Chair and CEO. “Alcanna’s announced strategy for 2019 has been to first regain market share and then selectively begin margin enhancement in Q3/Q4 2019.”

“We continue to target 2020 to have the Alberta liquor business in a position to return to strong positive cash flows. Our growth in both total sales and same-store sales reflects the successful execution of our strategy to grow market share both for our existing stores and trade areas as well as invest in new markets,” said Mr. Burns.

Second quarter highlights:

• The Canadian Liquor Retailers Alliance (the “Alliance”) acquired the underlying assets of twenty-eight (28) operational liquor stores operating as ‘Solo Liquor’, two (2) additional leased locations that have not been built out or opened yet, and the “Solo Liquor” brand and related trademarks from FTI Consulting Canada Inc., in its capacity as court-appointed receiver of Solo Liquor. The Alliance paid cash consideration of $15.0 million, which was funded by the Company’s credit facility. The Alliance now owns and operates ninety-three (93) discount liquor stores in Alberta making it the market leader in the province.
• Two (2) new Wine and Beyond stores opened in May 2019 in Lethbridge and St. Albert, Alberta.    
• In April 2019 a Nova Cannabis retail store opened on Queen Street West in Toronto, Ontario pursuant to an agreement with one of the five successful Toronto license lottery winners. Sales started strongly and have continued to grow steadily from there - now averaging $450,000 per week, which makes Nova Queen Street the highest volume store of all our two hundred sixty-one (261) locations at this time.  
• In May 2019, we opened three (3) new Nova Cannabis retail stores in Edmonton, Sherwood Park and Whitecourt, Alberta bringing the total in Alberta to eight (8). We received an additional license for Grande Prairie, Alberta in July 2019 which we anticipate opening in August 2019. 
• Implementation continued on track for a new enterprise resource planning system that will improve business operations, enhance inventory management and procurement to further reduce capital invested in inventory, enhance internal data management, create significant insight into customer shopping behavior, and provide a scalable growth platform. The implementation cost is estimated to be between $3.0 million to $5.0 million over the next 12 months.
• A new Wine and Beyond store for Red Deer, Alberta is under construction with opening forecast for Q4 2019. We are ready to expand Wine and Beyond in Ontario if the Ontario government’s reform of liquor retail, expected to be announced this fall, permits the private retailing of alcohol on a basis similar to Alberta, which would allow an appropriate return on capital.
• Additional cannabis stores are under construction with a goal to have fifteen (15) to twenty (20) additional retail cannabis locations ready to open in Alberta by the end of 2019 subject to receiving licences. 

“Alcanna’s financial position remains strong and we will continue to use that strength to our best advantage. We are well underway to achieving our objective to turn the strong balance sheet we created in 2018 into a strong income statement in a transformed business with a solid foundation for long-term growth and value appreciation. The business model once successful for the former Liquor Stores N.A. Ltd. had to change - and it is changing. Alcanna is on the path to becoming a dynamic growth-oriented business,” said Mr. Burns.

FINANCIAL RESULTS

(In thousands of Canadian dollars except per share amounts, unaudited)	Three months ended June 30				Six months ended June 30
	2019		2018		2019		2018
Sales	200,264		165,599		350,247		294,683
Operating profit (loss) before amortization	7,888		1,786		8,767		(503	)
Net loss from continuing operations	(5,958	)	(1,221	)	(15,253	)	(3,047	)
Basic and diluted loss per share from continuing operations	(0.15	)	(0.04	)	(0.39	)	(0.09	)
As adjusted1:
Operating profit before amortization	7,888		6,132		8,767		3,933
Net (loss) earnings from continuing operations	(5,958	)	1,982		(15,253	)	222
Basic and diluted (loss) earnings per share from continuing operations	(0.15	)	0.05		(0.39	)	0.01

On January 1, 2019, the Company adopted the new accounting standard, IFRS 16, Leases (“IFRS 16”) using the modified retrospective approach and has not restated comparatives for the 2018 reporting period, as permitted under the specific transitional provisions in the standard.  The adoption of IFRS 16 has had a significant effect on the comparability of our reported results, including operating profit (loss) before amortization, which is disclosed in the unaudited Condensed Interim Consolidated Financial Statements for the three and six months ended June 30, 2019 and 2018 and discussed further in the Company’s Management’s, Discussion and Analysis for the three and six months ended June 30, 2019.

The adoption of IFRS 16 results in a significant increase in operating profit (loss) before amortization in 2019 which may not provide for a meaningful comparison to 2018 given that the comparatives for 2018 have not been restated. For the six month period ended June 30, 2019, the adoption of IFRS 16 resulted in the recognition of depreciation expense related to right-of-use-assets of $8.5 million, lease liability interest charge of $9.0 million and a reduction to rent expense of $17.7 million. For the three month period ended June 30, 2019, the adoption of IFRS 16 resulted in the recognition of depreciation expense related to right-of-use-assets of $4.3 million, lease liability interest charge of $4.6 million and a reduction to rent expense of $8.7 million.

Sales in Q2 2019 were positively impacted compared to the same period in the prior year by:

• The acquisition of thirteen (13) new stores in Q1 2019 operating as Ace Liquor and twenty-eight (28) new stores on June 25, 2019 operating as Solo Liquor.
• Operating five (5) retail cannabis stores that opened in Q4 2018, and four (4) that opened in Q2 2019.
• A shift in the timing of Easter in 2019 compared to 2018 had a positive impact on Canadian same-store sales in Q2 2019, which we estimate to be approximately 1.2% when compared to Q2 2018.
• These increases were offset by the closure of fifteen (15) convenience stores since March 31, 2018, and a reduction in Canadian wholesale sales by $1.5 million as part of a deliberate attempt to lower the Company’s exposure to low margin, high credit risk bar and restaurant customers.

Net loss from continuing operations during the second quarter of 2019 compared to second quarter of 2018 was impacted primarily by increased operating expenses related to the new Cannabis division, an increased number of liquor stores, an increase in labour costs in the Liquor division as a result of increases in minimum wage in Alberta and British Columbia in 2018, and investments in the shared services team to support the growing and transitioning company.

CONFERENCE CALL

Alcanna Inc. will host an analyst and investor conference call on August 9, 2019 to discuss results for the three and six months ended June 30, 2019.  The conference call will take place at 10:00 a.m. MT (12:00 p.m. ET).

To participate in the call, please dial (416) 340-2216 or toll-free (800) 273-9672. An archived recording of the conference call will be available approximately one hour after the completion of the call, by dialling: (905) 694-9451 or toll-free access: (800) 408-3053. The required passcode is: 6146693.

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 261 locations in Alberta, British Columbia and Alaska. The Company also operates 9 cannabis retail stores under the “Nova Cannabis” brand, with 8 locations in the Province of Alberta and one the Province of Ontario. With revenues in excess of $700 million per year, Alcanna processes over 20 million individual retail transactions of beverage alcohol and cannabis.

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.

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 significantly grow its cannabis retail store locations and enhance profitability of its liquor business.

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, 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 risk that we will be unable to execute our strategic plan and growth strategy, including the capital allocation and retail cannabis strategy, as planned without significant adverse impacts from various factors beyond our 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), Alaska 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.

For Further Information

David GordeyExecutive Vice President and Chief Financial OfficerAlcanna Inc. (780) 497-3262 

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1 Same-store sales, adjusted operating profit before amortization, adjusted net (loss) earnings and adjusted basic and diluted (loss) earnings per share are non-IFRS measures that do not have any standardized meaning prescribed by IFRS and therefore may not be comparable to similar measures presented by other issuers.  For more information on non-IFRS measures, see the ‘Non-IFRS Financial Measures’ in our Management’s Discussion and Analysis (“MD&A”) for the three and six months ended June 30, 2019, which is available on the Company’s website (www.alcanna.ca/investors) and on the SEDAR website (www.sedar.com).