Aurora Reveals Cannabis Retail Strategy

As the Canadian market gets closer to the legalization of recreational cannabis, producers in the space are locking down bets on the retail models available across the country.

On Wednesday (August 8), Aurora Cannabis (TSX:ACB) announced a new licensing agreement with Alcanna (TSX:CLIQ), an alcohol retail company previously known as Liquor Stores.

Alcanna expects to open 37 new cannabis stores in Alberta following the legalization of recreational use on October 17. These stores will be branded under the Aurora name and will carry specialists on hand for consumers to navigate the selection of product.

According to the companies, Alcanna is transforming existing liquor stores into the new cannabis shops. “Launching this retail network under the Aurora name will capitalize on its reputation as a leader in producing high-quality cannabis products, created with the consumer in mind,” Alcanna CEO James Burns said in a press release.

Alberta has confirmed it plans to allow private retail shops to operate in the province alongside government-owned shops.

According to the province, the private shops must pay a C$400 non-refundable application fee per store, a C$700 annual license fee and a C$3,000 initial deposit for mandatory background checks. Alberta will also mandate that the shops open only after 10:00 a.m. and close at 2:00 a.m. at the latest.

Questions have been raised in the industry regarding the restrictions producers should face when it comes to owning the same shops where product will be sold. Aurora has indicated these new stores will carry product from MedReleaf and CanniMed, its two major billion-dollar acquisitions.

In July, the cannabis producer signed an agreement for 25,000 kilograms of adult-use cannabis with Alberta for the first six months of sales in the province. Since the province is then tasked with distributing that product in its own stores and to private retailers, Alcanna will effectively be buying the product from its partner back from the province.

“Which might sound redundant, but it is reflective of our private retail model in Alberta … they can’t provide directly from the producer to the retail store, even though they are one and the same,” Heather Holmen, spokesperson for Alberta Gaming, Liquor and Cannabis (AGLC), told INN.

According to Holmen, the Aurora/Alcanna partnership, as a retailer, will be allowed to select only Aurora-related cannabis product from the province’s supply if it chooses to do so.

However, Aurora can’t purchase all of the cannabis it sells to the province due to AGLC restrictions. “Any [licensed producers] that become affiliated or have stores that want to carry their products exclusively they can, but they can’t be in the position that they are going to purchase all the product outright”

Existing relationship between Aurora and alcohol retailer

In February, Aurora confirmed an investment in Alcanna, then still known as Liquor Stores, for aggregate gross proceeds of C$103.5 million in exchange for a 19.9-percent stake in the company.

At the time, Terry Booth, CEO of Aurora, called the partner for the cannabis producer one of “Alberta’s most recognizable retail brands.”

Burns indicated on Wednesday that the new store network will begin in Alberta and then move on to other provinces as it is allowed. A similar strategy has been used by other retail operators seeking to set up shop in the soon-to-be-legal Canadian market.

Investor takeaway

Canaccord Genuity analyst Matt Bottomley issued a research note on Aurora following the MedReleaf acquisition. In his note, the analyst stamped the company with a price target of C$11 and reiterated his “buy” recommendation on the stock.

Aurora’s share price spiked early during Wednesday’s trading session, reaching a day high price of C$6.40. However, the cannabis producer decreased as the day continued and closed at C$6.18, representing a marginal 0.32-percent increase to its share price.

Alcanna enjoyed a more stable jump, rising 3.27 percent to reach a price point of C$9.48.

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Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.