This Cannabis-Linked Stock May Be a Fantastic Buy Ahead of Q2 Earnings

Alcanna Inc. (TSX:CLIQ) is set to release its second-quarter results next week and could make moves in Ontario’s cannabis sector.

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In late July, it was revealed that the new PC-led Ontario government would move to allow private cannabis retail sales in the province. This was a deviation from the Liberal government, which sought to hand over control of private sales to the Liquor Control Board of Ontario (LCBO), which would secure a monopoly for the public sector for the foreseeable future.

Alcanna (TSX:CLIQ), an Edmonton-based retailer of alcohol beverages and soon-to-be retailer of cannabis products, saw its stock spike on the day the report was released. This year Aurora Cannabis acquired a 19.9% stake in Alcanna, which is expected to grow larger going forward. Alcanna boasts a significant footprint in western provinces, which is where the initial cannabis retail stores will be converted. However, reports from inside the company suggest that Alcanna is also eyeing Ontario.

This should come as no surprise. Ontario is the most populous province in the country and therefore boasts the largest and most promising market. With the industry not even off the ground, it is advantageous for a company already in the opening stages of its own roll-out to test the waters. This could pave the way for buyouts or the launch of retail outlets down the line. Aurora has demonstrated its aggressiveness in its recent acquisitions, so it should not come as a surprise if its stake in Alcanna pushes that company to pursue a similar strategy.

The state of Colorado posted $1.5 billion in cannabis sales in 2017. This is with a population of roughly 5.6 million people. Ontario boasts more than double that count. It is worth noting that Colorado has also benefited from out-of-state purchasers during this period, as it remains one of the only states in the U.S. that has moved for full legalization of recreational cannabis.

Alcanna will release its second-quarter results after markets close on August 10. It released its first-quarter results on May 8.

In the first quarter, consolidated sales fell 0.9% year over year to $125.8 million. Canadian and U.S. same-store sales were down and up 1.8%, respectively. The company attributed poor Canadian sales to the prolonged winter experienced in the western provinces. Alcanna offers a dividend of $0.09 per share, which represents a 3.6% dividend yield.

Alcanna stock has dropped 15% in 2018 as of close on August 1. Shares have sputtered after gaining significant momentum following reports that it would make a foray into the cannabis industry. It is important to note that the bulk of its revenues will continue to come from its alcoholic beverage retail segment.

Alcanna is a speculative buy for investors who are looking to bet on its cannabis segment. It has struggled to post growth in its conventional alcoholic beverage retail business, but it still offers a solid dividend and a strong foothold in British Columbia and Alberta markets. After dropping into single digits, the stock is worth a look ahead of its second-quarter earnings release.

This article represents the opinion of the writer, who may disagree with the “official” recommendation position of a Motley Fool premium service or advisor. We’re Motley! Questioning an investing thesis — even one of our own — helps us all think critically about investing and make decisions that help us become smarter, happier, and richer, so we sometimes publish articles that may not be in line with recommendations, rankings or other content.

Fool contributor Ambrose O'Callaghan has no position in any of the stocks mentioned.

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