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

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.

Attention Investors: On April 25th, 2018, something incredible happened…

The Motley Fool’s Iain Butler has just revealed an ultra rare “triple down” stock recommendation. And investors all over Canada are rushing to get in. Why? Because past “triple downs” have averaged over 100% returns, and sometimes as much as 440% returns (in just over two years’ time)...

To discover the brand-new “triple down” recommendation, simply click here. You’ll be whisked to a special investor memo prepared by The Motley Fool Canada. The only catch is you’ll have to hurry! This brand-new report could be withdrawn at any time.

Click here to preview the brand-new “triple down”!

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

I consent to receiving information from The Motley Fool via email, direct mail, and occasional special offer phone calls. I understand I can unsubscribe from these updates at any time. Please read the Privacy Statement and Terms of Service for more information.