Investor Presentation January 2019 Caution concerning - - PowerPoint PPT Presentation

Investor Presentation

January 2019

Caution concerning forward‐looking statements

This document contains forward looking statements or information (collectively "forward‐looking statements") within the meaning of the "safe harbour" provisions of applicable securities legislation. All statements and information other than statements of historical fact contained in this document are forward‐looking statements. In particular, this document contains forward‐looking statements, with respect to, without limitation, our future financial position, capital and liquidity, cash dividends, business strategy, proposed acquisitions, expansion plans, budgets, government regulation and laws, projected costs, plans and objectives of or involving Alcanna. Prospective investors can identify many of these statements by looking for words such as "believes", "expects", "will", "intends", "projects", "anticipates", "estimates", "continues" or similar words and the negative thereof. Forward‐looking statements reflect the Company’s current plans, intentions, and expectations, which are based on Management’s perception of historical trends, current conditions and expected future developments, as well as other factors it believes are appropriate in the circumstances. The Company’s plans, intentions, and expectations are inherently subject to significant business, economic, competitive and other uncertainties and contingencies regarding future events and as such, are subject to change. There is no assurance that the plans, intentions, or expectations upon which these forward‐looking statements are based will occur. Forward looking statements are subject to risks, uncertainties and assumptions, including, but not limited to, those discussed elsewhere in this document. Although Management believes that the expectations represented in such forward looking statements are reasonable there can be no assurance that such expectations will prove to be correct and such forward‐looking statements included in this document should not be unduly relied upon. Some of the factors that could affect future results and could cause results to differ materially from those expressed in the forward looking statements contained herein include, but are not limited to: risks relating to government regulation and changes thereto (whether by court decisions, citizen referenda, or otherwise); competition; the state of the economy including general economic conditions in Canada (including Alberta) and the U.S.; the unpredictability and volatility of Alcanna’s common share price; restrictions on potential growth; availability of sufficient financial resources to fund the Company's capital expenditures; changes in commodity tax rates and government mark‐ups; risks relating to future acquisitions and development of new stores; the ability of management to execute the Company's business and strategic plans; Alcanna’s ability to locate and secure acceptable store sites and to adapt to changing market conditions; poor weather conditions; dependence on key personnel; labour costs, shortages and labour relations including Alcanna’s ability to hire and retain staff at current wage levels and the risk of possible future unionization; supply interruption or delays; dependence on suppliers; reliance on information and control systems; income tax changes; leverage and restrictive covenants in agreements relating to current and future indebtedness of Alcanna; credit risks arising from operations; dilution and future sales of Alcanna common shares; and the potential lack of an active trading market for Alcanna’s common shares and convertible debentures. These factors should not be construed as exhaustive. The information contained in this document, including the information set forth under "Risk Factors", and as disclosed in other filings made by the Company with Canadian securities regulatory authorities and available on SEDAR at www.sedar.com, identifies additional factors that could affect the operating results and performance of Alcanna. Readers are cautioned that this list of risk factors should not be construed as exhaustive. The forward looking statements contained herein are expressly qualified in their entirety by this cautionary statement. The forward looking statements included in this document are made as of the date of this document and Alcanna assumes no obligation to update or revise them to reflect new events or circumstances except as expressly required by applicable securities law.

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lights New Name, New Company

ALCANNA signals a departure from the Company’s previous history and a transformed business focused on growth in our two divisions: Alcohol and cannabis

• One of the largest private sector retailers of alcohol in North America and the largest in Canada
• Revenues in excess of $600 million per year, 18+ million transactions processed annually
• 236 liquor retail stores: Large‐format / “category‐killers”, convenience‐format, and discount‐focused stores
• Five retail cannabis stores launched Oct 17, 2018, with a multi‐year growth plan grounded by good business sense

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Highlights

Focused on Growth – Alcohol

ALCANNA is aggressively focused on winning market share in its alcohol division through growth in its new discount partnership (Canadian Liquor Retailers Alliance) and expansion of its Wine and Beyond brand, and further buildout of its private label program in current markets and new potential markets such as Ontario

Fully Funded Plan

ALCANNA has a strong balance sheet to execute its growth plans with $60 million in cash, no amounts drawn on its credit facility and $90 million in inventory fully paid for.

Focused on Growth – Cannabis

ALCANNA has quickly become an industry leader in the Canadian cannabis retail industry with the launch of its Nova Cannabis brand and industry leading sales per store metrics

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Capital Markets Profile

Analyst Coverage: TSX:

CLIQ (common shares) CLIQ.DB (convertible debentures) Shares

• utstanding:

Market capitalization:

37.1 million

Recent price (Jan 25, 2019): $5.04

~$186 million

52-week high / low: $12.95 / $4.00

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Leadership Team

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Executive Team Role Brief Biography James F.C. Burns Vice Chair and CEO Former private equity investor and Partner at Gordon Investment Corporation and Gordon Capital Corporation, Managing Director at CIBC Wood Gundy, Co‐

• wner Director & CFO of Scott’s Restaurants, served 12 years in the Federal

Government where he had many roles including the Chief of Staff to the Deputy Prime Minister of Canada. Paul Reid President & COO, Liquor Division 27 years of retail experience. Former VP, Corporate Retail Operations at FGL Sports with responsibility for $1.2 billion in sales from 216 corporate retail stores and 13,000 sales associates for the Sport Check, Nevada Bob’s Golf, Atmosphere, and Hockey Experts banners. David Gordey, CPA, CA CFO & EVP Corporate Services Served as an officer of Alcanna since March 2012 in the roles of Chief Operating Officer, Liquor (2016‐2018), CFO (2014‐2016), and VP Finance (2012‐2014). Formerly of KPMG LLP where he served in their public company audit practice. Marcie Kiziak, B.Mgt., CPHR Managing Director (Cannabis Division) SVP Human Resources Formerly the Vice President of Human Resources and Safety for Corrosion and Abrasion Solutions Ltd. which included a secondment into Operations to lead a business transformation. 15 years in the oil and gas and construction sectors focused on senior HR Leadership, M&A and Integration.

Current Store Locations and Growth Potential

Alaska

Anchorage: 17 Secondary Markets: 4

Total: 21 British Columbia

Lower Mainland: 12 Vancouver Island: 11 Interior: 10

Total: 33 Alberta Liquor

Edmonton: 85 Calgary: 46 Secondary Markets: 50

Total: 181

Kentucky / New Jersey – Sold in 2017 Connecticut – 1 Store actively being marketed for sale

Ontario – private sector cannabis retailing now allowed + private liquor retail model being considered 5 cannabis stores opened in Alberta on October 17, 2018

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Strategic Plan is Fully Funded

Amounts drawn on credit facilities at December 31, 2018

~ $90

million

Inventory fully paid for at December 31, 2018 Cash on hand at December 31, 2018

~ $60

million

$nil

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Alcohol Retail Division

Restore our Position as the Market Leader in Liquor

• Increase the Company’s scale and market presence by repositioning existing stores and/or building or acquiring new liquor

stores in more desirable trade areas of the Company’s existing operating regions. The cornerstone of this initiative is the

• pening of up to 10 new Wine and Beyond large format stores in Alberta within two years.
• Rationalize and improve the private label product assortment and improve inventory turns and sales from these products.

Management believes that this program is a key element to the future success of Alcanna’s Liquor Division through volume sales and margin enhancement.

• Deliver a superior customer experience by investing in the right level of pay, benefits and other resources required to drive

a customer service culture that consistently exceeds expectations and is distinctive in the market. The adult beverage retail experience in the Company’s core markets has become commoditized which presents an opportunity to distinguish our business and increase the Company’s market share.

• Improve the brand image of the Company by completing renovations of Alberta, British Columbia and Alaska store
• locations. This effort has been substantially completed in 2017/2018 and has driven sales increases and better positions

the Company against intensifying competition.

The Company is implementing initiatives in the following areas to drive sales, improve profitability and ultimately regain market share lost to new competitors in recent years:

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Competitively Differentiated Store Formats

• Alcanna has the leading private liquor retail brands in Alberta, British Columbia and Alaska
• Our stores appeal to convenience customers (Liquor Depot / Brown Jug), those looking for a destination

shopping experience (Wine and Beyond) and customers seeking discount prices (Ace Liquor)

• Our stores carry a broad range of industry leading brands and high quality private label/control brands

(“Preferred Label” program) and exclusive products. Our buying power enables us to offer our customers unparalleled value and in‐store offerings in the marketplace

• Stores have features that engage customers, including tasting areas, education centres, in‐store experts

across product categories, growler bars (draft beer on tap), and party planning services

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Large‐Format Stores: Wine and Beyond

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Canada’s largest liquor stores (up to 20,000 sq ft in size) Largest selection in Canada (over 6,000 wines, 2,500 spirits and 2,000 beers)

Convenience‐Format Stores: Liquor Depot / Brown Jug

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Always close by Easy in, easy out Open late All the good stuff you’re looking for

Discount Stores: Ace Liquor Discounters

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• Ace Liquor Discounters (acquired by the Canadian

Liquor Retailers Alliance in January 2019) offers market leading prices on national branded products

• Alcanna has transferred 50 stores into the Alliance

and these will be converted into Ace stores in 2019 to fully build out our new discount chain.

Business Update ‐ Liquor

 Hired a new President and COO for the Liquor Division

• Paul Reid brings great breadth of retail experience, particularly in Alberta and Western Canada. He is driving the culture‐shift the Company

needed and has recently reorganized the Liquor leadership team by adding strong, experienced leaders to lead the marketing, buying and store operations teams.

 32 Store Renovations were completed in 2018

• We are focused on improving our brand image by accelerating the pace of renovating our store locations, with particular emphasis on
• Alberta. ~20 Liquor Depot / Brown Jug locations left to be renovated

 Aggressively Launching a Discount Chain via the Canadian Liquor Retailers Alliance

• Successfully launched our own discount chain by converting 10 existing Liquor Depot/Liquor Barns into Deep Discount Liquor in April/May
• 2018. The sales in these stores increased 170%+ on average after conversion.
• Acquired Ace Liquor Discounters in January 2019 (12 stores opened, 3 locations to be built). Transferred 50 existing Alcanna stores

(including the Deep Discount Liquor brand) into the Alliance, which will be renovated and converted to the Ace brand in early 2019.

• The Alliance will compliment Wine and Beyond as our primary growth strategies as we gain market share from competitors and look to

consolidate a portion of the marketplace

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 Investing in home delivery and Ecommerce

• Alcanna is the industry leader for home delivery and Ecommerce. We offer home delivery within 1 hour on leading brands,

and offer over 12,000 products online for pickup at the customer’s local store or delivery to home within 48 hours.

Business Update ‐ Liquor

 Grow the Wine and Beyond brand

• Highly profitable, large‐format / “category killer” liquor retail concept
• Up to 10 new locations targeted in Alberta and British Columbia by 2021 (to add to the 5 current stores in Edmonton/Calgary). Leases

secured in St. Albert and Lethbridge (both will open in 2019), and several more leases close to being finalized.

• Wine and Beyond will be our primary growth vehicle should Ontario adopt a private liquor retail model

 Expand our Preferred Label program

• We re‐focused the preferred label program in 2018 by aggressively shifting the focus of the program to product that appeals to our

Western Canadian/US customer base (it had previously been designed for a northeastern US customer base). Over 50% of the previous listing were discontinued and replaced with new product.

• Initiating plans to use the preferred label program to drive customer traffic vs. just a gross margin enhancement, as well as the

potential introduction of house brands

 Implement a new ERP system

• Our new cannabis business was fully launched on the new ERP system on October 17, 2018 (Microsoft Dynamics 365) and is in full pilot

mode in the liquor division. Plan to have all Alberta liquor stores on the new system by the end of 2019 at the latest.

• The new system will vastly improve inventory turns, enhance our customer relationship management, execute proper shelf

management techniques and identify gross margin improvement opportunities

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Preferred Label Program – Increasing Margins and Loyalty

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Strategy

• Source, sell and promote

preferred label products

• Grow as percentage of respective

product categories (wines, spirits & beer) by using these product to drive increased customer traffic and deliver higher margins Implementation

• Training staff, aligning incentives
• Customer sampling programs

Cannabis Retail Division

Nova Cannabis

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The environment is both comfortable and safe for existing and new users. The stores were designed to encourage education and social interaction amongst customers and staff We have targeted convenient locations (shopping centres, grocery anchored sites) along with ensuring we have a presence in trendy/urban areas to help establish the brand

Launch a Market Leading Retail Cannabis Business

 Leverage our Partnership with Aurora

• Aurora Cannabis is our largest shareholder owning 25% of our shares
• To the extent allowed by provincial regulators, Aurora Cannabis has provided ongoing expertise and support
• Terry Booth (CEO of Aurora Cannabis Inc.) is Aurora’s designated Director on Alcanna’s Board

 Leverage existing company infrastructure and invest in new executives

• A key competitive advantage over our competition, which are largely new to retail, is our 25 year track record of retailing

controlled substances in Western Canada and the infrastructure already in place (back office: finance, IT, Supply Chain, government and community relations; excellent relations with provincial regulatory agencies, and store focused departments: real estate, store construction and design, HR)

• We’ve invested in an experienced retail team with the experience and capacity to lead the cannabis division through extended

growth and expansion

• Exceptionally strong balance sheet and investment capability

 Obtain superior cannabis store locations

• Strong and long established relationships with major national landlords have enabled us to secure the best locations
• Key locations throughout Alberta have been secured for future expansion when the license moratorium is lifted by the provincial

regulator

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Launch a Market Leading Retail Cannabis Business

 Develop a market leading brand and store design

• We were the first to open 5 stores in Canada and remain an industry leader as the cannabis retail market evolves
• Leveraged our leading retail industry team’s experience and knowledge of consumer behavior and preferences in our core market
• f Alberta
• Operating ‘best in class’ retail cannabis stores that are focused on executing a customer service and education culture.
• The Company has significant experience in building, opening and operating mass market stores selling controlled substances that

it believes many of its competitors will not possess.

 Strong partner for Provincial regulators

• The Company has an unparalleled 25 year track record for regulatory compliance in the responsible retail sales of alcohol, which

will be translated into the retail sales of cannabis.

• We have industry‐leading internal programs and controls to meet our goal of 100% compliance in each of our stores to ensure that

the retail cannabis industry is developed in the Company’s core markets with a focus on social responsibility and safety.

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Summary

Summary

Gain significant market share in the alcohol retail business by leveraging the new

Canadian Liquor Retailers Alliance (convert underperforming Liquor Depots to Ace Liquor Discounters and consolidate a portion of the fragmented liquor industry in Alberta) and growing Wine and Beyond (a “Category Killer”)

Open 100+ cannabis retail locations 52 locations in Alberta and 50 locations in Ontario by end of

2021, and continue to be a leader in a rapidly evolving industry. Opportunistically acquire weak and failing competitors in all provinces.

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Complete the roll out of our new ERP with little or no impact on customers. Targeting

implementation by end of 2019 for liquor in Alberta at the latest (completed cannabis in the fall of 2018). Est. CAPEX

• f $11 million.

Improve financial performance through the aggressive enhancement of the private label program

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Prepare to enter new markets the Ontario government will be announcing regulatory framework for

allowing private sector liquor retail across the province this spring and Quebec’s newly elected provincial government has signaled its intentions to consider a private liquor retail model

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Thank You