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Good morning. At this time, I'd like to welcome everyone to the Liquor Stores N.A. Ltd.'s Fourth Quarter and Year-end 2017 Earnings Results Call. [Operator Instructions] A copy of the company's earnings press release and management's discussion and analysis is available on the website and includes cautionary language about forward-looking statements, risks and uncertainties, which also apply to the discussion during today's conference call. All amounts discussed on today's call are quoted in Canadian dollars with the exception of U.S. same-store sales, which are quoted in U.S. dollars. I will now turn this call over to Mr. James Burns, Liquor Stores' Chief Executive Officer. Please go ahead, sir.
Thank you, operator. Good morning, everyone, and thank you for all your interest in our company. With me here in Edmonton is our CFO, Matthew Rudd. At the AGM last June, our shareholders voted overwhelmingly for a change in board leadership to implement a new strategic vision for the company. In the 9 months since, the new board and management have implemented substantially all 8 of the initiatives outlined in the proxy solicitation. With that accomplished, [ Barn ] had a plan. We now intend to transform this company from its all too predictable and pedantic past to an exciting and dynamic growth story.Our strategic plan for our liquor business is focused on the long-term revitalization of our Liquor Depot brand and opening as many of our highly successful and profitable large-format, Wine and Beyond stores, as we can secure suitable sites for. We intend to recapture the market share loss to the proliferation of the new entrant discount liquor retailers, who have been allowed to open stores near ours, with no competitive response. That passivity stops now.Most importantly, we'll make the long-overdue capital investments in our Alberta store network, renovating over 50 locations in 2018, the same number in 2019. And our smaller but equally important markets in British Columbia and Alaska will receive the same treatment. We are investing heavily in people and expertise, from the store floor to the executive floor. Our objective is to regain customer loyalty and trust by delivering a superior customer experience, creating a customer service culture in our stores that the competition simply can't match with their low-price, poor-service business models.Our preferred label program is being expanded, enhanced and will be increasingly used as a key weapon in attacking the discount competitors and attracting and keeping loyal customers with high-quality wines, beers and spirits at great prices. To that end, we've entered into discussions with other large liquor retailers in America and elsewhere to cooperate and increase buying power and strength of the preferred label program.In select locations, we will rebrand and open deep-discount stores under a new banner to give the competition a taste of their own medicine. Our sole focus with this major investment program is to transform our liquor business to enhance long-term shareholder value and to return, once again, to a growth and profitable company versus one on the defensive and in decline.The second part of our strategic plan is to achieve dynamic and profitable growth in our entry into the retail cannabis market. We've created a separate operating division devoted solely to launch and expand the cannabis business, starting with recruitment of a leadership team with nationally-renowned retailers. Development of the cannabis business will not detract from the liquor team's focus from our core business. It will be a separate entity from an operations and marketing perspective, but will share some services, such as finance, IT and HR, with our liquor business.Our strong financial position, long-established reputation with landlords and extensive real estate network has allowed us to secure the best locations for our initial cannabis stores in Alberta and British Columbia as well as for expansion when regulators and rules permit. We have proven ourselves to be a market-leading and responsible retailer in controlled substances and have used these strengths to position ourselves as the lessee of choice for landlords looking for cannabis tenants. The cannabis business needs highly trained employees in retail locations to explain these new products to customers. The product knowledge and training programs we have access to through our relationship with Aurora Cannabis provides best product expertise and resources second to none. We intend to open several locations as soon as possible as pilot sites for employee training and customer education about this new product. These stores won't be selling any cannabis, of course, until it is legal to do so, but will still provide customer experience, product awareness and staff education in advance of the law. We see this investment as a way to help the introduction of cannabis happen in a socially responsible and mature way, with well-informed customers far in advance.In that regard, it's a priority of the company to be a strong partner and ally of our -- for our provincial regulators by ensuring that the company's unparalleled 25-year track record of regulatory compliance in the responsible retail sales of alcohol continues for the retail sale of cannabis.While the provinces of Alberta and BC and major municipalities have released some initial frameworks and some details on their plans for governing the licensing and operation of retail cannabis stores, there's still many unknowns. But we are preparing for all eventualities and investing in people and locations to build a profitable and expandable business in Canada and other jurisdictions as applies down the road. We have an incredibly strong balance sheet for the first time in our company's history and we will use that financial might to position both our businesses for long-term success and sustainable profitability.In summary, our strategic focus is clear: To regain our place as a market leader in retail alcohol and to motivate, innovate and grow that business starting this year and establish ourselves as a socially responsible market leader in retail cannabis. Accomplishing these goals will not only require investment in capital, as Matthew will discuss, but also management focus and forward-looking vision. The company's drive to what our businesses will look like in 2 to 3 years is, we strongly believe, the best way, the only way actually, to build significant shareholder value.I'll now turn the call over to our CFO, Matthew Rudd.
Thanks, Jamie. When we look at our fourth quarter results, it's clear why we need to take a longer-term focus on making these long-overdue investments to significantly improve the company's existing liquor operations and also enter the new high-growth cannabis business.Note that the following financial results are for the fourth quarter and include only the continuing operations of the business, being Canada and Alaska.Our consolidated sales were $167.2 million, that's down 1.8% from $170.3 million last year. Approximately half of this decline related to the foreign exchange impact of translating our U.S. dollar sales to Canadian dollars year-over-year. Canadian same-store sales were $128.4 million, that's down 2.4% from $131.6 million in Q4 of 2016. As Jamie mentioned, significant competitive pressure in Alberta is continuing to negatively impact our sales.Alaska same-store sales were $20.6 million, down 1% from $20.8 million in Q4 2016. The economy in Alaska is still sluggish but stabilizing and we're starting to see some signs of a turnaround in that market.On an adjusted basis to exclude payments made to our departed CEO, operating profit before amortization was $8.2 million for the fourth quarter of 2017. On an unadjusted basis, operating profit before amortization was $7.8 million and that's down from $11.1 million in Q4 of 2016. The decline was caused mainly by the decrease in same-store sales off an operating cost base that increased compared to Q4 of last year. That was due primarily to increases in the minimum wage here in Alberta as well as increases in our marketing costs to launch 2 new Wine and Beyond locations we opened in the fourth quarter, as well as advertise our inventory closeout sales that we held in the fourth quarter, as well as launch a new test pilot brand and store design.On an adjusted basis to exclude onetime and unusual items and impairments that are discussed further in our MD&A, our net earnings were $0.9 million on an adjusted basis compared to adjusted net earnings of $4.7 million in Q4 2016. The company realized a net loss of $1.1 million on an unadjusted basis.So the fourth quarter was clearly not strong. But it's now time to start looking forward and taking action as a company. We knew we could only attempt such an ambitious transformation of the company with a significant investment of capital. And so therefore, we took proactive steps to ensure we have that capital to carry out this vision. And this will include the following actions. First, we sold the non-core and poor-performing assets in Kentucky and New Jersey for cash proceeds that saw us reduce our long-term debt balance by about $47 million, with a minimal reduction in our ongoing free cash flow. Second, we attracted and closed a strategic investment from Aurora Cannabis Inc., whereby Aurora invested $103.5 million into the company's treasury to hold a 19.9% interest in our business, and that was at a valuation of $15 per share. And they've also placed another $34.5 million in escrow, which will be released subject to shareholder approval at the next Annual General Meeting, which would take Aurora's stake in the company to 25%. Third, we took redundant costs out of the liquor business of about $5 million on an annualized basis, which came from eliminating our U.S.-based executive team and U.S. head office. And lastly, we continue to optimize the company's inventory levels, where we reduced capital tied up in slow-moving, poorly-purchased inventory in our Canadian and Alaska stores by a combined $29 million year-over-year.The result of these initiatives is that we have not only repaid all the amounts drawn on our operating line of credit, but we now have cash on our balance sheet of nearly $60 million at our disposal and about another $80 million available to draw from our operating line of credit should we need it. In the next 12 months, we plan on deploying capital as follows. First, renovations of approximately 50 existing retail liquor store locations at an aggregate capital cost of $15 million to $20 million. We're going to rebrand 8 to 12 existing retail liquor store locations to a new discount banner to attack our discount competitors head on and that will be an aggregate capital cost of $4 million to $6 million. We're going to target, subject to applicable provincial licensing and municipal regulations, opening approximately 50 cannabis retail locations in Alberta and British Columbia. That's at an aggregate capital cost of $18 million to $22 million, plus aggregate inventory investments of about $15 million to $20 million. And lastly, we're going to complete the implementation of a new Enterprise Resource Planning system that will improve business operations, enhance inventory management and procurement to further reduce our capital invested in inventory, enhance our internal data management, create a significant insight into customer shopping behavior and provide a scalable growth platform for both our liquor and cannabis business. The implementation cost is expected to be between $12 million and $15 million and the company is targeting implementation to be completed in mid-2019 for liquor and is also expecting to have this new system in place to be the ERP for our new cannabis business we're launching this year. This project has already commenced. It's currently on schedule and on budget. In fact, we are launching our first 2 pilot stores shortly after we get through Easter.So as a company, our financial position has never been stronger. We are now at the point where our strategic plan is fully funded, with the capital readily available to us. For further details, I'll refer you to our news release and MD&A available on our website.I'll now hand the call back over to Jamie for some concluding comments.
Thanks, Matthew. With the strength of our balance sheet, the company is now in a position to undertake a revitalization and reenergizing of our entire liquor store operation, growth, not decline, and attack the discount competition head on, as well as launch a whole new high-growth cannabis business. It is a really exciting time here for Liquor Stores N.A., for our company; for our 2,000 employees, which we expect to grow to 3,000 before the end of the year; and our shareholders as well, as they're at the start of an exciting period in our company's history.With that, I'll now hand the call over to the operator for any questions that you might have. Thank you.
[Operator Instructions] The first question is from Kyle McPhee of Cormark Securities.
Just a quick one for me on overhead. So in 2018, you won't have any of the overheads that were previously associated with Kentucky and New Jersey. Separate from that, you've also announced cuts of about $5 million as part of your new plan. So my question is, is there any overlap between those 2? Or is the $5 million of cuts all beyond the selling and distribution expense and admin expense previously attached to Kentucky and New Jersey?
It's a bit of a split, Kyle, between both the continuing and discontinuing operations of the business. A lot of the cuts we made were more on the U.S. side of the business from an operating perspective. But a lot of our head office cuts, the ongoing cost reductions of those, you'll find in the continuing operations of the business.
Okay, okay. So you're saying there is a little bit of overlap, there's a split there?
Correct.
Okay. And then a follow-up on same topic. Can you offer any guidance in terms of how much new overhead you might be building up in 2018, just as part of the cannabis strategy, the headcount additions and rent expense? The stuff that you're going to be paying for before there might actually be any new earnings coming from the cannabis business.
Yes, a bit early to say on that one, Kyle. Our first move here would be to bring in a leader for that business. We're looking to bring in a Chief Operating Officer specifically to run the cannabis end of the business. And of course, their first task will be to establish what they want as a core team, to go and build and lead that business. And we're going to leave it up to them and let them take the lead on that. I mean, obviously, we'll have some thoughts in terms of guardrails and parameters, but really, our focus here is making sure we have the right team in place, spend the money upfront to go build and launch a dominant brand here. One chance to get this right.
Yes, it's -- I'll just add to that, Kyle. We are well down the road of getting a president for the cannabis operation. I expect to have something to announce in that regard, hopefully, relatively shortly. In the interim, our approach is to aggressively be ready, but also to be cautious and enter this business with a view to creating a brand that has legs and is sustainable and is a leader in the introduction of this product into the marketplace and not to throw money and try to expand in a huge, in a rushed and unplanned way. So we will get the executives and the employees down to the store level, which are equally critical, to the extent that we need them as we grow the business to fit what the regulations allow us to do.
Okay. And maybe a follow-up on that note. So you said you're looking to maybe open about 50 cannabis stores in Alberta and BC. Is that stuff that's going to happen by 2019? Or is it all -- it sounds like it's not going to be rushed at all in 2018?
Well, we will open -- I think you better ask the Canadian Senate that question as to when we will be opening the stores.
So assuming legalization happens as expected, do you think those 50 stores will open in '18?
We anticipate they should be, yes.
The next question is from Sabahat Khan of RBC Capital Markets.
I guess, when you think about the new discount banner, is that just a limited strategy? Or are you looking to actually roll that out maybe in a greater number if that does work out well for you?
It's the former, Sabahat. I mean, it's a targeted response to select competitive threats. We do not intend to build a discount liquor chain, no.
All right, thanks. And then, I guess, when you think about the 50 renovations that you have planned, how are you thinking about the magnitude of those? I know in the past, you've done some touch-ups and some larger ones. Of those 50, do you have an outlook on how many of those will be full large-scale ones?
The bulk of them will be substantially rebranding the stores -- not rebranding, but refreshing, reenergizing, not paint and powder, but making the stores a new experience. At the same time, as we've discussed in the past, using renovations to reposition inventory levels in the stores and provide a better customer experience to differentiate ourselves from the relatively cookie-counter discount competition. We have found traditionally, and fully expect that each renovation will result -- while the store is under renovation, sales sometimes can be affected, we try to do it at nights and try to do it, for the most part, stay out of the way of the customers. But that sometimes there is inevitable interruption. But once the stores are done and relaunched into the market and we are doing so many, we will be relaunching them with a bang, market by market, letting the customers know that, that we're back and better. We see sales increases and margin increases almost every single time. In fact, every single time. So we're anticipating, even this year, as the new, renewed locations are launched back into full business that we will see returns from those.
All right, thanks. And then, I guess, some of your commentary in the MD&A around there's going to be an investment period around your cannabis operation and then it will eventually be profitable. I guess 2 questions on that. One, how long do you see that drag period being? And then once it's at full capacity, I guess, your rollout, what kind of margins do you see in that business, even on a relative basis to your legacy liquor business?
It's a difficult question. I'll take the last part first. Margins, we have obviously done our homework and studied the cannabis retail industry in the U.S. states with frequent visits and discussions with owners and management as to what kind of margins are available under different regulatory models. We'll be operating under different regulatory models in this country, both between provinces and even some municipalities will set their own frameworks. Those frameworks and those rules will dictate the -- essentially, how competition works, how margins are set. On top of that, it depends on the market. It depends on how quickly customers embrace the product. It's a very new, sometimes very complicated product versus beverage alcohol, which everyone is used to and has been using for a very long time. So the true answer is while we have our own forecast and models, they are at some extent, guesses right now because there are so much of the new business that we just literally cannot know quite yet.
All right, okay. And then, I guess, in terms of the 50 stores that you plan to roll out for cannabis, should we assume a vast majority will be Alberta with some in BC? Or do you have a different view on that?
That's a pretty good assumption. We will apply for and we expect to receive, we hope we will receive, the 37, which is the 15% of the 250 year 1 licenses the province has indicated that it will be issuing. And between our own stores, conversions and new locations in BC, probably that, that will be the balance of the 50 for the first year.
Okay, thanks. And just last one, just on the period of time you expect that drag to last. Any commentary there?
It's tough to say on that one, Sabahat. It will be a function of not dissimilar from liquor. It's a bit of a scale business, where you'll have an operating cost base at each of these cannabis stores that will be about the same regardless of volume. Your labor fluctuates up or down a bit. It'll be about how much per store revenue you can drive in this business. And when that revenue comes, does it come right away in a bang with limited locations in that first year? Are you doing monster top line revenues from each of these stores? If you do that, then profit will come very quickly. If it's a bit of a slower build, that the customers aren't there from day 1 and it takes time to establish and build the market, maybe take some of that historical stigma out of that. In some U.S. jurisdictions, that's happened really quickly; in others, it's been a bit of a slow build. And a lot of this will be a function of what our provincial governments and regulators will permit in terms of advertising the product. But really, our focus in the first year and beyond is driving as much per store revenue as we can, as quickly as we can. But not by playing games, driving short-term results, but by building a long-term, sustainable customer base that we hope we can keep that customer for life. So I know that's not directly answering your question, but that's how we're thinking about it and what our focus is to start driving profitability of these stores.
Your next question is from George Doumet of Scotiabank.
Just a follow-up on the gross margins. You've obviously called out some discount competition there. We're moving towards that for some of our stores. Just how should we think of the level of margin compression moving forward here on legacy business, I guess, from coming off the mid-6s from last year -- mid-26s sorry, from last year?
It's -- as you pointed out correctly, the select stores we'll be using to target the competition, the discount brand, will definitely be running at lower margins than we traditionally do. Having said that, to counteract that, once as these renovations come online with our Wine and Beyonds, which run at excellent margins, we don't necessarily anticipate that we will be -- see significant margin change from a company overall perspective, especially as we enhance our preferred label program and other initiatives which are highly margin enhancing.
Okay, that's helpful. And maybe just shifting gears to cannabis. On those 50 stores, just wondering how much of our existing stores will be converted into cannabis, out of those 50? And how should we think about ramping revenues per store when we compare it to our legacy liquor stores, maybe the extent of, I guess, peak revenues per store, how should we think in terms of, I guess, the basic legacy stores?
So to answer your second question first, and I mean, really, this is going to be a bit of fuzzy math here. But if you look at the rate now, there are a bunch of different sources that have attempted to quantify what this cannabis business will be in total in these jurisdictions. And I'll leave that to economists and those better qualified to do that forecast. But if you simply take that number of what our overall market is expected to be and divide it by the number of stores you expect to see in each jurisdiction, that gives you a rough kind of per store average in terms of what you might expect from a top line. I'd caution you, though, that if you do that same math for our liquor industry, you would find that when you look at the average per store revenue for liquor stores in our province and then compare that to our per store revenues, you'll find that we're more than double the average. We've always been on the top end of the curve in terms of outperforming the rest of the province from a liquor perspective. We would expect the same from the cannabis business and those are the high standards we're holding ourselves to. So you'll have a basic math answer and then you'll need to layer on, on top of that, our outperformance of the market, which is what we're striving for and how we're building our business to achieve that. In terms of how many of our cannabis stores are greenfield new stores versus conversion of our liquor stores, we're still working through and finalizing that. Our initial thoughts when we're thinking about building the cannabis business in Alberta, not dissimilar from liquor, it's about owning and tying up profitable trade areas of the major centers, Edmonton and Calgary. It looks as though there will be radius restrictions between 2 cannabis stores, and in some cases, from cannabis to liquor stores. So if you can secure your new locations and in that 300-meter radius, which is what we've heard thrown out as estimates of what it will be, you can really start owning these trade areas by being the only cannabis store in that area. So we're mindful of that when we're picking new locations and don't want to necessarily miss out on opening up some of these new areas with a focus on converting our liquor stores that are already there. That said, you will end up with a few of our existing liquor stores where it makes sense from a long-term perspective to convert them. But our view right now is as you go secure those great locations now, your conversions will always be there and available to you. That maybe you do, in a second round, when the province has opened up more licenses that are available, given it looks like there will be a cap on them in this first year. So you just really need to use them strategically.
Yes, I'll just add to that. As Matthew said, great real estate, great locations is always critical in a retail business. And we have secured the sites already. We have probably secured somewhat greater number than we are most likely going to be allowed to open in the first year. But we're in excellent position between our existing real estate and our relationship with the landlords for some of these trade areas that Matthew was referring to, to make sure that they will be our stores when the time and regulations allow us to open them.
Your next question is from John Zamparo of CIBC.
On the discount stores, can you help us understand the difference in economics for a discount store versus, I guess, you'd call it conventional? I'm curious what costs you, you can take out to be able to offset the lower prices?
Probably not a ton that comes out in these locations, John. They are already stores that have had their volumes on a per store basis really compressed. I mean, the locations we're picking to convert to this discount brand are the ones that are right beside discount competitors that are operating currently, that have put tremendous pressure on our sales in these locations already. And so in response, we effectively already cut cost to the bone in some of these locations. There's always more you can do there, but really, I don't think you'll see us take out a lot of cost. What you'll see us do is attempt to drive pretty significant increase in revenues, possibly at the expense of overall gross margin dollars. But really, our goal for these stores is a bit more strategic and more about what we're doing to our competitors as opposed to what we're necessarily adding to the bottom line of the business. I mean, if we improve our operating margin in these locations, I mean, that's a great outcome and what we're striving for. But if we don't, as long as we accomplish our primary objective, which is getting our elbows up and being a lot more competitive and responsive to people that have come and opened up right next to us, that's what we're looking to achieve.
And we will signal very clearly, since we are a public company, people can see our balance sheet, that our discount responses are there until they achieve their objective. And whether it's for the current situations, very selective number of them, that we will be using this vehicle, or whether maybe more importantly, it is to give pause to discounters considering, and their lenders and their landlords considering, doing this some more in the future, we will no longer let people come and take our market share.
Okay, that's helpful. I guess, just to clarify, when you refer to taking on discount competitors head on, are you referring to -- is it more independents that you're talking about? Or is it more, I guess, well-capitalized or more sophisticated competitors?
It's the former.
Okay, got it. The stores you're testing in St. Thomas, just want to confirm that these are more of your traditional stores? And maybe you could tell us a bit about how those are progressing and some of the lessons you are learning from that experience?
So, yes, this is -- these are the 3 locations we opened up in St. Albert, a suburb north of Edmonton here. We have converted them in fourth quarter. And really, it was always meant to be a bit of a test pilot to help us answer a few key questions. First is, when we renovated a store and these stores underwent significant renovation, they were some of our more old and tired stores in our network. Some of them were branded as Liquor Barn rather than Liquor Depots. But we wanted to see what would happen if we cleaned up a store and we changed the name of the store. And we called these stores Drinks and Beyond, which is -- was a new brand for us, completely new, just to see would that give us a greater increase in sales or traffic or customer response compared to when we rebrand a store or when we renovate a store and don't rebrand it and keep it staying as Liquor Depot. I think on that first question, what we found is that we really didn't, by changing the name, generate any incremental lift compared to what we'd normally see when we renovate a store and leave it named the same, Liquor Depot in most cases. So from that perspective, we found that there was actually quite a bit more brand equity in the Liquor Depot brand than we thought there was. For better or worse, it was an extremely well-known brand, people responded to it. And if you just simply cleaned up the stores and gave them a better shopping experience, it did a lot to cure what had ailed that brand. So we won't be continuing with this Drinks & Beyond brand name. It was a worthwhile experiment to see, before we went and renovated the majority of the stores in our fleet, we didn't want to go do that until we knew for sure we had a winning name or if we might have more success with a different one. So lesson learned number one in those stores. The second thing we really wanted to test and find out is were there creative ways we could re-jig the shelving and layout of these stores to reduce our inventory investment in a store and still have it look full, still have it be ready to shop? Basically, have the customer walk in to the store and not know that we had materially reduced our inventory investment. And in some of these stores, we literally cut our inventory in half, in terms of overall dollars. But you wouldn't know it walking into these stores, they still looked full and got a good customer response from that perspective. So that's a very valuable lesson that we've learned and played with in developing a store layout and shelving configuration that we intend to largely roll out in our renovations that we're moving forward with this year. So was it a resounding success? No, in the sense that we're not going to continue with the brand. But did we learn some lessons that will save this company millions of dollars down the line? Yes, we did. And so from that perspective, a very worthwhile and valuable experiment.
Yes, I would -- we have the luxury now of an extremely strong balance sheet. And we can afford to experiment and try different things to revitalize and really grow our liquor business and some work and some don't. And if you don't -- if some don't work, you didn't try hard enough and you didn't test enough things. So we've got some excellent learnings from the St. Albert experience. And we have another market right now, which I won't name, that we are doing, using again to, as a forefront for some very interesting new initiatives that have come from our team members that we believe will increase both margins and customer loyalty in our stores going forward. But again, we are not going decide it sitting in a room here in Edmonton. We are going to come up with ideas, listen to our team members, get ideas and test them in the field in a controlled and managed way before we launch major initiatives, strong balance sheet or not.
Okay, that's great color. Maybe if we could switch to cannabis quickly. I appreciate the commentary in the MD&A. I'm curious to your thoughts on how you think the market evolved in terms of what consumers want? And is there reason to think that discount cannabis operators could succeed as they have in liquor? Or do you think it's more of a market where consumers want different types of selection or better experience? Just your comments on that would be great.
I think our view is, and a lot of this is based on our research and our visits to various states in America where it has been legal, at the state level anyway, for several years, is that it will be pretty much like any other retail product, controlled substance or not. There will be a place for discount brands, low margin, higher volume. There will be a place for premium brands and a premium experience and there will be, probably the bulk of the business will be, as in most retail, will be in the middle. Interestingly, in our country, since only smoking the flower is going to be allowed initially for the first year or so, as the government has announced, the real growth in the business that we've seen in Colorado, California, Washington State and so on, is in edibles, in consumables, beverages infused with THC. We will not, obviously, be allowed to have those products at the outset. And so there will be a more, since it's a more limited scope of products in our stores, all our stores, ours and the other retailers who get licenses, they will be a little more focused on price, I would assume initially, just because of the limited number of SKUs. But that, that's a very temporary thing.
Okay, thanks. And then last one, mostly housekeeping. Is the capital requirement on a store conversion to a cannabis store similar as what it would be for a new store?
Not much difference, John. It's a pretty comparable investment. There isn't a ton you can reuse from an existing liquor store. When you think about the way the product is merchandised, shelved, the fact that a large proportion of our store in liquor is refrigerated, there isn't a ton we can use. So it doesn't materially change the investment requirements.
Yes, it's about the same.
The next question is from Robert Gibson of PI Financial.
Most of my questions have been answered, but I'm wondering about this comment you made about buying power with other retailers. Can I get a, maybe a little more color on that? And how big opportunity do you think this might be?
It's something I don't think we'll discuss. It's something to keep inside the company, but I think maybe I'll answer by just referring to other companies in our business in America, largely, obviously, who have used product preferred label, both to build customer loyalty, provides great products at great prices. And other large liquor retailers have formed cooperatives to -- a buying group, I guess you could call it, in America. And given that we are no longer competing in America, other than Alaska, the people have reached out to us and we have responded gladly, given who we are and our size and our volumes, as to whether we'll be interested in becoming part of those groups. And we are very interested and we are in those discussions right now. But more than that, I don't think I will say, if you don't mind.
No, that's great. And maybe Wine and Beyond stores, what are your expectations for this year?
Well, as you know, if you know the stores, and I'm sure you do, there's -- you have to be much more selective and there's -- because of their size and the market draw they have, we have to pick more carefully. It's a very major investment when we build one, both in terms of the lease obligations we need to enter into, the capital involved and the inventory that's involved in stocking a Wine and Beyond. They're highly profitable and we anticipate, we hope we can do 2 or 3, may be even 4 this year. We're actively engaged in probably half a dozen, I would say, top of my head, negotiations with landlords on locations to put Wine and Beyond elsewhere in the province and maybe even outside the province. But more than that, I can't tell you. But it's been a great, great program for us and we anticipate continuing with it in a major way.
There are in fact no further questions registered at this time. I'd like to turn the meeting back over to the floor.
Just I'll say thank you for your interest in our company. We are extremely excited here. There's a spring in the step of the employees here at the support center in Edmonton and I think on the floor in our stores, both because we now perceive the liquor business as something we're proud of, something we're going to grow, something that is going to change the way liquor is retailed in this province. And you never know, maybe in Ontario, too, someday, if you read the newspapers. And at the same time, the opportunity to be at the forefront of a whole new industry, which we think will be an extremely important industry for the economics of our country, our provinces, especially here where we do business, it's an extremely exciting time to be an employee and to be a shareholder, of which I am, of this company. And I hope and anticipate that we will have more good news as the quarters roll by. Thank you very much.
Thank you. This concludes the meeting for today. Please disconnect your line at this time. And we thank you for your participation.