© 2024 Alpha Spread Limited. All Rights Reserved.
www.alphaspread.com is not operated by a broker, a dealer, or a registered investment adviser. Under no circumstances does any information posted on www.alphaspread.com represent a recommendation to buy or sell a security. The information on this site, and in its related newsletters, is not intended to be, nor does it constitute, investment advice or recommendations. The information on this site is in no way guaranteed for completeness, accuracy or in any other way. In no event shall Alpha Spread Limited be liable to any member, guest or third party for any damages of any kind arising out of the use of any content or other material published or available on www.alphaspread.com, or relating to the use of, or inability to use, www.alphaspread.com or any content, including, without limitation, any investment losses, lost profits, lost opportunity, special, incidental, indirect, consequential or punitive damages. Past performance is a poor indicator of future performance.
You don't have any saved screeners yet
Intrinsic Value is all-important and is the only logical way to evaluate the relative attractiveness of investments and businesses.
Good morning. We would like to welcome everyone to Alcanna Inc.'s Fourth Quarter 2020 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. I will now turn this call over to Mr. James Burns, Alcanna's Chief Executive Officer. Please go ahead, sir.
Thanks, Lori. Good morning, everyone. I hope you can hear me okay through the mask, but we're observing our COVID protocols as we do here at Alcanna. So hopefully, it's okay, and not as confusing as our statements were in this quarter. Again, we apologize to anyone trying to decipher them. It's been -- David Gordey, our CFO, who is here with me; and Roxanna Bevilacqua, our VP Finance, was also here this morning and done an unbelievable job trying to make these statements in all the transactions that we've done and conform to accounting standards and try to make it somewhat understandable. But having said that, we realize it's very confusing, and we just offer to certainly our shareholders, people who are used to calling or anyone, feel free to contact us directly if you need some help deciphering, trying to compare apples-to-apples instead of apples to oranges. It wasn't an easy task to put them together this quarter. We were very pleased with the fourth quarter and obviously, extremely pleased with 2020 as a year. It was exceeded anything we could have ever imagined as a company on many fronts. Certainly, on operations level, our liquor business is firing on all cylinders, continues to do so. Even the fourth quarter, 7.6% same-store sales growth is -- was not the high -- the mid-double digits that we are experiencing in Q2 and Q3, but it was still a very strong growth over last year. And in fourth quarter of 2019, as the quarter we really started shifting pricing, particularly in Wine and Beyond, and so it was actually a very good, strong sales quarter for us Q4 2019. So it was already tough to overlap. So on many, many fronts, we were pleased. There was a hard lockdown in Alberta when people were just essentially not allowed to go to other people's homes, so even traditional family. Thanksgiving and Christmas events, let alone holiday parties and so on just didn't happen. So I won't say there is a fall-off in sales, but sales grew very strongly, but it wasn't the spectacular growth. I would say that since how the period ended for Q1, we're back to seeing what we saw in Q2 and Q3 until March 12 when COVID started, and obviously, there was the panic buying last year. But having said that, our sales are still extremely strong. And so we -- the trend of at-home consumption versus on-premise consumption have not changed. So we're still very optimistic for the business going forward this year. Same-store sales may not be the greatest way to analytic -- to use given how high last year was with on-premise offline. When on-premise starts to be coming online and people to be comfortable with it, not just allowed to go but want to go, we'll see what happens, but we're very optimistic going forward. And I guess I'll just leave it at that and open it up to questions. Thank you, operator. You can allow the questions, please.
[Operator Instructions]And the first question is from Kyle McPhee from Cormark Securities.
Sorry, guys, I'm on now. Your MD&A points out that your admin expenses had some one-time costs this quarter related to the spin-out in RTO. I know you guys conservatively do not adjust for that in the [ EBITDA ] report. So can you quantify those one-time items for us?
Yes. We speak to it in a couple of different places, Kyle, MD&A and in the financial statements as well in one of the notes. But a good way to look at it is if you look at the Q4 admin costs versus Q3 admin costs, that delta of a couple of million dollars is really what the one-time nonrecurring costs were in the quarter. So it's quite heavy between transaction costs, all the transactions we had going on and some other items as well. But our trend of admin costs in Q2, Q3 is a good trend going forward when you get past all of the transaction costs. There'll be additional costs in Q1 as well to expect there.
Okay. Helpful. On the liquor business, your gross margin has been normalizing a bit higher. We now have the 2020 numbers. Hoping you can provide color on 2021 in terms of what we should expect for the moving parts and the trends and strategies. Again, just for the liquor business relative to what we saw in 2020.
Yes. I think, helpful for everyone on the call to remember where we started from in 2019, we've come a long way. Our team has done a great job of improving margins as we went through 2020, especially in Q3 and Q4 compared to Q3 last year, Q4 last year. So very pleased with where we ended up. Q4 was probably a little softer than what we would have expected had we had a normal holiday season. People spending time just by themselves and not hosting parties, weren't buying many interesting things. Maybe even trading down just because they were just celebrating by themselves. So margin in Q4 was probably a little softer than what we might hope for in 2021. In Q1 and Q2 2021, you're going to see a lift in margin in all likelihood from where we were last year because, again, we were still ramping up. From where we are today, I think we're probably in a range that we can expect going forward. We might be able to push it a little bit higher in some spots, but we want to be cautious. We've gained a lot of market share, had a lot of hard work. And so any gains that come from this point forward will most likely be from our private label program rather than doing anything on the promotion front or in-store sales.
Yes, exactly. In terms of pricing in the marketplace, it's probably where it's going to stay. We do believe we have margin improvement from, as David said, private label. We can always refine that, and that program is going well, particularly in spirits and with locally sourced spirit distillers. We're having great success developing new products that are doing very, very well. And then just to better using our warehouse, we have a new SVP in charge of the warehouse for the last year or so, doing a fantastic job as well as our buying group maximizing limited time offer from manufacturers and bringing our cost of goods down, which is obviously reflected in margin. That's the whole point of a margin. So -- but the customer doesn't see that. So that's where margin improvement could come from, Kyle, but pricing is probably where it's going to stay.
Okay. Just on -- I mean, Alcanna is not sitting with a lot of excess liquidity, free cash flow still rolling in. On the cannabis side of the business is now funded by the new Nova Cannabis that has its own balance sheet. So wondering what happens with all the liquidity you guys are building up? Is there M&A potential on the horizon? Or are those opportunities limited and it's really more about return of capital through various means like dividends and buybacks?
Yes. The $120 million question. So I guess, first off, we're sort of cautious prairie boys and girls. The money is not in the bank until the money is in the bank. So we -- the other transaction for British Columbia is scheduled to close on Wednesday, and we have every reason to believe it will. But until it does, it hasn't. So -- but assuming that, that transaction comes to a successful conclusion, then we will have a extreme amount of liquidity, and we still do have a convertible debenture outstanding, which comes due this January. We are able to redeem it early, if we choose now within this last year of its life. That is certainly an option that we would consider once orders closed as well as there's been traditional means of returning capital to shareholders, issuer bids dividends. I mean everyone, there is only so many ways to do it. M&A, we always look at -- we'd always be interested in new opportunities. There -- the nature of our business is, there is -- it's limited because so many provinces are still government liquor stores. There is an opportunity in 14 months when the moratorium on licenses in British Columbia ends, and the government has yet to announce what it will do. instead. It could continue that moratorium, replace with something else. We don't know. We do have the right to build Wine and Beyond under our transaction with [ otter co-op ]. So that's an opportunity that's potential for us as well as Ontario still. Obviously, it was delayed in any kind of reform of its liquid retail laws because of COVID, totally understandable. So there is still that opportunity there, which isn't really M&A, Kyle, but it is growth opportunities for us that are potentially there in the future. And as you say, the cannabis business, which was a high capital use business is now no longer part of Alcanna in terms of using our own cash. So we do not need cash to allocate to that business. It has its own, very successful in fundraising, as you know. So I think you can expect some announcements from us once the -- if and when the other transaction closes, and then over the next coming months. We're also in no hurry. It's -- the world is in very, very uncertain place right now, and you just never know what's going to happen. So there is an argument to wait and see.
It's a fantastic position for us and our shareholders to be in, and we'll be disciplined, and we won't be going and diversifying this company and going into a new line of business or anything like that. So make sure that we take our time and strike on the opportunity [ indiscernible ]
Core-Mark is safe, Kyle. We will not be making a bid for Core-Mark. You can rest easy.
When we're thinking about using your cash flow to repay the convert, do you take the balance sheet to debt free? Or is there a target level of leverage you'd like to keep in place with whatever new tranche of debt year-end?
Obviously, leverage is something that's important to companies going forward to make sure we have the right capital structure. But I think we're going to take our time, Kyle. We're just going to make sure that we take our time and execute on the right opportunities at the right time. So if we exited 2021 with little to no leverage on the balance sheet, I wouldn't be shocked. But if the opportunity presents itself to leverage up a bit, I'm happy to do that as well. We have actually some pretty good opportunities on growth. We're going to be having 4 new Wine and Beyond stores opened this year, which is -- takes a bit of capital between the CapEx and the inventory. And we have some irons in the fire for some ones in 2022 and 2023. So there'll be leverage at the appropriate amount of time in this business.
We're probably disinclined to just leverage just the return to shareholders when we have so much excess cash right now or will.
Understood. Okay. And just last point of clarification. At the front end of the call, you mentioned there was a very noisy confusing quarter for your financial statements. I just want to confirm that, that's really all about just you reported your entire BC liquor operations as discontinued and not including on the numbers. And I guess, beyond that, there is no other noise you're referring to?
Well, plus that in the transaction costs, which you asked the question about. No. Other than that, I think we put up a great fourth quarter, very, very happy with how the business performed. Even though same-store sales were a little lighter than they were in Q3 and Q2, the team did a fantastic job of controlling costs in the stores. And so that actually propped up the bottom line a little bit better than what we were forecasting. So very, very pleased, and as you saw in the press release, Q1 is going very well, firing on all cylinders, as Jamie said.
The next question is from Graeme Kreindler from Eight Capital.
I was wondering, on the real estate side of things for both liquor as well as cannabis, I think there is a lot of room to be opportunistic on real estate during the COVID period. And certainly, you have outlined your plans for expansion on the liquor side of things here. I'm wondering, as we're starting to see a bit of a reopening in provinces and that is going to ebb and flow, but are you seeing any of these deals tighten? Or maybe there's less than there would have been a couple of months ago? Or is it still a very robust environment right now to get to favorable terms on the real estate side of things?
It's still very favorable, extremely favorable for new leases, for new stores, like for a new Wine and Beyond. We've negotiated enthusiastically on behalf of the landlords. Some tremendous deals for these Wine and Beyond we're opening this year, which we would never dreamed we could ever do a year ago. It's just they're fantastic for our business, and I believe, for the landlords as well. So we're very pleased there. In terms of new lease renewals, not as much of an opportunity. A really good liquor store, that landlord knows that if we pretended we would walk without a rent reduction, they would know it's a bluff, and they could get somebody to backfill it and open a liquor store the next day. So your room on those ones is really -- not really that limited. So the renewals you are which you are, the lease is a lease. Those leases have a [ tert ] clause that says that rents can't come down anyway on a renewal. You can keep them flat and a lot of them are staying flat, but not really. There is no sort of edge...
On the good sites. On the marginal sites and the mid [ centers ] there is absolutely opportunity.
And we've made some deals with landlords, where we said, we're going to leave if we don't drastically change the risk return ratio of this lease and switch the balance from landlord to at least 50-50, using percentage rent in other vehicles. And some have accepted that and taken us up on it and some have not, and that's it. And we negotiate from a point of indifference where we put a proposal together, where if the landlord accepts it, fine. If he doesn't, fine.
We're not married to any real estate going forward. We've closed a number of stores, 30-plus stores in the last few months -- last year or so.
Yes. And we've got a few more to go. We call the landlord first because you're essentially just running them under the landlord, all that inventory and that cost to look after the store to make little to nothing. So most of those are gone now. We only have a handful left, and we will -- I'm sure we'll be out of all of them by the end of this year for sure, if not long before that.
Understood. Appreciate the color there. And then with respect to the expected build-outs to Wine and Beyond and convenience format stores, particularly in the Alberta market. Do you see those stores when they're opening? Are those stores that are going to hold in your current market share? Or given your expectation of increased at-home consumption, do you think this is something that more holds in as the market continues to grow? Just curious in terms of what those look like strategically within the overall market in Alberta.
Sorry, just clarify that a little bit, Graeme. I'm not -- just to make sure I answer exactly what you're asking.
So do you see those new stores as stores that are going to grow your overall market share? Or are they're going to hold their current market share, given more at-home consumption? If that make sense.
No. We would definitely see them as growing market share. Absolutely. Wine and Beyond is a whole different business. And do we cannibalize some of our own stores if you have a Wine and Beyond near, yes, a little bit. One is in a trade area where we don't really have maybe at one store close, but a convenience format store is for people, it's convenience. You're going to buy a bottle on the way home. Wine and Beyond is a destination. And yes, there are some people. If you happen to live near one, you can use it as a convenience store as well. One reason you can't, but people have much bigger basket sizes. The average person spends 3 minutes in a Liquor Depot or Ace and 37 minutes in a Wine and Beyond. It's just a different business. So it's very incremental. It will take business from everywhere.
A long and wide, wide trade area.
Yes. Yes. They have huge reach. So Calgary, we only have one, and it's literally on the extreme north edge, the north pole of Calgary. So we have the 3. We have coming are basically could probably do one more in Calgary, but we basically will fill all the trade areas of Calgary by Q3 of this year when we open these 3 stores. And we've been trying to get store sites in Calgary for years and just didn't get them at any rents that were sensible, that had any decent risk return equation to that investment. And all of a sudden, we've got 3. So we're thrilled.
One in Northwest Calgary, one in Northeast Calgary, one in the south and one in the west. So probably room for one -- maybe another couple of small ones at some point in time.
Yes. We're actually also -- we have one small format at Wine and Beyond, which is 12,000 square feet, and there are room for sort of in the fields for that banner in certain markets for just sort of that size as well. Yes.
Very excited for this year. The real benefit of those stores will come in 2022. This year, it will add to topline as we open the month, but the real bottom line would occur next year and definitely in 2023. So I'm very excited to add that to this company's financial performance going forward.
Yes. We should -- we've sold some [ EBITDA ], no question about it. We believe at exceptionally good prices, but we anticipate we'll have that all back again by 2022. The 4 big ones should be all open in Q3. So we'll have them all permitted and trade and COVID shutdowns, notwithstanding. For full up for Q4, we expect -- unless something happens, but close enough, if not, for sure. So they'll -- Q4 obviously just great quarter anyway in our business, and it was this year. It's just not as great as the Q2 and Q3 on the COVID thing. So it's really exciting. And then, of course, BC, I think we're going to do is spectacularly well when we get the stores going there.
Okay. Understood. And then my last question here. You mentioned, in the Q4 period, you had some -- what you see as maybe some trade down from consumers as there was increased lockdowns. I'm wondering as you start to see a bit of reopening. Have you been doing any shifts in the mix or types of products you're carrying or labels within the store in anticipation of that? Or is the consumer trend with respect to -- not just how much they're buying, but what they're buying? Do you think that's going to have some stickiness as well?
So in terms of our product, no, I mean we have -- as you've seen, Graeme, we have tremendous selection even in our convenience format stores. So -- and that's part of our business model is to offer that. And we could have a different inventory level and have much less selection and just stick to the top-selling SKUs, but that's not what our business is about. Including -- and frankly, especially our discount business, it is about great prices, but also tremendous selection. So now we signed during COVID, interestingly enough. I think David's comment in terms of the fourth quarter was that instead of buying that $60 bottle of wine because it's your special Christmas dinner or Thanksgiving, it was just you and your spouse. You say, Oh what the hell, we'll buy our 15 anyway. So it was more of that. Overall, during COVID, the premium spirits have been done exceptionally well. And I think anecdotally, what people are doing, like the tequila category is one I can think of, the high-end tequila is selling really, really well because people who drink tequila as their beverage of choice in bars and restaurant settings, and they could only afford -- they prefer or want to afford a more moderately priced brand, realizing how much cheaper it is to have your alcohol at home than it is in a bar or a restaurant with their extremely high markups. They've been trading themselves up and buying the premium brands because you can afford that at home. It's the same price as -- or actually, still cheaper than having the cheap tequila shots in the bars. So that's been -- and if you go and look at some of the websites and the reporting of some of the manufacturers of the distillers, and so you'll see that, that high end stuff has done really, really well. Somewhat, it is kind of counterintuitive because you think times are tough, people are holding their money, but it's worked the other way.
A small luxury that they're willing to pay that money on, yes.
Their credit card statements are so low at the end of every month because they're not going out that they've got some excess availability in their psyche to go in and treat themselves, as David said. So we'll see if that continues. It doesn't matter so much to us as it does to the manufacturers, but higher end products, we think they do better margin on, frankly. So it helps, but...
The next question is from John Zamparo from CIBC.
I'm going to ask about the promotional environment. It was obviously pretty favorable in 2020. I'm curious what you're seeing to start the year so far from competitors on that front?
No real changes in the promotional environment to this stage, John. Obviously, we were able to save a few bucks in Q2 by not having some promotions out there just as people had [ wall ] blinders on and they weren't really paying attention to promotions at that point in their lives. But no one's getting aggressive. No one is doing anything different at this point in time. And so I think everyone's happy with the rising tide is floating all boats, and so everyone's just happy to have their share of the pie, the increased size of the pie.
We'll do some more flyers, some more promotional windows this year than we did last year. And we see the competitors doing that, too, but nobody is so far being overly aggressive. As David said, there is a stasis. There seems to be an equilibrium and people of the market has settled in. I don't believe there is room to raise prices, as we've said earlier, for our company. Anyway, we don't intend to do that, but the market seems to have settled.
Okay. That's helpful. And then sticking with level of competition, what's your perspective on store count growth or square footage growth, whichever one you measure for the overall market in Alberta in '21 or '22?
So it doesn't really move much anymore. There is extraordinarily over inventory of liquor retail stores in Alberta. 2,200 put in a lot of places you can buy liquor to take home between actual liquor stores, and then hotels and so on bars that have an off license that are allowed to sell for off-premise consumption. So they come and they go. People go bankrupt and somebody takes it over again. And there seems to be no shortage of people who want to think that it's a good living to run a liquor store. And at certain economics, if you don't count your cost of working per hour, it can be a great way to support a family as a small business. So we don't see the major grocery store chains, which are our main competitors, superstores, Sobey's, Costco, large competitors are -- they tend to be -- their liquor stores are part of grocery store development. So as they build a grocery store, they might put one on, but those are big, huge investments. So liquor is sort of an afterthought for them. So it comes as they make these big grocery investments. And those only usually come with new neighborhoods as Alberta's -- with the energy industry and our own provinces economic issues are well known, is not growing population-wise as it once did. It's more or less flat, actually. So there are new neighborhoods being built, of course, as older ones transition and the grocery stores and new competitors that way. But I would say, probably, by the vast majority of new square footage in the liquor retail industry in Alberta will be up with Wine and Beyond. So 60,000 feet. So other than that, probably not too much, very little. Everywhere -- there is no trade area that isn't already oversupplied by somebody. So there is little room for someone to come in.
Great. Fair enough. That's helpful. I'd love to get your sense on kind of the longer term, and how you might hang on to some of the gains you've made in the past 12 months as vaccines eventually roll out and consumers, at least consider returning to pre-pandemic behavior. Is it that consumers have now had a chance to try Wine and Beyond stores, and they're going to stick with that choice. Jamie, you referenced the price delta between at-home consumption and on-premise consumption, which I think is a valid point. Just would like to get a sense of how you plan to hang on to these gains, if consumers do return to behaving the same way they did in 2019? Or maybe the assumption is that they don't, but just like to get your thoughts on kind of the longer term on that front.
Yes. I guess that's much more a question for a sociologist than a couple of the retailers here. But I just anecdotally for my own life, my own adult children, he used to spend a lot of their disposable income in restaurants and bars. Even the ones with young children of their own and just stick it out and do it. And they've had a year or now, you're in a few weeks of not doing that and cooking more, eating at home more and they like it. And they realize just it's how low their credit card debt is at the end of every month, and it did change things. Does it mean they'll never go back? Absolutely not. Probably, people will go a lot once the vaccinations are rolled out. People are feel comfortable again. And will it return to 2019? I mean, again, I'm not -- I took one sociology course in the university, SOS101. After that, that's the end of my sociology expertise. So that was an extraordinary long time ago. So I don't know. My guess is that it will be somewhere in-between what it was then and what it has been for 2020. And we've, as you said, our Wine and Beyond, in particular, have been -- we reported our overall sales -- same-store sales growth for the last few quarters. We have not broken out Wine and Beyond specifically, but I can just tell you, it's many, many multiples above the overall in terms of how Wine and Beyond have done during this time. Obviously, because they're very huge, wide open spaces, people felt more comfortable there, not in a smaller format. They could socially distance easily, and the people realized. I think there had been still some misunderstanding in our marketplace and our customers that Wine and Beyond was somehow a luxury brand or a high-end brand, and it's not. It actually has the same margins or even a little tab lower than our discount banner. It has luxury products and luxury stores inside that discount box, but it's not a luxury banner. And people really got there and realized that the prices are, wow, this is a selection, but boy, are these prices are ever good. Cheaper as a rule. In many cases than the Ace down in their neighborhood. So they come, and you have to do that. It's a destination. It's Costco. You have to give people a reason to drive by -- do not go to their own local convenience store, even if it's an Ace, one in ours and to come to allow our competitors and come to Wine and Beyond. So that's what we do. So it's a hard question to answer, and we're very cautious. It's one of the reasons we're going to be just careful about cash and our liquidity, and just want to see how the world unfolds here. Is there -- vaccination is going to pick up finally. And everyone, this will all start to be behind us at some level by the summer. Is the third wave going to come or the variance? This is also unpredictable. So all of which dictates to me to be careful and just wait and not do anything precipitous.
I like our position, though. We are in a solid position where we can control our fate. We don't have debts. So we're not exposed to a big downspend. So I really like our position. And I think for all the reasons Jamie said, it's going to be a slow change. We're not going back to 2019. In my view, over a short amount of time, it's going to take some time for people to feel comfortable to go out on a regular basis. My hope is, Q4 is that people have the ability to have holiday parties, et cetera, and social gatherings in their house, which will be a win for us. So I see some potential tailwinds for us as well this year.
Yes, if we get good weather this summer, the backyard barbecues and you can do all that stuff, which are those summer long weekends used to be huge sales events for us. Last summer, they really weren't other than -- because there was no -- no one was even working, so the weekend didn't matter. It wasn't the same bumps. So we could do really well there, too. And as maybe the restaurants and bars are well, once the patio season comes, we're a little cooler climate out here than Ontario, John, as you know. So patio season takes a little longer to kick in, but they'll do so better, but a lot of restaurants and bars are hurting, and many are not opening again. We keep hearing all the time of real estate coming available because restaurant X or bar Y is closed, and they're so far in debt now. All they would be doing is reopen to pay the debts back to pay their deferred rent back, and they're just giving up the ghost. So I guess we'll just see.
And we've come a long way. We had great same-store sales increases in 2020. If we give up a little bit of that, low single digits is my outside range, the cash flow being generated from this business is still terrific, especially because we worked so hard over the last 2 years to get a lot of our maintenance CapEx done and the stores up to snuff to where they need to be. We still have some opportunities to sell some low-performing stores. So the cash flow of this business is going to be great.
That's great color. And just one last one, another broad question just on the cannabis side. Margins or at least gross margins are down somewhat. I assume that's partly because of the discount pilot. I'm less interested in margins, though, I'm just kind of curious what you're seeing from the operating environment and from consumers, anything that's been remarkable or represent a change versus the past that you're willing to share.
Yes. I just feel a little awkward about -- even though it's -- I'm the Chair of Nova, and David is the CFO of Nova. It's technically -- that's another separate public company now. So it's kind of -- I'm not really sure how we're supposed to answer these going forward and deal with this. We still own [ 63% ] of it, and obviously, we owned it for this whole fourth quarter. Just anecdotally, John, our Nova or whatever, it was our in the fourth quarter. Our deep discount trial that we've used to see how that -- the kind of the same thing we've done in liquor, how did that translate to the cannabis consumer. I didn't resonate the same way it has in liquor. And the answer was a resounding, yes, but we know just from looking at the stores of competitors and then one competitor in particular, YSS, which is now part of us -- part of Nova, I should say. So obviously, we know their numbers for real, not just anecdotally. Where we had a deep discount store in Q4 that happened to be near one of theirs, it didn't really affect their -- they went down a little bit, but not very much. I need -- so there is huge growth in sales, like massive growth in sales came from the illicit market. And that's -- we definitely get that our teams in the Nova stores or sort of the deep discount stores or value buds now. We will say that these new customers are coming from illicit market, not necessarily from -- just from other legal retailers. So we find that extremely encouraging because our pricing is as good or better. And -- but you don't have to break the law, you don't have to meet a guy a parking lot at 10 p.m. and get a baggy. You just have -- you have government inspected products. There is many ways it's more convenient. Some of the online illicit products are more well, not meeting guys in a parking lot, and that's a different business. But either way, we are getting -- we are seeing -- finally seeing a shift. The whole purpose of legalizing cannabis from a public policy perspective was to get it out of the hands of the illicit market where it's a crime. And it's finally happening in our stores. So that's extremely encouraging for us for the -- our huge investments, 63% in Nova Cannabis.
Yes. We can hit that price point to compete with them, which is great and make money at the same time, which is even better. And there is still a long runway for pulling people out of the illicit market, and that will all depend on the licensed producers producing better and better product. Maybe the government is loosening up some rules on the packaging, et cetera, and the types of products. But price point, we know we can compete there and be a big player.
Better product and more consistent, especially. Consistent supply is still a huge hindrance in the cannabis business. You don't get a consistency. We know that Diageo is always going to give us all the Crown Royal we want for the Captain Morgan. You don't have to worry about that. As much as we can sell, they'll have. Cannabis, it doesn't work that way. You have no idea what you're going to sell week over week because the supply is so inconsistent so far.
So that's upside opportunity for us.
Yes. That will change. That will get better. That's only -- exactly. That's only -- that's not a bad thing. That's a good thing sitting here today because we've done well even in that environment, but as it gets more normalized, it will only make it easier to operate, if you have a good network and either -- you know what you're doing. If you're a retailer.
The next question is from [ Walt Strob ], who is a shareholder.
I just want to know if you're ever going to reinstate the dividend.
[ Walt ]. Well, that's certainly an option that we would look at. The -- you paid dividends from free cash flow, and historically, this company got itself into trouble paying dividends that -- and it didn't have the free cash flow to support it, going back into 2014, '15, '16, and had to reduce it because of that and borrowing money to pay dividends, and we're never going to do that again. So we want to make sure that our...
You don't want to do that.
Support any dividend that we might decide on someday, but it's certainly an option that we would consider, that we're looking at.
So it's not in the near future.
Well, it's an option we would consider. If I told you one way or the other, then that's a material thing. I shouldn't be saying here on the phone call.
No, I understand all. I mean, I've been a shareholder for many years, and I was really disappointed when you discontinued the dividend because it was obviously a reason for buying the shares in the first place.
Right. But somebody didn't have the cash flow to support this dividend, and it should have cut a long time ago, in my opinion, and I wasn't here then. So when we have cash flow, we will definitely look at it again. It's definitely a way to return capital to shareholders, for sure, [ Walt ].
There are no further questions registered at this time. I'll turn the meeting back over to Mr. Burns.
Thanks, May. Just, again, appreciate everyone's interest in support of our business and our Nova business that is now launched as an independent company, which we're very pleased with how that's gone and is going. So appreciate everybody's interest and look forward to visiting again in a few months when we release Q1. Thank you so much.
Thank you. The conference has now ended. Please disconnect your lines at this time, and we thank you for your participation.