How These Canadian Companies Are Preparing for Potential $6 Billion Market

2018-01-19 The Seed Investor
How These Canadian Companies Are Preparing for Potential $6 Billion Market
How These Canadian Companies Are Preparing for Potential $6 Billion Market
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The Canadian recreational cannabis market is one of the most exciting markets in the world. In summer 2018, Canada will become one of the first countries in the world to fully legalize recreational marijuana. In their Recreational Marijuana - Insights and Opportunities report, Deloitte estimates the market to be approximately $6 Billion, but it could be anywhere between a $4.98 - $8.78 Billion dollar opportunity, while a recent report says that in 2015 Canadians already spent $6.5 Billion on marijuana.



Big cannabis brands are taking opportunity very seriously and are moving quickly to prepare. Companies like Aphria Inc. (TSX: APH OTCQB: APHQF) and Aurora Cannabis Inc. (TSX: ACB) (OTCQB: ACBFF) are preparing by making strategic investments and purchases to bolster their rec presence.
 
The rec market is such a huge opportunity that even big alcohol is getting in on it, with Constellation Brands (NYSE: STZ and STZ.B) investing $190 Million USD ($245 Million CDN) in Canopy Growth Corporation (TSX:WEED) (OTC: TWMJF).
 
These are examples of brands that specialize in medical marijuana trying to pivot and prepare for the rec market. But the recreational market will demand different brands then medical.
 
For investors looking to capitalize on this huge opportunity, we’ve discovered a small Canadian company with 2 ACMPR licenses in late stage reviews that was built for the recreational market: Choom™ (CSE: CHOO) (OTC: CHOOF).
 
We will look at Choom in a bit, but first let’s look at the recreational industry and what companies are doing to prepare.
 
Trends for 2018

After a crazy market uptick over Christmas and into the New Year, the Canadian Marijuana industry prepares for a big year.

Marijuana Index


Branding In The Canadian Recreational Industry

Advertising standards and regulations for the legalized marijuana industry are still being finalized, but it looks like there will be very strict controls on advertising. Companies will have to be focused only on their own brand and adhere to ad standards of Canada. This results in branding being one of the most important aspects of the new recreational industry.

Established companies were traditionally set up for medical and now have to transition for recreational.

Below are a few key deals:
  
  • Aphria (TSX: APH OTCQB: APHQF) signed an agreement to acquire 100% of Broken Coast Cannabis, a premium cannabis producer located in British Columbia for $230 million in stock and cash. The deal will add incremental annual production of 10,500 kgs, some of that cannabis being market ready today. This addition will boost Aphria’s forecast annual production to 230,000 kgs. The transaction also gives Aphria more geographic diversification, a cross-Canada distribution platform, and access to over 40,000 medical patients.
 
  • Recent merger of DOJA Cannabis Company Limited (CSE: DOJA) and TS Brandco Holdings Inc. ("Tokyo Smoke") created the first brand and retail-focused, Hiku, craft cannabis producer, with a portfolio of highly recognizable brands. Hiku is strategically positioned to become the preeminent cannabis brand house in the Canadian adult-use cannabis market. Concurrently, DOJA entered into a binding agreement with Aphria pursuant to which Aphria has committed to make a $10 million strategic equity investment into Hiku. Additionally, the parties have agreed on the terms of a supply agreement to secure cannabis concentrate supply for Hiku's premium brand portfolio. Upon completion of the merger, the Company will have a robust cash position of approximately $31 million, which it plans to invest in expanding its cannabis production capacity, growing its retail footprint, and adding select brands to its portfolio through highly strategic and complementary acquisitions.
 
  • Aphria (TSX: APH OTCQB: APHQF) entered a five-year agreement to supply pharmacy chain Shoppers Drug Mart with medical cannabis. The company will provide the pharmacy with four strains of dried marijuana flower in two different sizes and four cannabis oils. All 12 products will carry the Aphria brand name.
 
  • Harvest One Cannabis  (TSXV:HVST) (OTC: HRVOF) through its wholly owned subsidiary United Greeneries announced the launch of retail sales beginning February 2018. Starting February 2018, United Greeneries will launch a new online retail platform for medical clients under the Access to Cannabis for Medical Purposes Regulations (“ACMPR”). The initial offering will consist of two distinct cannabis brands, providing patients a wide range of different strains and cannabinoid profiles.
 
  • Aurora Cannabis Inc. (TSX: ACB) (OTCQB: ACBFF) has bought in 17% stake in The Green Organic Dutchman (TGOD), with option to Increase to in Excess of 50%.  As part of the agreement, the companies shall enter into a supply contract, providing Aurora with the right to purchase up to 20% of TGOD’s annual production of organic cannabis from TGOD’s Ancaster and Valleyfield facilities. Consequently, Aurora anticipates being able to procure in excess of 20,000 kg per annum of premium organic products once TGOD`s Valleyfield and Ancaster facilities are completed and at full capacity. The supply contract provides Aurora with the right to purchase up to 33% of TGOD’s production at the two facilities if Aurora increases its ownership interest to 31%.
 
  • Canada's move toward legalization has already inspired one U.S. Company, the New York-based alcohol beverage producer Constellation Brands (NYSE: STZ and STZ.B), to buy a 10% stake in the Canadian pot company Canopy Growth Corporation (TSX:WEED) (OTC: TWMJF) for $190 million.
Choom™ (CSE: CHOO) (OTC: CHOOF) – Perfectly Positioned for Rec

Unlike medical marijuana brands who have to acquire brands to prepare for rec, this small cap Canadian company was created with a focus on the recreational market. Choom was inspired by the Choom Gang, a group of buddies in Honolulu during the 1970’s. Now, after four decades, Choom is bringing the spirit of Hawaii to the Okanagan and Canada. The company has been an ACMPR applicant since November 2013 in Vernon, BC., and has security clearance and is currently in the detailed review stage. They just announced the acquisition of a 2nd ACMPR license in the confirmation of readiness stage.

Investors have already proven that they are excited about the Choom brand, as it has seen a 149% gain on the CSE since beginning trading in November, and just started trading on the OTC Markets on December 29, 2017.

Investment Highlights
  • ACMPR Application in Detailed Review: Choom has security clearance, and is focused on achieving a license to produce and sell high-grade handcrafted cannabis in Canada. Choom is an ACMPR applicant currently in the detailed review stage.
 
  • 2nd ACMPR Application in Confirmation of Readiness Stage:  2nd ACMP has confirmation of readiness, and is focused on achieving a license to produce and sell high-grade handcrafted cannabis in Canada.
 
  • Cultivating Experience: Founded on the Choom principle of good times and good friends, the plan is to curate the right products and experiences for the cannabis consumer.
 
  • Documented Brand History: The Choom brand is inspired by Hawaii’s “Choom Gang” a group of buddies in Honolulu during the 1970’s who loved to smoke weed—or as the locals called it, choom.
 
  • Adaptive Business Model: Choom are experienced curators of cannabis, who will use their products and services to grow and adapt to the changing cannabis landscape.
 
  • Facility and Capacity: Choom has a planned Phase 1 cannabis production facility that will be capable of producing approximately 660 kg of dried cannabis per annum. The planned Phase 2 expansion plans, within the existing facility would increase its cannabis production capacity to a total of ~1500 kg/year.
Conclusion:

Recreation legalization will create a brand new wave of investment opportunity. While established companies that started with medical brands are trying to address the upcoming recreational market with acquisitions and capacity expansions, companies entering the recreational market directly like Choom will have a distinct competitive advantage given their recreational only business model.

Choom is one of our favorite new brands in the market due to their impressive investment highlights.

For investors looking to get into the huge potential of the recreational market with a small cap company, Choom™ (CSE: CHOO) (OTC: CHOOF) might be a good option.
 
 
 

Tags
Cannabis News, Investing News
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