Legalized recreational cannabis is coming to Canada. While the federal government has recently cautioned that passage of the enabling legislation could be delayed, there can be no turning back the clock at this stage of implementation. Already, two Canadian provinces have begun awarding licenses for the sale of recreational cannabis, Manitoba and Saskatchewan.
Cannabis investors who have already bought into medicinal cannabis corporations are now looking to add positions in companies with exposure to the recreational market. Noted market consultant, Deloitte, has already pegged the potential size of this market between $4.9 and $8.7 billion.
One company that has already committed itself to this emerging recreational market is Choom Holdings Inc. (CSE: CHOO, OTCQB: CHOOF, Forum), with CHOO having just issued two major news releases. Why should cannabis investors want to buy into a company that is specializing in the recreational market?
Three words: focus, quality, consolidation. CHOO will not be dividing its energies and operations between medicinal and recreational cannabis. The Company is already positioning itself at the high end of the recreational “craft” cannabis market, with a strong commitment to branding and marketing.
In turn, with the amount of revenue dollars up for grabs, this has set off a wave of consolidations and joint ventures across the industry. Just a couple of examples are the $230 million from Aphria to acquire Broken Coast, and the merger between Doja Cannabis and Tokyo Smoke.
This is the business focus of CHOO: craft producers with great branding and marketing. The Stockhouse audience has been introduced to Choom Holdings, in a full-length feature article from January. That article laid out the branding/marketing strategy of Choom™ in greater detail.
Naturally, the Company requires products to market. The Company has already been moving forward on two British Columbia cultivation facilities, one located in Vernon and the other in Chemainus, BC. Combined, these two facilities could provide near-term revenue potential in excess of $11 million per year. Expansion planning is already underway at both locations. These facilities are currently progressing through Health Canada’s ACMPR regulatory process for a cultivation license.
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However, CHOO is looking to accelerate its growth curve in several respects. This leads into, the Company's two important announcements. First, an acquisition.
On March 19, 2018; CHOO announced a definitive agreement to acquire International Tungsten Inc. (ITI). ITI is the holder of a late-stage applicant for an ACMPR cultivation license.
This acquisition will expedite the growth and development of CHOO in a couple of significant ways. To begin with, the ACMPR applicant (Specialty Medijuana Products Inc.) is even closer to attaining its cannabis cultivation license than Choom’s existing facilities. It has now reached the final review stage, with the awarding of a cultivation license anticipated to be imminent. This will put the Company significantly closer to its first harvest.
In addition, acquiring this new cultivation operation is a faster means of scaling up cultivation capacity than through internal expansion. This dramatically expands CHOO’s revenue-generating potential.
Specialty Medijuana Products was founded in 2013. SMP’s Sooke facility is also located in British Columbia. The facility is already cultivation-ready. Two stages of expansion are underway. Phase II will raise the total space devoted to cultivation above 29,000 square feet.
Phase III is a much more ambitious expansion. It will take total cultivation space above 700,000 square feet. This would be a hybrid indoor/greenhouse facility, requiring the construction of two additional buildings. Final planning for Phase III has already commenced.
The acquisition dovetails into the second major news release by CHOO (also on March 19, 2018), which has two significant aspects. The Company has concluded a definitive supply agreement with ABcann Global Inc. whereby CHOO agrees to market ABcann’s cannabis products from CHOO’s retail platform.
In conjunction with this deal, ABcann has elected to make a strategic investment in CHOO totaling $4,000,000. This cash-injection is part of a $7.0 million private placement by the Companythat has also just been announced.
With a cash position of $135 million, ABcann is one of Canada’s best-capitalized cannabis companies. Concluding this agreement with ABcann strengthens the evolution of Choom in several respects. It significantly increases the Company’s financial resources. It also provides additional products and variety for Choom’s retail platform. And it is a validation of Choom's business model.
Chris Bogart, the President and CEO of CHOO, offered these thoughts on the new relationship with ABcann.
This supply agreement demonstrates our commitment to becoming a significant competitor in the premium recreational cannabis space and allows us to rapidly accelerate our distribution strategy moving forward. The Agreement is a pivotal step in developing Choom™ as the premium brand in Canada’s recreational market.
Recreational cannabis is coming to Canada. Consolidation in the cannabis space is already here. Through acquisitions and joint ventures, Canada’s leading cannabis companies are looking to distinguish themselves from their peers. Say “hello” to Choom Holdings Inc.
choom.ca
FULL DISCLOSURE: Choom Holdings Inc. is a paid client of Stockhouse Publishing.