NetworkNewsWire
Editorial Coverage: For the very first time, a developed
country stands at the precipice of legalizing recreational
cannabis. Despite a slight delay from the original July 2018
legalization goal, industry analysts agree that Canada is on course
to fully legalize recreational marijuana in August or September of
this year, clearing the way for adults aged 18 and over to legally
purchase the drug from licensed dispensaries across the nation. For
companies like Choom Holdings, Inc. (CSE: CHOO) (OTCQB:
CHOOF) (CHOOF
Profile), Aurora Cannabis,
Inc. (TSX: ACB) (OTCQX: ACBFF), Namaste
Technologies Inc. (CSE: N), Emerald Health
Therapeutics, Inc. (TSXV: EMH) (OTCQX: EMHTF) and
The Supreme Cannabis Company, Inc. (TSXV: FIRE) (OTC:
SPRWF), this unprecedented regulatory shift is likely to
unleash huge opportunities across multiple industry sectors, most
notably cultivation and retail operations.
Barriers to Entry
Demand for recreational cannabis in Canada is still, to some
degree, a mystery. As a forerunner in the legalization of
recreational marijuana, Canada will likely serve as a measuring
stick for other countries that are interested in following suit.
However, based on various federal and provincial reports,
legislators have estimated that nationwide demand could come in at
around 800,000 kilograms annually, with the market expected to
experience sustained growth in the coming years. The push to
address this forecast demand has resulted in a number of cannabis
industry heavyweights, with their positions in the market being
bolstered by the significant barriers to entry that exist for
would-be Canadian cannabis producers.
Currently, cannabis production operations fall under the
jurisdiction of the Access to Cannabis for Medical Purposes
Regulations (ACMPR). Introduced in 2016 as a replacement for the
Marihuana for Medical Purposes Regulations, the ACMPR is
administered by Health Canada with the goal of licensing and
overseeing the commercial cannabis industry. Companies interested
in cultivating cannabis for the Canadian market are required to
undergo a complex, seven-stage permitting process under the ACMPR
that commonly takes more than a year to complete (http://nnw.fm/g71zA). As a result of this complexity,
the firms that successfully navigate the regulatory hurdles
associated with the ACMPR to become licensed cannabis producers
often achieve significant PPS increases in the wake of approval
(http://nnw.fm/jbu2A).
Navigating the Changing Tides
Choom Holdings,
Inc. (OTCQB: CHOOF) (CSE: CHOO) is one company that’s
strategically positioned to capitalize on this post-approval trend
in the near future. Choom currently has acquired two ACMPR
applicants and has agreements in place to acquire two additional
ACMPR applicants, fortified by its recent addition of
Saskatchewan-based High Way 10 and parent company Flower Power
Cannabis Pharms (http://nnw.fm/Xf26v). As the company noted in a news
release announcing the acquisition, High Way 10 is currently in the
active review stage of Health Canada’s rigorous application
process. Following the completion of select tenant improvements to
its existing 16,000-square-foot facility, Flower Power intends to
submit its affirmation of readiness (“AOR”) evidence package to
Health Canada, which could result in the receipt of a cannabis
cultivation license shortly thereafter. If approved, Choom
estimates that High Way 10’s current facility is capable of
producing approximately 1,500 kg of dried cannabis per year, with
plenty of room for future expansion.
Notably, Choom’s efforts to scale up its production capacity
ahead of the anticipated summer 2018 legalization of recreational
cannabis have spanned multiple provinces. On April 19, the company
announced its entry into a definitive agreement to acquire Island
Green Cure Ltd., an advanced-stage cannabis production license
applicant located in Vancouver Island, British Columbia (http://nnw.fm/5ZmQQ). Choom notes that Island Green
Cure is currently at the Confirmation of Readiness (“COR”) stage of
the ACMPR application process.
While Choom has remained committed to expanding its production
capacity in recent months, the company has also turned its
attention to the retail side of the nascent industry. Unlike
cultivation, which is regulated at the federal level, recreational
cannabis retail programs will be developed and enforced by
individual provinces. For this reason, Choom’s recent efforts to
diversify its geographic footprint into new jurisdictions,
including its entry into Saskatchewan through the High Way 10
acquisition, could prove to be fruitful.
The Future of Retail
Although the exact launch date of recreational cannabis in
Canada isn’t yet known, the future of the industry, at least from a
retail perspective, is currently being developed. Multiple
provinces across the country have already outlined details for
their retail programs. The Saskatchewan Liquor and Gaming Authority
(SGLA), for example, last month announced plans to commence issuing
retail permits. Timing could prove to be key for prospective
retailers in Saskatchewan. The SGLA has limited the number of
permits to 51 for the first three years in an effort to ensure a
controlled rollout (http://nnw.fm/BB5zT), and other provinces have
detailed similar restrictions. Choom has already made moves to
secure its portion of this retail landscape. In an April 17 news
release, the company noted that it has already secured nine retail
locations in Alberta and seven in British Columbia, as well as
submitting 32 applications for retail permits in Saskatchewan
(http://nnw.fm/oC8TP). The SGLA is expected to
award permits via lottery by June 2018.
Choom’s retail plans go beyond permits and regulatory filings.
In January, the company released a concept retail store design
(http://nnw.fm/n2N2a), and it intends to develop
a chain of branded dispensaries in jurisdictions across Canada.
Supporting these plans, Choom recently entered into a binding
agreement with ABcann Global Corporation (http://nnw.fm/X3eUt), one of Canada’s premier growers,
through which ABcann will supply Choom with premium cannabis
products, subject to regulatory approval. The company marked this
deal as a strong endorsement of its strategy and a pivotal step in
developing Choom as the premium retail brand in Canada’s burgeoning
recreational cannabis market.
Promising Market Trends
Diversification into both cultivation and retail operations
could prove to be a lucrative opportunity for Choom. Aurora
Cannabis, Inc. has established itself as an industry
heavyweight in recent years by leveraging a vigorous growth
strategy to rapidly expand its cultivation capacity. Following its
acquisition of 71 acres of land in Alberta, Aurora is on track to
yield in excess of 430,000 kg of cannabis per year at some point in
the future. Add on Aurora’s acquisition of Saskatchewan-based
CanniMed Therapeutics, which was noted as the ‘most expensive pot
buyout in history’, and it’s clear that an aggressive approach to
M&A is a key growth driver throughout the cannabis
industry.
Much like Choom, Aurora has also placed focus on addressing the
flourishing retail sector of Canada’s recreational cannabis market.
In February, the company announced its completion of a strategic
investment in Liquor Stores N.A. Ltd. aimed at establishing and
launching a leading brand of cannabis retail outlets. Through this
blended approach to cultivation and retail, Aurora has achieved
considerable PPS growth. The company’s Canada-listed shares rose
from C$3.08 in November 2017 to a high of C$14.79 by
mid-January.
Namaste Technologies Inc. is taking a similar
approach to growth through acquisitions, aiming to execute on a
vision of becoming an all-inclusive online cannabis marketplace.
Through wholly owned subsidiary Cannmart Inc., Namaste received an
ACMPR production license on March 19 (http://nnw.fm/g04sV), just under two months after the
company announced its reception of a Health Canada Confirmation of
Readiness (“COR”). Following news of Cannmart’s ACMPR approval,
Namaste’s Canadian shares rose to C$2.31, up from C$1.60 in late
February.
Prior to receiving ACMPR approval, Cannmart entered a definitive
supply agreement through which it committed to purchase, in 2018,
1,000 kg of medical cannabis from Supreme Cannabis Company,
Inc. subsidiary 7ACRES. John Fowler, CEO of Supreme, noted
the importance of supply agreements such as these in a news release
(http://nnw.fm/QPth6). “As a cultivation focused
Licensed Producer we rely on strong retail partners to provide us
access to consumers and favorable brand positioning,” Fowler
stated. Diverging from the integrated strategy of Choom Holdings,
Namaste, through Cannmart, is positioning itself as a “sales-only”
entity.
While many in the Canadian cannabis market look toward new
construction and acquisition for growth capacity, some industry
players are taking other approaches. Emerald Health
Therapeutics, Inc., for example, is partnering with
British Columbia-based Village Farms to increase production
capacity while simultaneously bolstering the margins of traditional
greenhouse farms (http://nnw.fm/sX9BP). This approach, utilizing
established agricultural producers to expand capacity, is typically
cheaper and faster than the construction of new facilities, as well
as providing the opportunity, in many cases, to work with
experienced growers and farm staff.
On the Clock
With the legalization of recreational cannabis in Canada
expected to occur in a matter of months, the future of what
Deloitte has forecast could be a $22.6 billion industry is already
taking shape (http://nnw.fm/1iYFF). Companies with the foresight to
position themselves in both the cultivation and retail markets
figure to benefit most from the rising tide of cannabis spending
throughout Canada. With that in mind, it should come as no surprise
that industry upstarts like Choom Holdings, with its four
late-stage licensed producer applicants and detailed retail
strategy, are urging the investment community to ‘Say Hello’ to the
next big thing (http://nnw.fm/H6AnE).
For more information on Choom Holdings, Inc., please visit
Choom Holdings,
Inc. (OTCQB: CHOOF) (CSE: CHOO).
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