Acquisitions and Growth Expand in Canadian Cannabis Market

NEW YORK, March 8, 2018 /PRNewswire/ --

CannabisNewsWire Editorial Coverage: 

The first wave of companies to enter the Canadian cannabis industry were grounded in medical marijuana, which was legalized in 2001. As the country prepares for legalized adult recreational-use this summer, new recreational brands are joining the scene, and many companies rooted in medicinal cannabis are taking action to participate in this second wave of the Canadian market. With its strong branding and modern store design, Choom Holdings, Inc. (CSE: CHOO) (OTC: CHOOF) (CHOOF Profile) is branded to appeal to the Canadian adult consumer ready to experience the cannabis lifestyle. Aurora Cannabis, Inc. (TSX: APH) (OTC: APHQF) is making strategic investments to establish footing in the recreational sector, while OrganiGram Holdings, Inc (TSX-V: OGI) (OTC: OGRMF) is taking measures to increase its production capacity ahead of a surge in product demand. Supreme Cannabis Company, Inc (TSX-V: FIRE) (OTC: SPRWF) has entered into multimillion-dollar agreements to supply cannabis to retail-oriented companies, and in Quebec, Hydropothecary Corp. (TSX-V: THCX) is expanding its greenhouse capacity to potentially increase its cannabis production to 30x its current volume.

Highs Coming for Canadian Cannabis

As established companies get serious about brand expansion, supply agreements, and potential retail revenues, investments within Canada's cannabis sector are soaring. The industry saw $1.2 billion investments in January alone - a 600 percent increase over the previous year - setting an incredible pace for continued growth. Currently, the State of California is the largest legal cannabis market in the world. With a population nearly as large as California's and an influx of cannabis capital, Canada is on track to potentially become one of the world's largest recreational-use markets. The country's combined medicinal and recreational market size is expected to reach $6 billion by the year 2021, surpassing the value of its whiskey and spirits industry.

While the Canadian cannabis industry has found impressive success with medicinal marijuana in recent years, a different approach will be needed to target recreational consumers. Cannabis producers that recognize this tremendous potential are pursuing investments in recreational brands that appeal to the retail market. One of Canada's most recognizable cannabis producers, Aphria, Inc. (TSX: APH) (OTCQB: APHQF), recently shelled out $230 million to acquire recreational brand Broken Coast - one of many M&A deals within the burgeoning industry.

A Relaxed Brand for a Relaxing Product

One of the new companies looking to stake a claim in the recreational market is Choom Holdings, Inc. (CSE: CHOO) (OTCQB: CHOOF). Choom is based in British Columbia, though its hip, modern brand has been designed around the tropical, relaxed ambiance of Hawaii. The company's name, "Choom", and style invoke Hawaiian culture, in particular easy days on the beach and in the countryside enjoying a casual atmosphere that connects with relaxation, which fittingly is one of the main appeals of cannabis. The company's name, Choom, which means "to smoke marijuana" - comes from a slang word used by a fun-loving group of friends (including former U.S. President Barack Obama) who grew up together in Hawaii during the 1970s.

This relaxed, friendly and informal approach to selling cannabis is designed to tap into a younger market with socially liberal values and disposal income to spare, and differs radically from the marketing focus of medical marijuana companies. The look and feel more closely resembles a food or alcoholic beverage brand, evoking warm feelings instead of healing/medicinal properties, which are the focus of established brands. In short, it's exactly the sort of approach the recreational cannabis industry will need.

Moving forward, the advantage in the legal cannabis sector seems likely to go to companies such as Choom, which are able to innovate with their branding, creating appealing lifestyle choices. Strict limitations on advertising cannabis will prevent the big medical marijuana players from using their financial clout to dominate the market through saturation advertising, which will create a space for young brands such Choom to grow via agile, modern techniques where traditional approaches aren't an option.

From Seed to Sale

Choom appears to have another market advantage with its vertical integration. The business has a seed-to-sale model that covers the whole cannabis pipeline, from growing and processing the plants to selling the final product in its own stores. This control over the entire business process allows the company to maximize efficiencies and ensure integration along the supply chain.

This advantage starts in the growing facilities, where Choom will fully oversee the growth of carefully crafted strains of cannabis. Existing facilities are planned for Vernon and Chemainus, Canada, to ensure that the company is prepared for the market as soon as possible. Choom is refitting both facilities, a process scheduled to be complete by July, with more than 13,000 square feet of growing space in planning.

Choom has announced a clear plan for its move into this market. With the Canadian cannabis market expected to see dramatic growth in early stages, the company has capacity to expand as needed. A second phase of expansion is in place for both facilities, which will significantly increase the growing space and allow for doubling crop yields by early 2019.

At the sale end of this supply chain are Choom's dispensaries, which are designed with a clean, stylish, and modern feel, much like a more relaxed version of an Apple store, a favorite of millennials and those with disposable income. These stores have been envisioned to appeal to two different but important market sectors. One is existing cannabis users, who will be looking for more convenient ways to buy their product once the law changes. The other is the group of "curious customers," who weren't willing to use cannabis while it was illegal but are interested in trying it now. Choom's relaxing retail space is designed to draw in customers from both sides, quickly building up a strong high street brand.

Preparing for Change

To power further growth, the company also recently completed a financing initiative, exceeding expectations and raising CAD $2.7 million (http://cnw.fm/AkT9x). The funds are being invested in advancing the company's development strategy, as well as for growth and acquisitions.

Having recently released the retail design for its dispensaries (http://cnw.fm/DIl3r), Choom is readying those facilities ready for legalization as well. And with the official launch of its retail program, the company has created the opportunity to develop a chain of branded cannabis dispensaries across Canada (http://cnw.fm/jqn8I).  

"Choom is using design and retail strategies that have worked successfully at some of the most profitable storefronts in the country. We are telling our Choom story with our stores and will elevate the concept of a high-quality product though our new retail environments, and we're inviting others to join us," Choom president and CEO Chris Bogart stated in the press release.

As the legal cannabis market prepares to open in Canada, Choom appears to have all the pieces in place to create a national premium recreation brand.

A Sector in Waiting

As the creation of Canada's legal recreational cannabis sector approaches, other companies are also preparing for the change.

One of Canada's biggest cannabis producers, Aurora Cannabis (TSX: APH) (OTCQB: APHQF), is investing in a range of related companies to set itself up for expansion into the recreational sector. The Vancouver-based organization has invested in The Green Organic Dutchman, a company that produces farm grown, organic, pesticide-free medical cannabis in small batches using all natural, organic craft growing principles. It has also teamed up with Liquor Stores NA Ltd. to convert existing retail outlets into cannabis retail stores.

Another licensed producer of medical marijuana, OrganiGram Holdings (TSX-V: OGI) (OTCQB: OGRMF), recently received an expanded cultivation license from Health Canada, enabling the company to move forward with its expansion strategy that would increase current capacity from approximately 5,200 kg/year to an estimated 16,000 kg/year. Its longer-term plan is to increase production to 65,000 kg/year over the next two years.

Supreme Cannabis Company (TSX-V: FIRE) (OTC: SPRWF) has made its mission to grow sustainable cannabis companies to cater to the growing recreational market. To this end, it has invested in late-stage ACMPR applicant company BlissCo, and has agreed to provide cannabis to that company through its 7ACRES subsidiary. 7ACRES will also supply cannabis to Namaste subsidiary, Cannmart.

Quebec-based Hydropothecary (TSX-V: THCX) has signed a letter of intent with Société des alcools du Québec (SAQ) to supply 20,000 kg of cannabis to Quebec's recreational cannabis market in its first year of operation. This recent announcement follows news in December that the company added 78 acres of land adjacent to its existing 65-acre facility, and that it is working on a 1 million-square-foot greenhouse designed to increase its production to 108,000 kg per year, 30 times the current capacity.

Based on all forecasts, Canada's cannabis market is set for significant expansion in 2018. New actors and existing medical companies alike are preparing to seize this opportunity through production, distribution, and retail growth. With a clearly defined growth strategy, Choom Holdings is demonstrating its intention to rapidly become a recognizable national brand.

For more information on Choom Holdings, please visit Choom Holdings, Inc. (CSE: CHOO) (OTCQB: CHOOF).

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