Canadian Cannabis Producers Pivot toward Small Consumer Brands
With the legalization of recreational cannabis on the horizon, Canadian growers are preparing for an expanded market. Once limited to growing and selling cannabis for medical purposes, licensed producers now face the challenge of reaching out to a larger market. Appealing to patients and to recreational consumers involves very different approaches, and these companies are exploring various means to reach this new market.
The approach many are taking is to invest in or sign supply agreements with consumer brands. Smaller brands with strong, targeted strategies have the skills and the opportunity to appeal to recreational consumers in a way that the larger medical brands don’t. Typically, these companies have never been able to rely on mass advertising and thus are oriented to reaching consumers in other ways. Because the new legislation will not allow companies to advertise cannabis where children might see it, big-budget advertising is ruled out from the start. Consequently, the skills of these smaller companies will be vital.
Focused Brands for Focused Marketing
One of the brands providing these skills to larger companies is Choom Holdings (CSE: CHOO) (OTCQB: CHOOF). Though based in Canada, Choom™ has built a brand around the surf culture of Hawaii. The island’s association with sun, surf and relaxation makes it a perfect symbol for a recreational cannabis brand. By drawing on the story of a fun-loving group of young people living on the island in the 1970s that coined the slang Choom™, the brand has created a sense of history while remaining fresh and youthful in its style.
The Choom™ brand savvy extends to the design for its retail stores. With its clean white lines, wood paneling and cozy sofas, the store design combines features of an Apple store with those of a surf shack, creating an atmosphere that evokes hip modern brands as well as a chill Hawaiian atmosphere. It’s an approach that should make the stores appealing to both existing cannabis users as well as those who are curious to give the product a try once it becomes legal.
The company is more than just a branding front. Choom™ has two existing growing facilities, both of which are being prepared for legalization, have enough space to grow potentially $11 million worth of cannabis a year. The company has plans to expand these sites, increasing the flow of product into its integrated supply chain.
Investment Opportunity
Unsurprisingly, this company has drawn attention from existing cannabis growers looking to expand into the recreational sector. ABcann Global Inc. (TSX.V: ABCN) (OTCQB: ABCCF) recently invested $4 million in Choom™, as well as entered into a supply agreement with the company (http://nnw.fm/wMM1w).
Over the past five years, ABcann has become an established player in the Canadian medical cannabis market. Relying on its ABcann Advantage technique and its 14,500-square-foot growing facility, the company has produced premium quality organic cannabis for medical customers. It has also established a healthy cash balance with which to expand into the recreational market. One of the first steps in that process is the investment in Choom™.
“ABcann remains committed to becoming a global leader. With our strategic investment in Choom™, we are signaling a strong move into the recreational market with one of the premium recreation brands in Canada,” stated Barry Fishman, CEO of ABcann Global. “With our strong cash position of approximately $135m, ABcann will pursue investments like Choom™ and other accretive opportunities to strengthen the company’s fully integrated approach. We look forward to working with and assisting the Choom team with the supply of our premium grown products.”
Big Support for a Small Company
The involvement of ABcann brings two significant advantages for Choom™: cash for growth and an established cannabis supply to get its retail business started.
One of the biggest challenges for recreational cannabis companies will be building customer loyalty, and the agreement with ABcann allows Choom to hit the ground running. The company won’t need to have a large supply of cannabis grown specifically for the recreational market because it can draw on the supplies ABcann is growing under its medical license. Choom will be able to provide customers with what they want from day one, allowing the company to establish a strong foothold in the market. From there, Choom can build its profile and customer loyalty.
“This supply agreement demonstrates our commitment to becoming one of Canada’s leading retailers in the cannabis space,” states Chris Bogart, president and CEO of Choom. “ABcann allows us to rapidly expand our SKU base in the rollout of our retail store strategy. As we expand our efforts on strengthening our retail platform and brand position, a partnership with one of the market leaders in quality and production will be of great value to our organization. The investment and supply agreement with ABcann is a strong endorsement of our strategy and a pivotal step in developing Choom as the premium brand in Canada’s recreational market.”
While the supply agreement will help Choom become a frontrunner in the first months of Canada’s recreational cannabis market, the investment from ABcann will make the long-term difference. With that funding, Choom can establish retail outlets across Canada, ensuring its place as one of the first nationally recognized recreational cannabis brands. The company will also have the resources to begin planned expansion of its production facilities. This expansion phase could raise Choom™ cannabis production from just over $11 million worth of cannabis per year to $24 million worth, doubling in-house supply by early 2019.
New Deals across the Cannabis Market
Similar deals are being established across the Canadian cannabis industry.
Aurora (TXS: ACB) (OTCQX: ACBFF) has entered into several significant agreements. It will be supplying cannabis to Shoppers Drug Mart, Canada’s largest pharmacy retailer, which will put Aurora’s product in front of more medical customers. It has also invested in Liquor Stores N.A. Ltd. Liquor Stores will use this funding to launch a brand of cannabis retail outlets, converting some of its existing stores to the new brand. This will provide a well-supported outlet for Aurora to enter the recreational market, even as it bolsters its medical business.
OrganiGram (TSX-V: OGI) (OTCQB: OGRMF), a company specializing in high-quality cannabis production, has established an agreement with TGS Colorado, a seed-to-sale conglomerate with some of the best technological expertise in extract technology. This will give Organigram exclusive Canadian access to a range of best-in-class technologies, products and designs. Combined with the company’s recent license to expand its growing capacity, partnership will give Organigram solid leverage in the new market.
For some companies, this preparation is about internal expansion as well as outside deals.
Hydropothecary (TSX.V: THCX) recently announced the addition of three experienced specialists to its management team; these leaders will cover finance, sales and general counsel. Coming hot on the heels of a deal with the Société des alcools du Québec, this move gives Hydropotherapy the leadership it needs to make the most of its agreements and expand into the recreational sector.
Supreme Cannabis (TSX.V: FIRE) (OTC: SPRWF) is focused on developing its 7ACRES subsidiary into a leading cultivator of premium cannabis flower, with an eye to both the medical and the recreational market. It has also invested $3 million in BlissCo, a company close to completing its application for a cannabis growing license. As with Choom™, this will position Supreme Cannabis to provide a substantial supply when the recreational market becomes legal.
Recreational legalization will create great opportunities for Canadian cannabis companies. Investments by large companies in smaller ones, such as Choom™, put both sides in a strong position to seize that moment.
For more information on Choom™, please visit Choom Holdings (CSE: CHOO) (OTCQB: CHOOF).
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