Early Regulations are Shaping the Future of Canadian Cannabis

NetworkNewsWire Editorial Coverage: North American cannabis markets have achieved tremendous growth in recent years, and that trend shows no sign of slowing down. Cannabis research firm ArcView has called for an annualized growth rate of 26 percent through 2021, as the burgeoning industry benefits from growing popular support and regulatory changes. Perhaps the most notable of these pending amendments is Canada’s planned nationwide legalization of recreational cannabis. Canadian Health Minister Ginette Peitipas Taylor has stoked optimism regarding an August or September 2018 official launch date for recreational cannabis across Canada. Choom Holdings, Inc. (OTCQB: CHOOF) (CSE: CHOO) (CHOOF Profile), with its growing portfolio of four late-stage licensed producer applicants, is primed to pounce on this new market opportunity. Through an aggressive acquisition strategy and strong commitment to developing national retail distribution,  Choom has quickly positioned itself as a major player among other North American cannabis industry mainstays like Cronos Group, Inc. (TSX: CRON) (NASDAQ: CRON), Canopy Growth Corporation (TSX: WEED) (OTC: TWMJF), Aphria, Inc. (TSX: APH) (OTCQB: APHQF) and Hiku Brands Company, Ltd. (CSE: HIKU) (OTC: DJACF) (DJACF Profile).

An Evolving Regulatory Landscape

Canada’s quest to become the first G7 nation to legalize recreational marijuana comes with a number of logistical and regulatory challenges (http://nnw.fm/zfk3U).  Two of the most prominent in the nascent industry have related to licensing, both for growers and retailers. Canadian cultivators are currently subject to the Access to Cannabis for Medical Purposes Regulations (ACMPR). Implemented in 2016, the ACMPR places the administration of Canada’s cannabis cultivation industry in the hands of Health Canada, the federal department tasked with responsibility for national public health. Currently, only producers who are licensed under the ACMPR may sell or provide dried marijuana, fresh marijuana, cannabis oil or starting materials. With the number of licensed producers limited on a provincial basis, ACMPR approval marks a significant milestone in the development of all Canadian cannabis producers.

Licensing for the sale of recreational cannabis, on the other hand, has been tasked to individual provinces. With full-scale legalization rapidly approaching, multiple provinces have already begun awarding licenses for the sale of recreational cannabis, including Manitoba and Saskatchewan (http://nnw.fm/axi7A). Much like ACMPR approval has proven to be a ‘make or break’ retail license achievement for cannabis firms. Companies that successfully position themselves to secure these early retail permits figure to have a key strategic advantage in the supply and sale of products directly to consumers through retail outlets.

Riding the Wave

The Choom Holdings, Inc. (OTCQB: CHOOF) (CSE: CHOO) team is well accustomed to navigating the tides of change on its way to fields of green. The company prides itself on its ability to channel the laid-back spirit of Hawaii without missing out on the opportunities presented by the changing marijuana markets of North America. In total, the company Choom™ has acquired two ACMPR applicants and has agreements in place to acquire two additional ACMPR applicants, including its most recent addition (http://nnw.fm/1KMa3), Saskatchewan-based High Way 10 and parent company Flower Power Cannabis Pharms.

The High Way 10 acquisition could mark a tremendous leap forward for Choom and its shareholders. In a news release announcing the acquisition, Choom noted that High Way 10’s initial 17,000 square foot facility is located on a 120-acre parcel of land, providing ample room for future expansion. As it stands, the facility is estimated to produce approximately 1,500 kg of dried cannabis per annum. According to Chris Bogart, president and CEO of Choom, “Upon completion of the retrofitting and compliance within the initial 17,000 sq. ft. building, Flower Power intends to submit its affirmation of readiness (“AOR”) evidence package to Health Canada, which they hope will follow with the receipt of a cultivation license shortly thereafter.”

While the company’s portfolio also includes three late-stage licensed producer applicants based in British Columbia — bolstered by its entry into a definitive agreement to acquire Island Green Cure that was announced on April 19 (http://nnw.fm/rl1V7) — High Way 10’s presence in Saskatchewan immediately diversifies Choom’s national presence at an important time. As previously noted, the Saskatchewan Liquor and Gaming Authority (SGLA) last month announced that the province would commence issuing retail permits. Because the SGLA has limited (http://nnw.fm/3CdnK)  the number of retail permits to 51 for the first three years to ensure a controlled rollout, time of filing could play a major role in establishing the landscape of the local industry in coming years. In an April 17, 2018, news release, Choom provided (http://nnw.fm/F91gh)  a retail overview, noting that it has secured nine retail locations in Alberta and seven in British Columbia, in addition to submitting 32 applications for retail permits in Saskatchewan.

“We have now established a footprint to position Choom™ as a leading private cannabis retailer in Western Canada,” Bogart noted in a recent news release. “We will continue to pursue retail licensing opportunities across the country and remain committed to serving all Canadians in the coming consumer cannabis market. Choom’s vision of delivering an elevated customer experience through our curated retail environments, with the creation of modern, stylish storefronts is well underway.”

The Financial Impact of Regulation

As Choom enters the final phases of Health Canada’s ACMPR permitting procedure, a complex seven-stage process (http://nnw.fm/Tc5J0)  that commonly takes more than a year to complete, it could be in line for considerable financial growth. Cronos Group, Inc., operating as PharmaCan Capital Corp., acquired ACMPR licensed producer Peace Naturals Project Inc. in 2016, establishing itself as the first Canadian company to own and operate licensed producers in both Ontario and British Columbia. In January 2018, Cronos announced that Peace Naturals had obtained a dealer’s license pursuant to the Controlled Drugs and Substances Act under Health Canada, enabling the company to export medical cannabis extracts, including concentrated oil and resin products, internationally. In the weeks that followed, Cronos became the first cannabis stock to list on the Nasdaq Global Market. Its U.S.-listed shares spiked from $3.31 in early December 2017 to a 52-week high of $9.40 in early March.

Share price increases related to key industry licensing and certification go well beyond Cronos to include many of the Canadian cannabis industry’s most recognizable names. Canopy Growth Corporation, a leading diversified cannabis company boasting collaborations with cannabis icon Snoop Dogg, breeding legends DNA Genetics and Green House seeds and Fortune 500 alcohol leader Constellation Brands, announced (http://nnw.fm/nMk5X) in early February that it had been conditionally selected by the Government of Manitoba to operate cannabis retail stores in the province. Since that announcement, Canopy’s Canadian stock has rallied from C$26.50 in mid-February to a high of C$33.41 in mid-March. Canopy’s Manitoba selection marks the second provincial retail agreement for the company, echoing the geographically diversified strategy currently being implemented by Choom Holdings.

Aphria, Inc. is another Canadian cannabis industry mainstay with an eye on geographical diversification as nationwide recreational legalization looms. In late January, Aphria announced (http://nnw.fm/5J0wR)  its entry into an $826 million deal to acquire NuuverA, Inc., further demonstrating the fiscal value of Canada’s vaunted licensed producer status. In August 2017, Nuuvera and Aphria entered a global strategic partnership initially focused on the Canadian market. In January of this year, the two firms announced a new offtake agreement for an additional 60,000 kg of cannabis production. In the days following that announcement, Aphria’s Canada-listed shares built on recent achievements to reach a high of $C22.08, up from C$6.50 in October 2017.

Following this industry-wide trend, recreational and medical cannabis company Hiku Brands Company, Ltd. saw its Canadian shares climb to C$3.02 in mid-February following news that it was conditionally awarded (http://nnw.fm/Br06p)  one of four master retail licenses in Manitoba’s highly competitive request for proposal process for the right to operate retail cannabis stores. This PPS was the highest achieved by Hiku since shortly after the close of the late-January merger between DOJA Cannabis Company Limited and TS Brandco Holdings Inc. that resulted in the newly-combined company, again reiterating the positive market reaction that has traditionally been associated with regulatory milestones in the competitive Canadian marijuana market.

A Burgeoning Market Opportunity

With a clear track record of PPS growth related to approvals from both Health Canada’s ACMPR licensed producer program and provincial retail opportunities, the nation’s impending legalization of recreational cannabis could present tremendous upside for investors with the foresight to capitalize on market trends. All told, cannabis industry tides are high, and, as Choom’s website proudly outlines, it’s a great time to ‘Say Hello to Opportunity’ (http://nnw.fm/5KfMw).

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

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