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Canadian cannabis stocks have been surging higher after Constellation Brands (STZ) announced a $4 billion investment in leading global cannabis producer Canopy Growth Corp. (WEED.TO) (CGC).
The investment has been a major catalyst for the cannabis sector and stocks have been steadily trending higher. There are a number of potential catalysts for the sector and we expect to see more investments from companies like Constellation Brands in the near future.
On October 17th, Canada’s recreational cannabis market will open and this represents a major catalyst for companies levered to this market. One of the companies that is positioned to benefit from this new market is Choom Holdings (CHOO.CN) (CHOOF).
Choom represents a differentiated opportunity that has massive growth potential due to the leverage to the cultivation and retail market in Canada. The Canadian cannabis company also has a strategic partner and investor in Aurora Cannabis (ACB.TO) (ACBFF) and this is an exciting aspect of the story.
During the last year, we have seen several companies commence trading on the TSX, the TSX Venture, and the Canadian Stock Exchange. This is a trend that we expect to continue, and it is important for investors to focus on companies that represent legitimate growth opportunities. Choom is led by a management team with a proven track record of success and this is a very important aspect of the long-term story.
The opening of the recreational market will be a major catalyst for Choom as the company has secured the right to open retail locations in several provinces in Canada. This is a major part of the Choom growth story and we expect this to be a major value drive in 2019 and beyond. The leverage to this market provides Choom with a unique advantage when it comes to distribution and we think Aurora made a strategic investment in this company.
Aurora has attractive leverage the global cannabis market and Chooms seems like it would be a complementary asset. There are significant synergies that can be recognized with the businesses and we wouldn’t be surprised if Aurora ended up acquiring the company. Aurora already owns approx. 7% of Choom and we will keep an eye on this.
An Emerging Growth Opportunity
From production to retail, Choom is levered to several high-growth verticals of the Canadian marijuana market. The company owns two late-stage ACMPR applicants and has entered agreements to acquire two additional late-stage ACMPR applicants. On top of this, Choom has applied to open retail distribution outlets in several provinces and view this as an attractive aspect of the story and a major differentiator for the company.
The company has been successful in its mission to create a coast-to-coast presence in Canada and we are monitoring how the team continues to execute. With the province of Ontario being opened up to private retailers, Choom is well positioned to capitalize on the largest market in Canada.
Going forward, the name of the game is execution and we are favorable on Choom’s ability to create value for shareholders. We expect to see several announcements ahead of the opening of the recreational market and will be monitoring this opportunity.
An Undervalued Opportunity
Choom has been trending higher and has come well of its mid-August lows. We consider Choom to be an undervalued opportunity and are favorable on Choom due to the attractive operating structure, the continued execution, the management team, the growth opportunities, and the valuation.
As the recreational retail opportunity proves to be more significant, Choom’s valuation will improve, and the shares have been flying under the radar. The relationship with Aurora is a significant value driver and Choom is in the early innings of a major growth cycle.
Choom has been focused on securing retail assets, strategic partners and investment, supply agreements, and is looking to develop and acquire strategic license and production assets that will allow Choom to scale-up rapidly to meet the anticipated demand from the recreational market. This is a company that has massive potential, and this is a stock that investors need to be monitoring.
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