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Is Choom The Next Adult Use Market Acquisition Target?

Jul 31, 2018 • 10:53 AM EDT
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3 MIN READ  •  By Michael Berger
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In less than 90 days, Canada’s recreational marijuana market will open and this represents a very exciting opportunity for companies as well as investors.

Shortly after Canada’s Senate passed legislation to legalize recreational marijuana, Canopy Growth (WEED.TO) (CGC) announced that it would acquire Hiku Brands (HIKU.CN) (DJACF) for approx. $300 million. Hiku Brands is focused on the retail market and plans to open recreational marijuana retail outlets across Canada.

Canopy’s acquisition of Hiku was further evidence that the retail opportunity is going to be significant and today, we want to highlight a company that we expect to follow a path that is similar to Hiku, Choom Holdings (CHOO.CN) (CHOOF).

Last month, Choom secured an investment from Aurora Cannabis (ACB.TO) (ACBFF), a leading Canadian marijuana producer that provides Choom with significant assets and expertise. This was a significant investment and the market responded very favorably to it. We would not be surprised if Aurora or another larger LP in Canada looking for a strong retail strategy will make a play to acquire the entire company,  and we will monitor how the market continues to evolve towards retail.

A Multi-Faceted Growth Opportunity

From production to retail, Choom is levered to several high-growth verticals of the Canadian marijuana market. The company acquired three late-stage ACMPR applicants and has entered agreements to acquire one additional late-stage ACMPR applicant. 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.

Choom is focused on Canada’s recreational marijuana market as it offers high growth potential and an opportunity to build premium brands high margin brands. Earlier this month, we heard rumors pertaining to Ontario’s plan for the recreational marijuana market. We heard that the province is considering a plan that will allow for private retailers to sell recreational marijuana.

This would be a major catalyst for Choom as it would open up the largest province to them. Based on the company’s track record, we would expect to see them have success in Ontario and will monitor this opportunity. If Choom is able to create a footprint in Ontario, it would become a major value driver for the company and this is something to watch.

Attractively Positioned For Success

Choom is attractively positioned within the Canadian cannabis industry and we are monitoring how the team continues to execute. Choom is led by a management team with a proven track record of success and has made some significant additions to the team over the last month. We are excited by the recent additions and this is a very important aspect of the story.

The name of the game for Choom is execution and we are favorable on the ability to create value for shareholders. The investment from Aurora was a gamechanger and is something to watch. Over the next month, we expect Choom to make some significant announcements as the company continues to execute and we are monitoring the shares closely.

An Undervalued Opportunity

Although Choom has continued to execute, the shares have come off their highs and we view this an undervalued opportunity. We are favorable on Choom due to the attractive operating structure, the continued execution, the management team, the growth opportunities, and the valuation.

Over the next few months, we wouldn’t be surprised if Choom was acquired by Aurora or other larger cannabis operation and are monitoring the market. As the recreational retail opportunity proves to be more significant, Choom’s valuation will improve and view this company now as an undervalued opportunity. Choom is in the early innings of a major growth cycle and we are bullish on the potential levers for growth.

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. We are bullish on this opportunity and investors should be watching this one!

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners, LLC and Founder of Mushroomstocks.com. Prior to entering the cannabis industry, Michael was an Equity Research Analyst at Raymond James Financial covering the Energy Sector. Michael has been featured in publications such as The Street, Bloomberg, US Money News, and hosts various cannabis events across North America.

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