Preparation Continues for Expanding Legalized Cannabis Market in Canada
NetworkNewsWire Editorial Coverage
The proposed legalization of recreational cannabis this year is expected to mean huge growth in the Canadian cannabis sector, and companies are preparing to make the most of it. Choom Holdings, Inc. (CSE: CHOO) (OTC: CHOOF) (CHOOF Profile) is creating a premium lifestyle brand backed by an integrated supply chain, while Hiku Brands Co. Ltd. (CSE: HIKU) (OTC: DJACF) (DJACF Profile) is applying for the final license to sell its handcrafted cannabis flower. Medical marijuana producer Canopy Growth Corp. (TSX: WEED) (OTC: TWMJF) has obtained outside funding to explore the potential of cannabis-infused soft drinks, and Aphria, Inc. (TSX: APH) (OTC: APHQF) is using a strategy of collaboration and targeted investment to boost its cannabis production resources. For consumers concerned about the quality of their smokes, ABcann Global (TSX-V: ABCN) (OTC: ABCCF) (ABCCF Profile) is using a specially developed technique to ensure a consistently high-grade, premium organic cannabis.
The imminent legalization of recreational cannabis in Canada is expected to lead to a huge boom in the broader cannabis industry. Even without recreational legalization, around 5 million Canadians consumed marijuana in 2017. According to Statistics Canada, 90 percent of the nearly $6 billion was spent for illegal, nonmedical purposes-suggesting that when the law changes, even more Canadians will give it a go. Canadians spend nearly as much on cannabis as on wine, and when recreational cannabis use gets the green light, those profits are expected to shift from criminal gangs and street dealers to businesses and high street vendors. The potential for profit is huge, with recreational cannabis forecast to quickly outpace the medical market.
The activities of cultivators taking steps to expand their production capabilities indicate faith in the massive consumer demand for retail cannabis. While the medical market established the roots of Canada's cannabis industry, first-comer recreational brands have a chance to take dominant places in this newly emerging sector.
A Relaxing Brand for a Relaxing Industry
For many consumers, the appeal of cannabis is its relaxing properties. This is the angle that Choom Holdings (CSE: CHOO) (OTCQB: CHOOF) is targeting with its carefully crafted recreational cannabis brand.
Though based in British Columbia, Choom has built its brand around a very different part of the Americas. By evoking the spirit of Hawaii, the company aims to tap into the ethos of surf, sand and chilled times for which the island is known. In fact, the organization's name is drawn from the slang of 1970s Hawaii and the story of a group of friends who loved to smoke weed-or "choom."
That youthful appeal is part of Choom's branding with deliberate imagery designed to attract consumers with a relaxed and laidback vibe. Recreational cannabis companies, like any company focused on recreational products, will need to tap into the disposable incomes of 20-somethings as both tastemakers and a source of profit. This approach may help the brand lay claim on a solid chunk of an expected $6 billion market.
Big Ambitions for a Big Market
Choom is going big on investment in the recreational cannabis market, and it's easy to see why. As cited by the Financial Post, Canaccord Genuity forecasts that there will be an estimated 3.8 million recreational and 500,000 medical cannabis users in Canada by 2021. That's more than eight times as many users as exist in the current already profitable and purely medical market.
This growth is predicted to create an industry significantly larger than the $5 billion industry in spirits and almost as large as the $7 billion wine industry. Choom's aim is to become a leading retailer within that industry. The company's early start, which includes years of planning and preparing branding, facilities and business strategy, could put it in a strong position to reach that goal.
Choom's tactic is to position itself as a purely recreational brand with a line of premium products. It will be a fully integrated company positioned to scale up as needed. As part of this, it intends to develop and acquire positions, brands and products focused specifically on this market. This approach provides contrast with competitors emerging from the medical market.
Building a Strong Production Base
License and production assets are a critical part of this strategy, allowing Choom to quickly grow in line with the market.
The company recently announced a definitive agreement to acquire Specialty Medijuana Products, Inc., which has submitted its evidence package as part of the Affirmation of Readiness to Health Canada. Upon successful review of this final stage, the company may expect to receive an ACMPR license to cultivate cannabis, which could be a significant value inflection point for the company.
This makes for a total of three ACMPR applicants to Choom's already dynamic strategy.
The company continues to develop its two other facilities for cultivation, which will also provide the company with the potential to expand to meet market needs.
The first facility, located in Vernon, B.C., has 6,800 square feet of space. When working at full capacity, this facility is anticipated to produce revenue reaching $6.6 million, excluding income from oils. A second phase of building, slated for completion by the end of 2018, could increase this potential to $15 million.
A facility at Chemainus on Vancouver Island provides a second source of cannabis. With 4,500 square feet of space, this location is expected to provide revenue up to $4.5 million, not counting oils. Like the Vernon facility, it is undergoing a refit and should be ready for production for legalization in 2018; a second phase of building is planned for completion by early next year. This expansion could increase this facility's potential revenue to $9 million.
Product and Placement
One of the pillars of Choom's strategy is ensuring that it has the right product and position to sell to its specific market. To this end, the company has been working on its retail program to put Choom-branded stores onto Canadian streets.
The look of the stores is cool and stylish in keeping with Choom's modern, young brand. Its custom-designed retail environment combines wood paneling with clean, white shelving and sofas where customers can relax to bring the Choom brand to life. Fitting with the aesthetic of popular modern brands, the stores will create a comfortable, familiar space for customers. The stores will also allow Choom to appeal to both existing cannabis users as well as those curious to try the product once it becomes legal.
With a complete and carefully branded supply chain that runs from cultivation to retail, Choom has laid the foundation for its goal to be a leader in the recreational-use cannabis industry.
Several other companies are also set to make the most of legalization through consumer brands and expansion strategies.
Hiku Brands (CSE: HIKU) (OTC: DJACF) is another cannabis lifestyle brand, with a focus on premium products in the form of its high-quality handcrafted cannabis flower. Hiku has a wholly owned subsidiary licensed to produce cannabis, which has requested a Pre-Sales License Inspection - the last step before licensing to sell cannabis under the ACMPR. Hiku recently closed on a $10 million strategic equity investment from Aphria (TSX: APH) (OTCQB: APHQF) to expand its product offering ahead of the recreational market.
As an established Canadian cultivator with a background in medical marijuana, Aphria continues to increase its production capabilities for the American cannabis market. The company recently received a license amendment under the ACMPR from Health Canada that will more than triple the company's production capacity of medical cannabis from 9,000 kg annually to 30,000 kg annually.
Canopy Growth's (TSX: WEED) (OTC: TWMJF) experience in developing and cultivating cannabis strains has set it up to produce for the newly expanding market. The company recently received a financial boost through a $191 million investment by Constellation Brands. This money from the company behind Corona, Modelo and Svedka will provide the money needed to develop cannabis-infused drinks, bringing the markets of the two companies together. This investment from a major player in the drinks industry shows the faith being placed in Canada's recreational cannabis sector.
ABcann Global (TSX-V: ABCN) (OTCQB: ABCCF) is a cultivator of premium quality organic cannabis. Its ABcann Advantage technique is a best-in-class standardized approach to growing cannabis that uses computer monitoring and the omission of pesticides to minimize the risks of variance in its yields and ensure a consistently high-quality product. This has led to a 4.7 percent customer retention rate and 30 percent month-over-month customer growth.
The Canadian recreational cannabis industry is heading to the starting line with a strong pack of recreational brands and cultivators geared up to meet rising product demand. And as the sector grows, these companies could take a substantial share of a market worth billions.