Aldershot Resources Ltd.’s (TSXV:ALZ) transformation into cannabis retailer Solo Growth could work primarily based on its core focus on Alberta and its partnership with Solo Liquor Stores
SmallCapPower | July 17, 2018: Aldershot Resources Ltd. (TSXV:ALZ), which was formerly involved in the acquisition and exploration of resource properties, including an interest in the Gowganda Gold Project in Ontario, has announced its intent to enter the Canadian cannabis sector.
Investment Thesis
- Transition to Solo Growth Corp.
Transition to Solo Growth Corp.
On June 12, 2018, Aldershot Resources announced its intention to move into the cannabis sector in Canada under the name Solo Growth Corp. The Company entered into an administrative services agreement with Canada’s largest private liquor retailer, Solo Liquor Stores Ltd. In conjunction, Aldershot Resources completed a $25.6 million private placement, which included an investment of $4.4 million by Canopy Rivers Corporation and Green Acre Capital. In addition, Aldershot formed an advisory committee comprising of nominees of Canopy Rivers and Green Acre, as well as appointed a new management team, and board of directors.
The new management team aims to use the net proceeds from the private placement to set up and launch a leading retail cannabis business in Western Canada. The new team will leverage on its collective experience in the following: controlled substance retail market; understanding of consumer purchasing habits and provincial demographics from historical data; leveraging existing relationships with landlords, municipalities and regulators; expertise tailoring product brands and retail experience; operational know-how including store sizing, site development, inventory management, staffing, training and cost structure.
With the private-placement proceeds, the new team should be able to grow a sustainable retail cannabis business in western Canada with an objective to open more than 60 retail cannabis locations across Alberta during the next three years. Also, proceeds from the private placement are expected to be employed to fund licenses, lease and develop retail properties and for general working capital purposes. The retail cannabis locations are believed to be operated under the name “Yellow Submarine By Solo.”
Aldershot Resources’ transformation into cannabis retailer Solo Growth Corp. could work primarily based on its core focus on Alberta and its partnership with Solo Liquor Stores, an established brand in that province that serves more than 20,000 customers daily. According to Solo Growth’s investor presentation, Alberta has the highest proportion of millennials and GEN-Xs, a key demographic for cannabis consumption, of any province in Canada. Alberta also has the fourth highest provincial alcohol sales in dollar terms.
Unlike many marijuana upstarts, Solo Growth is not planning to become a grower, focusing on making money from the end users. While Solo Growth has, thus far, made no mention of where it would secure its cannabis supply, it could come from its strategic investor Canopy Rivers Corporation, a partly-owned subsidiary of Canopy Growth Corporation (TSX:WEED).
A negative is the 512 million new common shares being issued at $0.05 per share from the $25.6 million private placement, which could balloon to more than 767 million if all warrants are exercised. Management mentioned the possibility of a rollback sometime in the future. Aldershot Resources currently trades at a price of $0.16 on the TSXV with a market capitalization of about $9 million.
Disclosure: Neither the author nor his family own shares in the company mentioned above.
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