Aurora Cannabis is Smart to Invest in Choom

Choom Holdings Inc. (CSE:CHOO) has a regional, retail presence that should pay off big for Aurora Cannabis Inc. (TSX:ACB)

SmallCapPower | July 10, 2018: Aurora Cannabis Inc. (TSX:ACB) announced recently the closing of its previously-announced $7 million strategic investment in Choom Holdings Inc. (CSE:CHOO), an emerging fully-integrated cannabis company in British Columbia. Choom has financed total gross proceeds of $10.1 million through issuing 14.2 million shares. Aurora Cannabis is the leading investor in this placement. Upon completion of the transaction, Aurora will hold an interest of ~6% by acquiring 9.9 million shares from Choom at $0.71 per share. The lock-up period for all the shares is four months.

Choom’s Premium Handcrafted Cannabis in Concept Packaging

Source: Company Presentation

Choom is a consumer-focused brand created exclusively for the recreational market with strong retail distribution. Aurora Cannabis and Choom have a shared value of establishing exceptional brands to enhance customer experience. Partnering with Choom, Aurora is expected to become a licensed producer with exceptional strength and growing opportunities throughout the entire cannabis value chain. Choom focuses on cultivating high-grade handcrafted cannabis. As a result, this private placement by Aurora Cannabis illustrates a strong signal that Choom’s product cultivation strategy meets some of the highest industry standards.

Choom’s Capacity Expansion

Choom currently operates four licenses under the ACMPR. Phase 1 plans to increase its 37,300-sq. ft. production facilities that are expected to produce about 3,710 kg of dried cannabis annually. The Company has an estimated 30,900 sq. ft. of cultivation for a planned Phase 2 expansion, ramping up the total production area to approximately 68,200 sq. ft. The first two stages are expected to create an additional production capacity of 7,020kg. The table below illustrates Choom’s expansion potential.

Choom’s Capacity Expansion Plan

Source: Company Presentation

In addition, beside the facilities in Sooke for Phase 1 and 2, a three-story indoor and greenhouse production facility is available for future expansion, adding a further 700,000 sq. ft. to the existing capacity. Choom has also signed a letter of intent to acquire a 120-acre parcel in Saskatchewan. The Company intends to play an important role in the Saskatchewan cannabis market.

Choom’s Retail Distribution

Choom retail stores have modern layouts and stylish designs, fully reflecting Choom’s value of  “Good Time with Good Friends.” The stores are operated by independent owners across Canada.

Choom’s Stylish Retail Stores

Source: Company Presentation

Choom’s Valuation

As of March 31, 2018, the Company had $3.0 million in cash and no long-term debt. With a market-cap of $129.8M, Choom is currently trading at $1.22, up 130.2% YTD. The stock significantly outperformed its benchmark, the Horizons Marijuana Life Sciences Index ETC (HMMJ), which was down 4.2% over the same period. Choom’s stock price has surged nearly 30% from $0.94 per share since the news release of Aurora’s investment.

Disclosure: Neither the author nor his family own shares in any of the companies mentioned above.

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