Choom (CHOO.C) googly-eyes the medical marijuana market

11/20/2018

On November 20, 2018 Choom (CHOO.C) announced that it has acquired Clarity Cannabis Medical Centre and various affiliates doing business as Clarity Medical Centres.

Two hours later Choom’s stock was halted.

After 8 minutes of down-time, trading resumed.

By mid-morning, CHOO was up 5% on 600,000 shares traded.

Previous to this announcement, Choom was solely a branding/retail company focusing on the recreational market.

“Choom recognizes that we’ve just started paddling into a wave that will only build momentum once legalization is in place,” stated Choom’s CEO Chris Bogart recently, “In every major market, Colorado, Washington, California, we’ve seen adult-use grow year over year by double digits. Choom sees the same growth potential in a legal adult-use market for Canada.”

Already “an emerging adult use cannabis company with one of the largest national retail networks in Canada” – Choom has decided that the medical marijuana business is too good to ignore.

Choom’s move is symmetrical to the actions of a myriad of medical marijuana companies that are lasciviously eye-balling the recreational market.

Medical-weed focused Emblem (EMC.V) recently noted that legalization “presents both an opportunity and a potential problem.”

Emblem CEO Nick Dean told CBC that “there is some concern a segment of their 5,000 customers might suddenly skip the doctor and come up with their own treatment plan using recreational products.”

For a medical cannabis company, the rec market isn’t just an untapped opportunity, it threatens to devour a chunk of the existing customer base.

Sure enough, in its November 20, 2018 financials, Emblem announced “supply agreements with the Alberta Gaming Cannabis Commission and the Ontario Cannabis Store” – generating $800,000 in sales.

Choom’s customers are not likely to switch to medical marijuana (so there’s no implicit threat) but according to Grand View Research, the global medical marijuana market is expected to reach a value of USD 55.8 billion by 2025 (about 4% of global booze sales).

The growing number of states and countries getting approval for using cannabis in therapeutic applications is one of the crucial factors driving demand.

There is increasing interest amongst the academic researchers and healthcare providers regarding the therapeutic uses of marijuana,” stated the report, “including suppression of vomiting & nausea, pain relief, and also servicing patients suffering from HIV/AIDS, glaucoma, cancer, and multiple sclerosis.”

“Our goal is to build a dominant national cannabis retail brand,” stated Chris Bogart, Choom’s President & CEO, ”the acquisition of Clarity Medical Centres allows Choom to service the entire Canadian cannabis market, beyond just the adult use channel.”

Bogart believes that cannabis is becoming a legitimate alternative to pharmaceuticals, and “patients with medical conditions will require professional medical advice on the benefits and best use of cannabis as a treatment.”

Choom’s acquisition includes five new medical centres and a proprietary telemedicine platform.

The Clarity Medical Centres approach streamlines the process of registering with a licensed producer.

Clarity’s team of cannabis trained general and specialist physicians, nurses and pharmacists all work together to ensure patients get optimal medical care.

Clarity already has multiple supply agreements with Canadian LPs.

The clinics will provide education to patients on the best use of medical cannabis products as an alternative to pharmaceuticals.

“Smoking is one of the most popular methods of consuming cannabis recreationally,” states the Clarity website, “but by-products such as tar, carbon monoxide, and carcinogens are produced. Cannabis smoking can increase risk of bronchitis and other lung infections.”

Under the leadership of Dr. Jean Paul Lim, an internal medicine and complex care specialist, Clarity Medical Centres intend to study and monitor the effects of medicinal cannabis use.

On November 5, 2018 Aurora Cannabis (ACB.T) announced a $20 million investment in Choom.  The investment is convertible into common shares of Choom at $1.25 per Share, with a 4-year maturity date.

Aurora has also secured the right to acquire up to 40% of CHOO at $2.75 per share.

On the surface, the Clarity Medical Centre acquisition is about expanding sales channels.

Buried in the November 20, 2018 press release is a hint at Choom’s strategy to synergise its medical and recreational divisions.

“Choom can now access medical expertise from the clinics and leverage key learnings from the medical side to provide customer insights for our adult use channel.”

If research at Clarity Medical confirms that one strain of Choom product promotes deep sleep, that information could be valuable in the adult retail stores.

Choom further states that the Clarity medical clinic model is scalable and transferable across the rapidly growing medical cannabis space, both domestically and internationally adding an important retail revenue stream to Choom’s adult use strategy.

The November 20, 2018 press release did not reveal the financial terms of the proposed acquisition.

Full Disclosure:  Choom is an Equity Guru marketing client, and we own stock.

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