Following the legalization of recreational cannabis in Canada, the landscape of the industry changed and led to the opening of cannabis retail outlets across the country. We believe that the Canadian cannabis retail market is in the early innings of a major growth cycle and represents an interesting opportunity.
Over the next year, we expect to see Canadian cannabis retailers significantly increase the number and the type of products that are available to consumers. Currently, the regulations associated with the Canadian recreational cannabis market are stringent and only certain products can be sold to customers.
We believe that the lack of cannabis infused products, vaporizers and cannabis concentrates, available on the recreational market has caused the grey market to thrive and this is something that we have been watching. During the last year, the Canadian government has shut down more than 50 unlicensed dispensaries across the country and we find this to be significant.
Earlier this year, we visited several Canadian cannabis retail outlets based in Toronto and were shocked by the number of people that were waiting in line on a Sunday afternoon while it was pouring rain. Clearly the demand for recreational cannabis is significant and we expect this trend to continue for the foreseeable future. Later this year, Health Canada is expected to release regulations for the infused product and concentrate markets and we expect this to be a major catalyst for the overall sector.
During the last year, we have seen a significant increase in the number of companies that are focused on the Canadian cannabis retail market. Going forward, we expect to see significant consolidation in this space and believe that this is an exciting area to be watching. Today, we have highlighted 5 companies that are levered to the Canadian cannabis retail market and believe that these are opportunities to be watching.
Wildflower Brands: Capitalizing on the Vancouver Retail Market
Wildflower Brands (SUN: CSE) (WLDFF: OTCQB) is a rising star in the Canadian cannabis retail industry and plans to build on the success that it has had in the United States cannabis market. Last month, Wildflower executed a definitive agreement to acquire City Cannabis Co., and we consider this to be a transformational acquisition. City Cannabis has been profitably operating various dispensaries in Vancouver since the city started licensing cannabis retailers and has multiple cannabis retail license applications that have been submitted in British Columbia.
When the acquisition was first announced, City Cannabis owned and operated two of the three licensed dispensaries in Vancouver. The Vancouver cannabis retailer is in the middle of a major expansion and plans to open two additional locations. City’s third location is currently under construction and the fourth location has received approval in principle from the Government of British Columbia and is expected to open this summer.
Currently, City Cannabis holds nine leases that are at various stages in the regulatory licensing process and we are favorable on the growth prospects associated with this acquisition. Earlier this month, several of the best known unlicensed Vancouver dispensaries were shut down and we are bullish on the leverage to this burgeoning market.
This signing of a definitive agreement represents a major development for Wildflower and we will monitor how long it takes for this asset to become operational. Following a final inspection, City Cannabis will be fully licensed and we excited about this opportunity. Once the final inspection is complete, the company will operate the first licensed dispensary in Downtown Comox. This is a strategic location and we expect the store to generate significant revenues.
Wildflower Brands was one of the first publicly traded cannabis companies and we are impressed with how this operation has advanced since inception. Going forward, we expect the assets in California, New York and Vancouver, to be the most significant value drivers and believe that the market does not appreciated these opportunities. With attractive leverage to some of the most attractive markets in the US and Canada, the company has significant growth prospects and this is an opportunity to be watching.
Fire & Flower: An Emerging Canadian Cannabis Retailer
Fire & Flower Holdings Corp. (FAF.V) has been a leader in the Canadian cannabis retail market and has been executing flawlessly on a national expansion plan. During the last month, the company has provided several updates as it relates to its roll out strategy in the province in Alberta and this is an opportunity we are watching.
Earlier this month, the Canadian cannabis retailer announced plans to strengthen its balance sheet through a $15 million bought deal private placement with Eight Capital and GMP Securities L.P. The company intends to use the net proceeds for working capital and general corporate purposes, including to grow the company’s proprietary Hifyre digital platform and we will monitor how the team continues to execute.
Consolidation has been a major theme of the Canadian cannabis retail market and Fire & Flower has been a beneficiary of this. During the last year, Fire & Flower has been laser focused on making acquisition of licensed cannabis retailers across Canada. Over the next year, we expect these acquisitions to quickly prove to be accretive and will monitor how the team is able to execute on this.
One of the reasons that we are excited about Fire & Flower is due to the relationships that it has with leading Canadian cannabis producers. These relationships will ensure that the company has access to premium cannabis products and we find this to be an important aspect of the story.
As of April 22nd, Fire & Flower operated 13 branded licensed stores in Canada and is also involved in wholesale cannabis supply business in Saskatchewan. The company has a significant platform and we believe that the market does not appreciate this. We expect Fire & Flower to record strong growth on a quarter-over-quarter basis and are excited about this. We are favorable on the growth prospects associated with the existing opportunity and believe that this is a company to be following.
Aurora Cannabis: Investing in Leading Canadian Cannabis Retailers
Aurora Cannabis Inc. (ACB.TO) (ACB) made the Canadian cannabis retail market a major focus and we are favorable on this aspect of the business. Over the next year, we expect the cannabis retail market to start paying off for Aurora and this is an opportunity that we are excited about. The Canadian cannabis producer has made significant investments in two leading Canadian cannabis retailers, Alcanna Inc. (CLIQ.TO) and Choom Holdings Inc. (CHOO.CN), and we find this to be significant.
Last year, Aurora announced its strategic investment in Alcanna, the Edmonton, Alberta-based retailer of alcoholic beverages with 229 retail outlets in Western Canada and Alaska, with a view to establishing a leading brand of cannabis retail outlets. The companies have created a unique and engaging, state-of the art consumer retail concept that aims to deliver an inviting, inclusive, and educational experience. The stores will operate under the “Aurora” banner, but will represent a house of brands, carrying a carefully curated, but broad selection of products across Canada.
In 2018, Aurora Cannabis made a strategic investment in Choom Holdings and we have been closely monitoring this relationship. Last year Aurora invested $27 million between Choom’s private placement and its convertible debenture offering. Choom has used this capital to advance its fundamental story and are favorable on this. Earlier this year, Choom announced that it has completed the buildouts of 17 retail locations across Western Canada and has 8 additional retail locations currently under construction. We are excited about the continued execution by Choom and will monitor how this relationship continues to evolve.
During the last year, Aurora Cannabis has been nothing short of an execution story and has significantly advanced its fundamental story. The company is levered to some of the most attractive verticals of the cannabis industry and we are favorable on the growth prospects associated with this. Over the next year, we expect to see Aurora Cannabis made additional investments and acquisitions and this is something to monitor.
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