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All Eyes Are On Canadian Cannabis Retail As It Begins To Reopen Post Covid-19

Jun 5, 2020 • 7:51 AM EDT
4 MIN READ  •  By Michael Berger
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So far, the Canadian cannabis retail market has not lived up to expectations and is a vertical that we believe is flying under the radar.

Due to COVID-19, the Canadian cannabis retail market has faced significant headwinds and companies that are levered to the vertical have come under heavy pressure. In late May, Canopy Growth (WEED.TO) (CGC) reported quarterly financial results that missed expectations and the business was impacted by the shutting down of its retail stores in mid-March.

As concerns about COVID-19 have diminished, there has been a substantial increase in the number of cannabis retail outlets that have re-opened. The re-opening of retail stores should prove to be a catalyst for the companies that are focused on this opportunity and we believe that the vertical is under-appreciated.

Canopy Growth Re-Opens 20 Retail Locations

When Canopy Growth reported quarterly financial results, it announced that 20 company owned retail stores had re-opened with reduced operating hours. The closing of the stores had a significant impact on the business and the market responded negatively to the company’s quarterly financial results.

Through a series of investments and acquisitions, Canopy Growth has significantly advanced its fundamental story and has substantial growth prospects. We believe that the long-term story is intact and that the business will be a leader in the global cannabis market.

Several broker-dealers that are focused on the cannabis industry downgraded Canopy Growth after it released its quarterly financial results and we believe that our readers need to be aware of this trend. We expect the business to report improvements in the current quarter as operations come back on-line and will monitor the trend on a going forward basis.

Wildflower Reports Quarterly Financial Results

Last week, Wildflower Brands Inc. (SUN.CN) (WLDFF) released third quarter financial results and reported to have generated $5.3 million of revenue. When compared to the prior quarter, the business generated less revenue as it was impacted by COVID-19.

If you were to compare Wildflower’s quarter to the same period last year, the business recorded significant growth. During this period, revenue grew by more than 100% and the business benefited from selling products in British Columbia, in California, and through its e-commerce platform.

We visited the dispensaries that are owned by Wildflower in Vancouver last year and were impressed with the operation. The locations of the dispensaries are strategic and we are bullish on the growth prospects that are associated with this facet of the business. Once the COVID-19 crisis becomes more under control, we expect Wildflower to see a spike in business.

Choom: A Burgeoning Opportunity that is Flying Under the Radar

A few weeks ago, we spoke with Choom Holdings (CHOO.CN) (CHOOF) CEO Chris Bogart and left the conversation with a much higher conviction level in the business. The Canadian cannabis retailer has been highly focused on the opportunity in Ontario and Alberta and we are favorable on the leverage to these markets.

Choom is a business that has substantial catalysts for growth and we are favorable on its planned expansion in British Columbia. The company will open a dispensary in a strategic location in Vancouver and we find this to be an important aspect of the story. The Choom dispensary will be located in Olympic Village and will be the only cannabis retail store located in the area.

During the last year, Choom has been nothing short of an execution story and has been expanding into new markets across Canada. From Niagara Falls to Vancouver, the Canadian cannabis retailer is focused on strategic markets and we find this to be an attractive aspect of the story.

At current levels, we believe that Choom has a compelling valuation and a favorable risk-reward profile. In the back half of 2020, many economists and politicians expect the market to return to sense of normalcy. In a post-COVID world, we would not be surprised to see consumers do a majority of their shopping in the areas that are near their home. This trend could prove to be a catalyst for Choom as we expect to see a good portion of customers remain loyal to businesses located nearby.

Over the long-term, we are favorable on the Canadian cannabis retail market and believe that Choom is positioned to survive the current market environment. The company is led by a management team that has been able to navigate the choppy waters of the Canadian cannabis market and we find this to be a key aspect of the story.

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Authored By

Michael Berger

Michael Berger is Managing Partner of StoneBridge Partners LLC. SBP continues to drive market awareness for leading firms in the cannabis industry throughout the U.S. and abroad.

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