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Report on Business Cannabis Professional Choom’s move on Clarity stores points to a young industry’s consolidation

  1. Choom enters purchase agreement to buy 30 Clarity Cannabis stores in Alberta
  2. Choom to pay $2.5-million plus 11 million shares
  3. Deal to include 30 Clarity Cannabis stores, of which three are operating

Choom Holdings Inc. said on Wednesday it will buy Clarity Cannabis stores in Alberta, pending approval, marking Canada’s biggest purchase of a marijuana retail chain purchase since recreational weed was legalized in October, and signalling consolidation in the young industry.

Vancouver-based Choom, which has not yet opened a licensed retail cannabis store, entered a purchase agreement with Clarity Cannabis MD Holdings to acquire 30 retail locations in Alberta for $2.5-million plus 11 million shares. Of these, three are licensed and open, while nine other stores are awaiting licences from Alberta Gaming, Liquor and Cannabis (AGLC), which has temporarily stopped issuing them due to low supplies. Clarity has 11 development permits awaiting construction with six to commence construction, Choom said.

“I sold because I needed liquidity and the banks don’t finance you so it makes it very hard on an entrepreneur. The only way to do it is to partner or sell to a public company,” said Michael Forbes, owner of Clarity Cannabis MD Holdings and chief operations officer of Choom.

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“I see the market place, where there’s a lot of people who have been holding onto real estate and they’re holding out but they’re waving a white flag to public companies.”

Mr. Forbes, who has also applied for retail licences in B.C, Saskatchewan and Manitoba, still plans to establish his chain and become Canada’s biggest cannabis retailer.

“The banks need to get on board because you’re not going to have a proper industry without proper banking,” Mr. Forbes said, adding that as an entrepreneur he has been unable to open a bank account under the Clarity Cannabis retail company’s name.

“For the smaller players, until you have banking change, your only option is to get somebody with more money than you or sell to someone who has money. You’re going to see more of this because of the banking. The banks need to get on board and have a mandate.”

“This is one of the first big retail acquisitions. It’s a sign of things to come,” said Nick Pateras, vice president of strategy for Lift & Co.

While attention was previously on licensed producers, the acquisition spotlight has broadened to retailers since recreational cannabis was legalized in October 2018.

“Which retailer is going to have the biggest footprint, the theme of consolidation is naturally going to converge among retail,” Mr. Pateras said.

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“With the slow roll-out of retail, licenses being handed out slower than usual, and also the product shortage, a lot of companies are going, 'We are not hitting the numbers we expected as soon as we expected.’”

John Williams, retail advisor and partner at JC Williams Group in Toronto, views the consolidation in retail cannabis as happening “very quickly and very early.”

“It’s just at the beginning of growth. I think these people have quickly identified that the opportunity is enormous,” Mr. Williams said.

“There’s going to be some brutal competition to gain dominance in market share and just elbowing the other guys out of the game. I think that’s what’s started to happen.”

For Choom, the purchase will give it a foothold in Alberta’s retail cannabis market. Upon AGLC approval, Clarity retail stores will be re-branded “Choom Cannabis Co.”

“Moving forward we will be working diligently to maximize our retail footprint Canada wide, and this transaction helps us to achieve that goal,” said Chris Bogart, president and chief executive of Choom.

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Choom will pay $2.5-million and issue 11 million of its shares over two years, subject to escrow releases and AGLC approval, the company said.

In December, Choom bought Clarity Cannabis Medical Centre, of which Mr. Forbes owned a portion. In 2018, Aurora Cannabis Inc. invested $27-million in Choom with the right to increase ownership to 40 per cent.

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