Breaking Down the Aurora Cannabis (ACB) Investment Portfolio: Choom Holdings
Over the past few years, few companies have been as active in the cannabis space with respect to merger and acquisition activity as Aurora Cannabis (ACB) has been. A review of their strategic acquisitions and partnership is key to assessing value both at the current share price and in the future. Based on their most recent Q2 filings as of December 31, 2018 their investment related assets are as follows:
Marketable Securities: $116.7M
Investments in associates and joint ventures: $ $131.9M
Derivatives & convertible debentures: $69.4M
Short-term investments: $1.2M
In addition to the above, approximately $3 billion of goodwill has been recorded.
One of the more interesting holdings of ACB investment portfolio and how it will impact the execution of its retail strategy is Choom Holdings (CHOOF). There has been some notable activity in Choom’s retail location rollout as of late which warrants a review of ACB’s investment and how it impacts the company in the future. In June 2018, ACB completed two transaction relating to CHOO. They initially acquired approximately 8% of Choom for $0.71 per share. They followed up this investment shortly after and acquired $20M worth of convertible debentures at $1.25 per share of in a private placement (maturing in four years). This also included an option to purchase 40% of the company at $2.75 per share which expire on November 2, 2020. As at March 15, 2019, the share price of CHOO close at $0.69 per share meaning their initial investment is essentially unchanged and their warrants are still fairly deep out of the money.
From a strategic perspective, Choom’s 17 initial retail licenses throughout Alberta and their ability to grow in western Canada, appeared to be the initial focus of the transactions from ACB’s standpoint. Choom has been busy of late and it seems that they are executing their growth strategy to the liking of ACB’s initial vision. ACB CEO Terry Booth specifically noted “Choom has demonstrated a strong commitment to rapidly executing its strategic growth plans by developing a sophisticated retail channel across Western Canada while diversifying their operations through further expansion into Ontario.” Last month Choom entered into a LOI with an Ontario Cannabis retail store applicant which would provide a strategic diversification away from their primarily Western Canada presence. In a more complementary transaction to their core geographic business, on February 27, 2019, Choom entered into an agreement to acquire Clarity Cannabis which operates in Alberta. This purchase adds an additional 30 locations to the ACB/Choom portfolio.
At this point in time, this investment seems to have complemented ACB’s investment portfolio well at a relatively smaller price then some of its other investment/partnership transactions. Choom has expanded their national footprint and their share price has recovered back to near the original investment of $0.71 per share. The real unknown is if the convertible debentures will provide a satisfactory return to ACB. If Choom continues to execute and the market rewards its share price, the opportunity for ACB to control own 40% of the company long-term could be very rewarding in its quest to scale buildouts and achieve organic growth.
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