While he may be a newcomer to the marijuana space Peter Aceto, the CEO of CannTrust Holdings (TSX:TRST) feels pretty comfortable with how fast paced the cannabis industry is.

“I’m used to fast and I’m used to nimble… but the cannabis space is moving so quickly, so rapidly, it’s fascinating and amazing.” the executive told the Investing News Network (INN) in a phone call.


He can’t yet brag about the amount of road shows or pot conferences attended compared to his peers but CannTrust’s chief is starting to see how fast he has to move to keep up.

 

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Aceto previously served as the CEO for online bank Tangerine, now a division of the Bank of Nova Scotia (Scotiabank) (TSX:BNS), a job he said taught him how to be nimble and fast.

The new executive took over the mantle last year from co-founder Eric Paul, who stepped down two-weeks prior from the adult-use legalization in Canada on October 17.

After finishing a quick stint at the Lift & Co. (TSXV:LIFT) Cannabis Business Conference in Vancouver, only to be whisked away back to Toronto right after his panel conversation, Aceto detailed the path CannTrust is in. While other companies may be racing for expansion or taking a slow and methodical approach, he instead wants it to be somewhere in the middle.

When asked about the pace of the industry and the acquisition plans for his company, especially compared with the quick expansion and asset leveraging from licensed producers (LPs) CannTrust is directly competing with, Aceto explains he doesn’t want his company to rush and end up paying the cost later.

“We want to be bold, we want to be aggressive but we want to be thoughtful then precise and we want to make sure that we have the ability to execute on all the things that we do,” said Aceto. “Rushing at the door and spending lots of money for us doesn’t seem like a prudent approach.”

Aceto explains for him, the need of expansion or other mergers and acquisitions is the way to move forward in the global landscape. The company has created joint ventures in Denmark and Australia to deploy its international strategy.

He admits a slow methodical approach will leave CannTrust behind in the LP race. Particularly in 2019, he expects “reckoning” to come for Canadian firms in the cannabis space.

Analysts and observers of the industry are expecting a market compression to settle in the public markets as companies face economic pressures and high scrutiny from investors.

“I would think some big people are going to be held to account for how they’ve allocated their capital and we are trying to find the right balance of being bold and growing and expanding but having focus in our execution.”

 

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NYSE listing comes at a much needed time for the company

After Cronos Group (NASDAQ:CRON,TSX:CRON) became the first Canadian LPs to publicly list in a senior US exchange, the producers moved quickly into these spaces finding bigger platforms for their companies and offering investors a more secure guarantee of their positions.

CannTrust reached the Toronto Stock Exchange (TSX) after uplisting from the Canadian Securities Exchange (CSE) in August 2017. CannTrust took longer than some of its peers to reach a US exchange.

Earlier in January, the company finally confirmed its application for a listing on the New York Stock Exchange (NYSE).

If confirmed the company would join Canopy Growth (NYSE:CGC,TSX:WEED), Aurora Cannabis (NYSE:ACB,TSX:ACB) and Aphria (NYSE:APHA,TSX:APHA) as the only Canadian LPs trading on the NYSE.

In a note to clients published in January, Beacon Securities analyst Russell Stanley praised the company for the potential listing, indicating gaining the attention from the American investor audience would expand the company’s profile.

Stanley holds a “Buy” rating for the company and a one-year price target for its stock in Toronto of C$21. The analyst sees CannTrust stock as “significantly undervalued.”

Based on three analyst targets for the stock, according to analyst research aggregator TipRanks, CannTrust holds an average C$20 price target per share.

Aceto adds the NYSE listing will allow the company to gain exposure with institutional investors, not only in the located in the US but all over the world.

“There’s no doubt in my mind that investors all around the world in particularly institutional investors have an increasing awareness and willingness to enter the cannabis space,” the executive said.

As the race between the leading LPs intensifies, CannTrust continues its path towards growth and with a US listing a raise in its profile.

Pelham confirmation gives CannTrust chance to deliver on promise

CannTrust faced questions from investors and analysts as the company was caught in the middle of a bylaw preventing for the development of land for marijuana facilities in Pelham, Ontario.

Pelham serves as the home to CannTrust’s facilities and was the planned location for its phase 3 expansion.

“The most prudent thing to do at this time is take a bit of a pause and work together to solve these issues,” Pelham mayor Dave Augustyn said at the time of the bylaw getting approved.

 

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However, on Tuesday (January 22), the company announced it had secured an agreement with the Ontario town and would move forward with its expansion.

CannTrust received approval for an expansion with a footprint of up to 390,000 square feet instead of the originally planned 600,000 square feet. The Canadian firm assured investors it would still deliver on its forecast of 100,000 kilograms production per year once the phase 3 was completed.

The timeline from CannTrust now indicates its phase 3 expansion will be completed by the third quarter of 2020, with the full capacity to produce being reached by the second half of 2020.

During the Canaccord Genuity Group (TSX:CF) “Growth Investor Day” in Vancouver, Aceto clarified the company and Pelham had come to a mutual understanding. Due to community complaints CannTrust will remodel some of the details of its expansion to prevent lighting issues.

“In order to address local concerns from the emission of light from its facilities, CannTrust is proceeding to add additional fan ventilation so its shades can be completely closed, at minimal incremental cost,” the LP notified to investors.

Aceto said the main concerns raised by the community for all cannabis operations in their community were the increase in density with significant car movement and the smell from the cannabis operations.

Investor takeaway

Aceto won’t waste any time to highlight the aspects of the company he says puts it ahead of others – its growth style, its medical presence in Canada with just over 50,000 patients, and its much promised “innovation” in novel cannabis products.

Now after obtaining its approval from Pelham CannTrust will be closely watched by investors to deliver on its promise of final production numbers.

“I think CannTrust value come is way beyond our ability to grow 50,000 kilograms or a 100,000 kilograms or even 200,000 kilograms,” he told INN.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Bryan Mc Govern, hold no direct investment interest in any company mentioned in this article.

Editorial Disclosure: The Investing News Network does not guarantee the accuracy or thoroughness of the information reported in the interviews it conducts. The opinions expressed in these interviews do not reflect the opinions of the Investing News Network and do not constitute investment advice. All readers are encouraged to perform their own due diligence.

 

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Cannabis Market Update: Q3 2020 in Review

Click here to read the previous cannabis market update.

During the first few months of investment time in 2021, cannabis faced some volatility alongside optimism about federal changes in the most important market for the drug.

The cannabis business found its stride during Q1 thanks to policy change signals and consolidation.

To find out more, the Investing News Network (INN) asked experts about progress in the market during the first major period of the new year, and which developments investors should watch out for.

 

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Cannabis market update: New York and US potential boost operations

New York state’s legalization of recreational cannabis was a huge Q1 announcement that added pressure to the US federal government when it comes to cannabis policy, said George Mancheril, co-founder and CEO of Bespoke Financial, a debt financing business with a particular focus on servicing cannabis businesses.

“It’s going to add to the chorus of voices in the federal scene to basically move sooner rather than later,” he explained to INN.

Following the US election in 2020, the momentum for cannabis businesses went on the upswing, as did company valuations, with the idea of expansion at the heart of it all, according to Mancheril.

Before starting Bespoke Financial, Mancheril learned from traditional investment banks, working in the lending, fixed income and debt markets with Goldman Sachs (NYSE:GS) and Guggenheim Partners.

Nawan Butt, portfolio manager with Purpose Investments, agrees with Mancheril. The financial expert told INN the ongoing legalization process seen in the US market is leading to expansion.

“It’s becoming more of a national move, then small pockets of proliferation. That’s very exciting about cannabis right now,” said Butt, who co-manages the Purpose Marijuana Opportunities Fund (NEO:MJJ).

This proliferation effect is causing a change in valuations and enthusiasm for US-based operations. Mancheril told INN that by the end of Q1, multi-state operators (MSOs) had raised approximately US$3.3 billion.

The cannabis lender said he sees the industry as having grown from the woes of 2019; it is now undergoing a return to form as excitement about the US opening up increases.

The expert explained that there is likely to be a windfall of capital in the wake of major federal changes in US cannabis policy, although the timeline for these changes is becoming increasingly hard to predict.

Leading up to that capital influx, Mancheril said he wants to see operators really drill down on the value of desired assets and whether they make sense.

“What I’d hope is that we continue to see bullish sentiment, but with some measure of responsibility, and let’s not just get over ahead of ourselves,” Mancheril told INN. “The idea is let’s minimize the volatility and continue growing responsibly.”

 

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As far as struggles go, Butt explained that the cannabis industry has cemented itself as a growth-type sector, and as such there are macro pressures affecting the way these assets operate.

“We’ve seen this preference for cash flows at growth in the current or in the near future, rather than in the far future, and that’s what we’re seeing as far as valuations go in the broad market,” Butt said.

Cannabis market update: Volatility continues to rule as industry foundations build

Despite the industry’s potential and the growing pains it has gone through as a whole in both the US and Canada, volatility remains a key factor in the cannabis investment scene.

Butt explained that the current shareholder base, which is dominated by hedge funds and retail investors, still lacks enough institutional support to avoid the day-to-day volatility cannabis has come to be known for.

These two investor groups, Butt said, can be easily spooked and excited by the news of the day when it comes to their investments.

“A lot of these institutions’ strategies are not about short-term profits, but they’re about long-term sustainability of the businesses themselves,” Butt said.

“That’s why you see a lot of volatility in the space, and that’s essentially what we’ve seen over the past, I’d say, three to two months as well,” he added.

That means investors shouldn’t expect an end to volatility anytime soon.

“It’s not about whether we continue to expect volatility, because we do,” Butt said. “We really think that the volatility will be taken out when the shareholder base becomes more institutional, but it’s really about understanding why there is volatility in the first place.”

Cannabis market update: Canadians talk up US business, but questions remain

A surge of mergers and acquisitions has taken over the Canadian cannabis sector recently as more producers see potential in America.

One of the biggest announcements in this regard came when Organigram Holdings (NASDAQ:OGI,TSX:OGI) secured a C$221 million investment deal from British American Tobacco (NYSE:BTI,LSE:BATS).

Using the funds, the two will work in tandem to develop new branded products designed for the international stage, including in the US. Organigram CEO Greg Engel previously told INN that the US represents a critical opportunity for Canadian companies, but the entry point isn’t as clean as it could be.

 

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While the long-term potential may be exciting for investors, Butt told INN he’s still unsure how the approach will work for Canadian companies.

The Purpose Investments expert said there will be plenty of space for the biggest Canadian names to pursue US market entries, beyond the initial hemp-derived CBD moves some operators have mde, since the US represents the biggest market in the world.

“But there’s just way too many unknowns right now to say exactly what that participation is going to look like, or when that participation will happen,” he said.

“What we do know is that currently the US MSOs are in a wonderful sort of position to expand on their market leadership that they have. And it will be tough for Canadians to come in and compete with them,” Butt said.

Canadian players still retain the upper hand at times in terms of valuation, which is confusing for both Butt and Dan Ahrens, chief operating officer and portfolio manager at AdvisorShares.

“The performance in quarterly earnings of US companies has been rather spectacular. They’ve knocked it out of the park in most instances,” Ahrens told INN.

Butt praised the recent performance reports from MSOs across the board, pointing to year-over-year growth lines and projections for continued positive performance. In his view, share prices still don’t reflect company value. “Those are really being discounted at this point,” Butt told INN.

“We’ve seen the Canadian licensed producers be really hot stock performance-wise, outpacing the US (MSOs), and I’ll say it’s rather nonsensical to me,” said Ahrens, who oversees the AdvisorShares Pure Cannabis ETF (ARCA:YOLO) and the recently launched AdvisorShares Pure US Cannabis ETF (ARCA:MSOS).

Cannabis market update: Investor takeaway

The cannabis investment proposition finds itself at an interesting moment in time, as the entire sector eagerly awaits confirmation in the US at the federal level.

While for the Canadian companies waiting on the sidelines, this development may feel like a major necessity to address current financial struggles, for US-based operators, the heat around the corner could represent future positivity for already thriving operations.

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