CannTrust Secures Phase 3 Expansion in Pelham

A dispute over a bylaw ruling in Pelham, Ontario with a Canadian licensed producer (LP) gets resolved, leading to a stock jump for the company.

After a ruling had left CannTrust Holdings (TSX:TRST) scrambling to find a solution for its expansion plans in Pelham, the cannabis firm announced on Tuesday (January 22) it had obtained the “necessary permitting” from the municipality.

However, the approval from Pelham comes with a reduced size in facility footprint.

The planned phase 3 expansion caught up in the bylaw’s effects was projected to bring the company up to a 100,000 kilograms sum of cannabis production per year.

CannTrust indicated the approval from Pelham is for a footprint of up to 390,000 square feet instead of the originally planned 600,000 square feet.

The company argues it will perform enhancements to the phase 3 expansion and continues to expect a capacity forecast of 100,000 kilograms per year.

“We believe this decision reflects our view that we are a trusted member of the community and that we are intent on listening to our stakeholders,” Peter Aceto, CEO of CannTrust said in a statement to investors.

CannTrust expects to complete the phase 3 expansion by the third quarter of 2020, while a full production capacity will be reached in the second half of 2020.

Shares of CannTrust bounced on Tuesday’s trading session following the critical resolution for the company. As of 1:52 P.M. EST the company was up 2.56 percent in Toronto. By market close, shares of CannTrust had dipped back downt o C$9.12, representing a 1.67 percent increase over the trading period.

This confirmation for CannTrust comes on the heels of Aceto telling the Financial Post the company was “urgently” scheduling talks with Pelham to plead its case.

Pelham leaves CannTrust answering questions from investors and analysts

CannTrust was left scrambling in October after the city council for the Town of Pelham passed a bylaw to monitor the use of land in the city, therefore restricting the company’s planned a 600,000-square-foot 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.

In an interview with the online show Midas Letter, Aceto said that expansion, would have been approved had it been combined with its existing facility, since the proposed expansion is adjacent to its land in use.

In a note to clients issued in January, Bank of Montreal (TSX:BMO) analysts Peter Sklar and Tamy Chen issued a warning to CannTrust and its ability to secure its projected production targets.

“We consider this to be a potential negative development, as a delay in CannTrust’s ramp to full production will limit its ability to capitalize on the near-term under-supplied Canadian market,” the analysts wrote.

Investor takeaway

With this confirmation CannTrust is able to clear up the mounting questions from investors on its expansion plans.

The company is close to finishing a phase 2 expansion which will make it reach 50,000 kilograms of production per year.

Update

Aceto addressed the update from Pelham during the Canaccord Genuity Group (TSX:CF) “Growth Investor Day” in Vancouver on Tuesday.

The executive said after its private meeting with Pelham both parties came to an understanding.

He 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.

However, Aceto said these issues weren’t exclusive to CannTrust’s expansion. He conceded CannTrust’s facility had caused disruption with its lighting.

“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.

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