CannTrust Upgrades Production Expectations Per Year in Q1 Report

On Tuesday (May 15) CannTrust Holdings (TSX:TRST) unveiled its financial results for the first quarter of 2018, its first since joining the Toronto Stock Exchange (TSX) in March.

The company reported revenue of over C$7.8 million for the three month period that ended on March 31. In its revenue breakdown, CannTrust indicated dried cannabis managed to create over C$3 million, while extracts brought C$4,477,526.

CannTrust explained due to using the grow rooms from its Langstaff facility to harvest the mother plants for its brand new Niagara Greenhouse space, the company was required to purchase product from other cannabis producers in order to meet the demand for its products.

“Multiple harvests have now been completed at the Niagara Greenhouse Facility and these temporary third-party product purchases have now been replaced with home grown product,” the company said.

The reach of CannTrust’s products has increased since the active patient base for the company grew to over 40,000. During the quarter, the company sold 982,269 grams of cannabis.

According to the report, CannTrust has increased the expectations for the Niagara facility production capacity from 40,000 to 50,000 kilograms annually.

Optimistic outlook thanks to future production from Niagara facility

In a research note issued on Tuesday, Echelon Wealth Partners analyst Russell Stanley maintained his “Speculative Buy” rating on the company and set their one-year price target at C$18.50.

Despite falling short of his estimates, the company incurred one-time costs that, if taken away, would make its earnings before interest, tax, depreciation and amortization (EBITDA) on par with what Stanley had predicted.

“Given our view that dried cannabis will become increasingly commoditized, investors should favor companies that can develop and commercialize higher value products and/or deliver ultra-low production costs,” Stanley wrote.

The analyst wrote he expects the Niagara facility to provide a “meaningful contribution” to the company during the next quarter. This facility is also expected to have a phase two expansion, which Stanley wrote remains on track for mid-2018 completion.

During Tuesday’s trading hours, shares of TRST decreased 3.40 percent to reach C$9.66 per share. According to data from Yahoo! Finance, since joining the TSX, CannTrust’s share price has increased 7.22 percent in value, indicating a C$0.65 gain for investors.

On the research analysts data site aggregator TipRanks, CannTrust currently has a “Moderate Buy” rating thanks to the opinion from two analysts. The one-year price target for TRST is C$17.25.

As part of the Investing News Network (INN) cannabis outlook for Q12018, a portfolio manager with Redwood Asset Management Greg Taylor said he was surprised the move from CannTrust to dump its US assets and move its stock to the TSX didn’t have a larger impact.

“Once this move was made, the TRST was uplisted to the TSX which I thought would be a major positive and the stock would see a re-rating higher,” Taylor told INN. “But it didn’t seem to be noticed by the market.”

Investor takeaway

Despite providing a moderately successful quarter, the nature of the cannabis industry has sparked conversations of acquisitions with most enterprises.

Fueled by the announcement from Aurora Cannabis (TSX:ACB) buying MedReleaf (TSX:LEAF) for C$3.2 billion, Midas Letter wrote on CannTrust:

More than the singularity of today’s gains, with MedReleaf officially taken out, CannTrust becomes the clear #1 prime asset in the lucrative medicinal market. With Aurora Cannabis establishing outright dominance, the odds of another suitor making an offer increase—and this should put a floor under the share price. The stock hasn’t been rising on a multi-day basis without reason.

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