CTST Stock: Is CannTrust a Top Marijuana Penny Stock?

CTST Stock: CannTrust
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CTST Stock

As 2019 goes along, it’s becoming increasingly clear that quarterly reports are going to be among the biggest influences on marijuana stocks.

While other game-changing events could help sway the industry one way or the other, those are unexpected; what you can count on is for quarterly reports to be the most influential they’ve ever been on the future of pot shares. CannTrust Holdings Inc (NYSE:CTST), one of the rising stars in the marijuana industry, shows why.

With Canadian legalization now accounted for on the books, analysts and investors alike are intently scanning these financial reports, hoping to see huge revenue spikes.

Sometimes companies are able to impress. Other times, they come up short. In the case of CTST stock, it’s the latter situation.

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CannTrust posted a fourth-quarter net loss of CA$25.5 million (CA$0.26 per share) compared to a CA$6.3-million profit (CA$0.08 per share) a year ago. (Source: “CannTrust plunges after missing fourth-quarter estimates,” BNN Bloomberg, March 28, 2019.)

Analysts had expected revenues of CA$21.2 million and a net loss of CA$6.4 million (amounting to a loss of CA$0.04 per share), according to Thomson Reuters Eikon.

The company attributed its high losses to increased operating expenses that came about as a result of marketing during the launch of its recreational brands, personnel hires, and listing on the New York Stock Exchange (NYSE).

Whatever the reason, the company came in under analyst expectations and that caused CannTrust stock to see a significant fall over the past week. The stock fell by nearly 20% over the past five days following the weak numbers.

Chart courtesy of StockCharts.com

While CannTrust stock was hot out of the gates in 2019, this recent downturn has some asking if it still has room left to grow.

One bad quarterly report doesn’t necessarily forebode further losses, but it is worth considering in context. The context, here, being that Cronos Group Inc (NASDAQ:CRON) experienced a similarly disappointing report but suffered far less.

Even so, the numbers weren’t all bad.

Revenue was up 132% from the fourth quarter of 2017. Active patient count increased to 58,000, a 57% year-over-year increase from 37,000. It sold 3,407 kilograms (over 7,500 pounds) of dried cannabis equivalent, a 4.5-times increase from 758 kilograms (about 1,671 pounds) in the fourth quarter of 2017. (Source: “CannTrust Reports Financial Results for Q4 2018,” CannTrust, March 28, 2019.)

With that in mind, let’s take a look at whether CTST stock is still a top marijuana penny stock.

Marijuana Penny Stocks

I’ve been writing a lot lately about my favorite marijuana penny stocks—for good reason. I believe they hold the highest potential for both short-term and long-term gains in the marijuana industry.

That is rare.

In most industries, penny stocks are relatively unproven companies that are small enough that they could see huge growth in a short amount of time (or see their value disappear in the blink of an eye).

In the marijuana industry, that paradigm doesn’t quite fit. Many marijuana penny stocks have the staying power to be strong in the long term while also having a small enough size that massive short-term growth is a very real possibility.

That’s because the industry is so young still that many of the top companies are still trading at penny-stock prices. I’ve written extensively about two of my favorite marijuana penny stocks and outlined why I believe they are poised for big gains.

While CannTrust stock does have potential, I simply don’t see it as measuring up to my other top marijuana penny stock picks.

Take, by way of contrast, OrganiGram Holdings Inc (OTCMKTS:OGRMF, CVE:OGI).

Chart courtesy of StockCharts.com

Both stocks are doing exceedingly well year-to-date, as seen in the chart above.

But here’s the thing: OrganiGram had a great quarterly report. Its numbers were very strong and yielded big gains for OGRMF stock.

On top of that, there’s simply way more potential in OrganiGram stock.  CTST stock is already listed on the NYSE while OrganiGram is not. That alone could lead to a huge boon to OGRMF stock in the near future, while CannTrust stock has already seen that chance pass.

OrganiGram has also been labeled as “undervalued” continuously by analysts, something that CannTrust can’t match.

Combined with the weaker numbers and the companies’ very similar market caps ($1.0 billion for OrganiGram and $816.5 million for CannTrust at the time of writing), I don’t really see an argument for why you’d choose CTST over OGRMF.

Both could have great years in 2019, but I believe that OrganiGram has a higher potential and better foundations to protect against a significant loss of value.

Analyst Take

While CannTrust’s recent financial report was not a complete disaster—and there is certainly room for recovery—it was disappointing. In the wake of that report, CTST stock is falling behind other stocks in the race to be the top marijuana penny stock.