One Marijuana Stock to Think About
“Jing, where can I find a pot stock that hasn’t shot through the roof already?” my neighbor Larry asked me the other day.
Larry is not alone. Given the growth potential of the legal marijuana industry, everyone wants a piece of the action.
But the blunt reality is that, over the past year or so, many of the most well-known weed stocks—especially the ones that now trade on major U.S. stock exchanges—have experienced tremendous surges in their share prices. And it makes people wonder whether it’s too late to catch the profit train.
Don’t forget, pot stocks are known for making big swings in both directions. At the end of the day, not everyone wants to buy a volatile stock after it has soared.
Of course, there are lesser-known weed stocks that still look cheap. But the problem is, most of the smaller pot stocks aren’t listed on a major American stock exchange. So if you want to get in on the action, you have to buy shares over the counter.
And that’s why today I want to talk to you about CannTrust Holdings Inc (NYSE:CTST).
While CannTrust is a relatively small player in the cannabis industry and is based in Canada, its shares do trade on a major U.S. exchange: the New York Stock Exchange (NYSE). At around $6.00 apiece, I believe CTST stock could see a lot more upside ahead.
Let me explain.
CannTrust Holdings Inc: Little-Known Pot Stock Could Provide Big Returns
CannTrust Holdings Inc is a federally regulated licensed cannabis producer in Canada.
The company operates its 450,000-square-foot “Niagara Perpetual Harvest Facility” in Pelham, Ontario and is permitted to build another 390,000-square-foot facility in the same region. The packaging of the company’s products is done at its 60,000-square-foot manufacturing center in Vaughan, Ontario. (Source: “Investor Presentation May 2019,” CannTrust Holdings Inc, last accessed May 17, 2019.)
Compared to the big-name pot stocks like Canopy Growth Corp (NYSE:CGC) and Tilray Inc (NASDAQ:TLRY), CannTrust doesn’t make headlines that often.
But the company has found an audience: CannTrust is a leader in the Canadian medical marijuana market, serving more than 70,000 patients in the country with its dried, extract, and capsule products.
The business is growing, too.
In the first quarter of 2019, CannTrust’s harvested cannabis production reached 9,424 kilograms (roughly 20,776 pounds), a whopping 438.8% increase from the 1,749 kilograms (roughly 3,856 pounds) harvested in the first quarter of last year. That’s also a 95.7% increase sequentially. (Source: “CannTrust Reports Financial Results for Q1 2019,” CannTrust Holdings Inc, May 14, 2019.)
During the quarter, the company sold 3,014 kilograms (roughly 6,645 pounds) of cannabis, nearly tripling the 1,014 kilograms sold in the first quarter of 2018.
As you’d expect, these kinds of growth rates gave a huge boost to the cannabis producer’s top line.
In the first quarter of 2019, CannTrust generated CA$16.9 million in revenue, representing a 117% increase year-over-year and marking a new record for the company. Around two-thirds of those sales came from its medical cannabis segment, while its recreational marijuana channel accounted for the remaining third.
And the company is just getting started on its growth path. In CannTrust’s latest earnings press release, Chief Executive Officer Peter Aceto said the following:
Our fully-permitted Phase 2 expansion is expected to reach its full capacity of 50,000kg on an annual basis in the third quarter of 2019, and our 81 acres of land for outdoor cultivation has been prepared and we are awaiting regulatory approval to start planting. We have commenced work on our Phase 3 expansion in Niagara, which we expect will add a further 50,000kg of annual capacity. All told, we continue to expect to exit 2020 at a production rate of between 200,000kg to 300,000kg per year.
CannTrust Stock Chart
Chart courtesy of StockCharts.com
Despite CannTrust Holdings Inc’s expanding presence in the cannabis industry, its stock hasn’t been a hot commodity lately. Due to a recent tumble—as you can see in the above chart—CTST stock is actually trading at a lower share price than it did a year ago.
Still, the outlook for its business remains as bright as ever. As mentioned earlier, CannTrust produced 9,424 kilograms (roughly 20,776 pounds) of cannabis in the first quarter, representing an annual capacity of around 37,700 kilograms (roughly 83,114 pounds).
Management’s projection says the company’s annual production rate will surge to 200,000–300,000 kilograms (approximately 440,925–661,387 pounds) by the end of 2020, which is multiple times the current rate.
If the company can follow through on its expansion plan, it will likely generate triple-digit growth rates in sales in the next two years. And when that happens, CannTrust stock might be able to justify a much higher price.