This is the 1st part of our 4 part series on our Canadian cannabis top picks.
Canntrust is a cannabis company with greenhouses located in Vaughan and Niagara. The company is led by an experienced team with the know-how to grow the company; especially on the medical side. CannTrust has some of the “highest” sales revenue and is one of the only cannabis companies that has had positive EBITDA. Their 2017 sales totaled over 20 million with oil’s representing most of that, 60% to be precise. Their Medicinal products, as shown by recent rec supply deals, isn’t their only source of future growth. CannTrust has signed supply deals in Manitoba, BC and Alberta, showing just how well management can execute. These deals are expected to take on 17,000 kgs per annum. In their existing facility however, they can currently grow around 50 000 kgs and are undergoing another phase to bring it to over 100 000 kg/year.
One of the major catalysts should be the Ontario market announcement, as CannTrust has shown their ability to execute, as well as being solely based in Ontario. With these projected supply deals, it takes away our focus on there medical side which has over 40 000 patients currently enrolled. Another reason to believe in the medical side is their Apotex partnership. This is HUGE. Apotex is one of the largest generic drug companies, and should provide additional guidance and reach to a growing company like CannTrust, giving it credibility in a growing sector such as cannabis. CannTrust also is working on expanding this reach by working on deals such as its joint venture with Steno Care, in Denmark. Steno Care has agreements with pharmacy distributors covering almost all of Denmark, making it a worthwhile partner to work with to grow into an intriguing country.
A few criticisms people could have about the company is their growing space and capacity, but with their 600 000 sq ft expansion, they seem to be good in their production for Canada. Also remember there is a potential oversupply issue, meaning its the places to sell the product that’s going to be key; and CannTrust has plenty of places to do just that. With a medical side that may be slowing, but still growing, and with existing and potential supply deals, they should be set for the Canadian market. Their future growth will be more contingent on geographical growth, and although they have high potential in Denmark, they should be looking to grow their network and expand to other countries, like Aphria and Canopy are doing.
For those that like the concept of a little “napkin math” , their revenue last quarter with just medical was 7.8 million. gross profit on that was around 5 million, and on a full year, we’re looking at around 20 million gross before expenses, without counting growth throughout the year. As recreational sales start, it may slow medical growth, but it still remains a pillar of the company. Recreational sales, just counting Canada for the 17,000 kg projected supply deals so far, (although could be more or less depending on demand) at around $3.50/gram, would give them an additional $60 million in revenues. According to a recent article, average cost per gram to produce should be at around $0.75 per gram, representing sky high margins higher than the Canadian population will be on October 17th(legalization day). This is all without counting Ontario, who wouldn’t surprise us by ordering a large amount; in addition to any international shipments and operations that will be fully operational in the future.
Eventually as oversupply eventually kicks in and margins will be squeezed, a company like CannTrust should be able to adjust with such a high amount of sales in value added products such as oils. Supply deals with the government, and a large medical installed base should make CannTrust one of the safer companies in relevant terms of the cannabis industry. Throw in their low cost per gram, for their market cap, at 787 million(not fully dilluted), they would be considered one of our 4 picks if you want a little volatility and want to invest in the future of cannabis. Subscribe and stay tuned for the other 3 picks coming soon.