retiredcf wrote: CannTrust Holdings Inc. (TRST-T) is "one of a handful of producers positioned to excel" in the early days of the legal marijuana market, according to Beacon Securities analyst Russell Stanley.
"We believe that shelf space has become the new battleground in the Canadian market," he said. "On a mid/long-term basis, winning this battle will require the capacity to produce on a large-scale basis in terms of both volume and product breadth. Moreover, as additional production capacity comes online, we expect price compression for standard dried flower products, which will make the development and commercialization of higher value products (e.g. oils/extracts, capsules and creams in today's market, and vape pens, edibles and beverages for tomorrow's) increasingly important.
"TRST already excels on both fronts, and we expect that to continue. The Company is already the market leader in terms of revenue mix, as 60 per cemt of last quarter's cannabis revenue came from the sale of oils/extracts. This weighting is approximately 2 times the weighted average amongst major producers of 30 per cent, and puts CannTrust well ahead of its closest peers at the 45-per-cent level. We believe this demonstrates the Company's ability to deliver and achieve market penetration for value-added products. Through partnerships with Apotex and Club Coffee L.P., TRST is well positioned to continue developing and commercializing higher value products that should help the Company further penetrate both the recreational and medical markets."
In a research report released Thursday, Mr. Stanley initiated coverage of the stock with a "buy" rating.
"CannTrust is already one of the largest producers in the space, with a current annualized cultivation capacity of 50,000 kilograms, and a fully-funded Phase 3 expansion on track to take that to 100,000 kilograms plus," he said. "This puts TRST in the upper tier of producers in terms of scale, which we believe will be important to provincial buying authorities as it helps ensure reliability of supply.
"Importantly, CannTrust has already secured supply agreements with eight provinces, the only notable exceptions to date being Quebec and Saskatchewan. The Company also recently announced entering a letter of intent with Canada's largest beverage alcohol broker of premium spirits, wine and beer brands (Breakthru Beverage Group)."
Seeing multiple potential catalysts for the stock, Mr. Stanley set a target price of $21, exceeding the consensus of $16.11.
"We believe that a U.S. exchange listing is a likely initiative for the Company in the near-term," he said. "With just three current U.S.-listed peers trading at an average of 99 times EV/calendar 2020 estimated EBITDA based on consensus estimates (ranging from 37 times to 163 times), the multiple lift could be significant. With an existing relationship with Apotex covering the pharmaceutical space, we expect CannTrust to develop similar partnerships for other verticals.
"Finally, we believe that CannTrust's fully-funded large scale production platform, leadership in higher value products, and supply agreements in eight provinces make CannTrust an ideal acquisition target, particularly for companies from other industries looking for a platform transaction to enter the space."