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Vaughan, Ontario-based CannTrust Holdings Inc. (NYSE: CTST, TSX: TRST) a producer of cannabis products that is listed on the NYSE, reported financial results for Q4 2018. Revenue of $US$12.2 million was flat compared to previous quarter, missing expectations, and the stock fell 15%.
CannTrust stock has risen dramatically recently, up 100% in the past 3 months from $5 to $10, one of the strongest cannabis stock performers lately, due to its previously undervalued stock. Its price to sales ratio is now 25, high for most industries, but typical for the cannabis industry, reflecting investors are now pricing it for higher future revenue.
Management said they expect new capacity coming on board in 2019 will drive revenue up significantly starting in Q2 of 2019. With current capacity now approaching 50,000kg per year, selling all this at $5/gram could generate revenue of $250 million by mid 2020—if they can sell it all.
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In good news for investors, they reported lowering their cost per gram to $2.94 from $5.16 the year before. Lower production cost is gaining importance as competition increases and prices drop.
CannTrust is targeting a return to profitability in 2019 as the Phase 2 expansion comes online. It expects its gross margin before adjustments to improve throughout 2019 as it gains production efficiencies.
They also reported having a strong cash position, with $72.0 million in cash and short term investments on Dec 30, and working capital of $111.6 million.
“The CannTrust team…achieved record revenue…and our medical patient count continues to increase…” said Peter Aceto, CEO. “We expect…revenue growth to continue in 2019 as we bring additional capacity online through our Phase 2 expansion…implement targeted price increases, and distribute our products to more consumers.”
The completion of the initial Phase 2 expansion of the Perpetual Harvest Facility in Pelham will increase production to 50,000kg per year. Completing its Phase 3 expansion will increase capacity to 100,000kg per year later in 2020.
CannTrust has entered into Letters of Intent to buy an additional 200 acres of land, which they estimate will add 100,000kg to 200,000kg of production in 2020. When all planned expansions (Phase 2 and 3) are complete, they estimate total future annual production of between 200,000kg and 300,000kg.
Q4 2018 Highlights
- record revenue of CAD $16.2 million, up 132% from Q4 of 2017, from higher medical and rec sales
- cash cost per gram decreased to $2.94 from $5.16 the year before
- patient count increased to 58,000 from 37,000 the year before
- sold 3,407kg of dried cannabis equivalent, up from 758kg the year before
- voted Top Licensed Producer of the year at 2018 Canadian Cannabis Awards
- closed the purchase of a 20-acre property in Pelham for Phase 3 expansion
- gross margin (before adjustments) declined to 35% from 69%, from excise tax on medical sales, lower wholesale pricing, and not yet operating at full capacity
- adjusted EBITDA declined to a loss of $8.5 million, due to investments in growth
Achievements in 2019
- obtained all permits from Pelham to construct its 390,000 sf Phase 3 expansion
- common shares began trading on the NYSE under the symbol CTST
- was included in the TSX Composite Index
- agreed to buy and lease 200 acres for outdoor harvest. These should close in Q2 of 2019
- made investments to enhance its extraction process, which should triple its annual capacity
Outlook
CannTrust will continue to invest domestically and internationally.
It is developing new products ahead of the expected legalization of edibles in Canada later in 2019. These include beverages, confectionaries and vape pens.
It aims to be a leader in outdoor growing capability. These initiatives will drive higher revenue from extraction-based products in 2020. It aims to add 100,000kg to 200,000kg of cannabis in 2020.
CannTrust’s investments will improve profitability as it continues to scale. These will increase yields, lower cost per gram and advance its brand and strategic initiatives.
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Source CannTrust press release