Initiating Coverage - October 23, 2017
CannTrust Holdings Inc. (TRST-V, $4.58)
Rating: Buy; Target: $8.00; Risk: High
Neal Gilmer, MBA,
CannTrust Derivative Products to Drive Margins
We are initiating coverage on CannTrust with a Buy
Solid Growth Reported:
CannTrust reported Q3/17 growth of 35%, resulting in revenues of $6.1 million. Importantly, the Company also announced that 61% of sales were from oil products that drive higher margin sales. In our view, this is one of the higher oil sales ratio among the licensed producers.
the cusp of significant expansion: CannTrust recently received its cultivation license from Health Canada for its Phase 1 expansion in Niagara. This will position the Company to realize significant growth throughout 2018, not only from the medical market it has been very successful at capturing market share, but also the recreational market that is expected to come on-line in mid-2018.
A leader in oil sales, partnership with Apotex will only help improve medical reach:
CannTrust's recently disclosed 61% ratio of oil sales puts it as one of the leaders in this category for LP's, in our view. This rate has continued to climb over the course of the past year since the Company was granted its oil sales license in August 2016. We believe that CannTrust's % of sales of oil/extract products will continue to increase, particularly as it releases new products, such as capsules it is currently working on, but other novel products that are likely to be developed through its partnership with Apotex (private).
Initiate with Buy rating -
We are launching coverage of CannTrust with a Buy rating and $8.00 target price. We believe the shares of CannTrust will continue to perform well as more investors realize the solid margins that can be recognized through a higher percentage of derivative product sales. The company has already demonstrated this with its oils, that will only increase with capsules to be released in the near-term and future formulations through its partnership with Apotex.