CannTrust Holdings has 88% upside, Echelon Wealth Partners says

CannTrust Holdings (CSE:TRST) is off to a strong start to 2018 and looks to be in good position to double its production, thanks to $15 million in mortgage financing the company recently announced, Russell Stanley with Echelon Wealth Partners says.

In light of the news, the analyst has reiterated his “Speculative Buy” rating for the company with a one-year target price of $16.75.

Licensed cannabis producer CannTrust operates indoor growing facilities in Vaughan, Ontario, along with a massive greenhouse space on 46 acres in the Niagara region. On Wednesday, the company announced it has closed $15 million in financing for its Niagara greenhouse facility, which will go towards CannTrust’s Phase 2 expansion to 180,000 square feet of growing space.

“Completion of this Facility gives us the ability to acquire a substantial share of the increased demand expected from the pending legislation to legalize the adult consumer recreational use of cannabis,” said Brad Rogers, President of CannTrust Inc., in a press release.

The move will be enough to at least double its current production capacity to 40,000 kg of dried cannabis a year, says Stanley, who says that CannTrust’s stock is attractive, especially in comparison with other marijuana companies.

“The stock is currently trading at 5.5x our 2019 EBITDA estimate [of $111.3 million],” says the analyst in a note to clients on Thursday. “Moreover, should yields outperform (e.g., 250 grams/SFT of footprint vs. 175 grams/SFT assumed), then our EBITDA estimate could approach $225M, and the stock is trading at less than 4x EBITDA. By comparison, the broad peer group adjusted average EV/C2019E EBITDA multiple is still well over 17x, while CannTrust’s closest peers trade at closer to 40x.”

The company has had a number of recent announcements, including earlier this week when management said it had received a Health Canada sales license for its Phase 1 250,000 sq/ft greenhouse space, along with reporting strong preliminary Q417 revenue numbers.

Stanley expects further updates from CannTrust in the near future on product development, Phase 2 expansion and the final Q417 results, coming in late March. The analyst reiterates his “Speculative Buy” rating with a target price of $16.75, representing an 88 per cent return at time of publication.