CannTrust Holdings has a 109 per cent upside, Echelon Wealth says

A new joint venture with Danish company Stenocare will help Canadian cannabis producer CannTrust Holdings (CannTrust Holdings Stock Quote, Chart, News: TSX:TRST) reach its expansion goals, says Russell Stanley, analyst with Echelon Wealth Partners.

In a Tuesday update to clients, Stanley reiterates his “Speculative Buy” and Top Pick ratings for TRST and maintains his 12-month target price of $18.50 per share.

Vaughan, Ontario’s CannTrust announced the joint venture on Tuesday, saying that the deal will see CannTrust receiving a 25 per cent stake in Stenocare along with the selling its cannabis oils and oil-filled capsules in Denmark and future plans to open a cannabis cultivation and production facility in the country.

Stenocare is a private company founded in October 2017 to focus on Denmark’s newly opened medical marijuana market (Denmark began a four-year pilot program on January 1, 2018, giving physicians the power to prescribe medical cannabis).

“This is a key step in our strategy to expand our best in class products on a global platform. We look forward to building, together with Stenocare, an industry leading facility in Denmark. By leveraging off our leading-edge perpetual harvest technology, Stenocare will be able to deliver high-quality, standardized medical cannabis products for the Danish market” said Eric Paul, CEO of CannTrust, in a press release.

Stanley says the move is in line with CannTrust’s growth strategy. “This marks the company’s second international growth initiative (Australia being the first), and we believe expansion into other international markets – on multiple continents – is a priority for the Company,” says the analyst.

“According to the Danish Medicines Agency (DMA) website, we understand that Stenocare is one of just two companies that has been licensed to manufacturer cannabis intermediate products. Moreover, it already has agreements in place with two leading pharmaceutical distributors that serve 99 per cent of the pharmacies in the country,” he says.

The analyst thinks TRST will produce revenue and Adjusted EBITDA of $111.3 million and $33.1 million, respectively, in 2018 and revenue and Adj. EBITDA of $286.5 million and $111.3 million, respectively, in 2019.

Stanley’s “Speculative Buy” rating comes with a $18.50 target price, based on a 16x F2019E EBITDA valuation and representing a potential return on investment of 109 per cent at the time of publication.