It’s the investor’s dilemma when it comes to Canada’s pot stocks: should you go for a high-flyer like Canopy Growth or Aurora Cannabis or take a chance on a lesser-known operation like Supreme Cannabis Company?
Neither, says John O’Connell, CEO of Davis Rea Investment Counsel, who argues that for an industry yet to get its sea legs, what matters most is having a well-run business with quality leadership, and that’s what he sees in CannTrust Holdings (CannTrust Holdings Stock Quote, Chart TSX:TRST).
Like a lot of companies in the cannabis sector, Vaughan, Ontario’s CannTrust has been on a tear lately, literally doubling its share value over the past month. And while much of the recent heat in the pot space relates to outside investment interest from alcohol and beverage companies — along with the impending legalization date of October 17 in Canada — there’s still a lot we don’t know about the soon-to-be-a-reality recreational marijuana trade, says O’Connell, including which businesses are going to thrive and which ones will crack under pressure.
“If you want to invest in a cannabis stock, first make sure that you don’t allocate too much money to it and secondly, invest in a non-promotional company that has a strong balance sheet but is big enough to withstand what I believe is going to be brutal pricing in the recreational market,” O’Connell told BNN Bloomberg Tuesday.
CannTrust Holdings stock trading at “deep discount” to peers
“We own CannTrust, that’s the kind of company that you want to invest in,” he says. It’s trading at a deep discount to all of its peers, it’s very well run, it’s very professional, it’s a low-cost operator and they’re focusing on the future, not on the hype. That’s a quality company.
CannTrust recently announced a partnership with US-based Breakthru Beverage, said to be a leading distributor of alcoholic beverages in North America and the largest beverage alcohol broker in Canada. The deal will see Breakthru be the exclusive partner representing CannTrust’s specialty products to the Canadian adult rec market, along with an undisclosed investment in CannTrust.
“Breakthru was the first nationally established beverage alcohol broker in Canada and is the country’s leader in representing top beverage alcohol brands in the marketplace,” says Brad Rogers, President of CannTrust, in a press release. “Their progressive model, sales technology, infrastructure and extensive relationships across Canada make them an ideal fit for our business strategy.”
Last month, CannTrust reported its Q2 2018 earnings, which featured revenue of $9.1 million and an EBITDA loss of $1.6 million. In July, the company closed on a $100-million financing round, which the company is using to complete its 485,000 sq. ft. greenhouse facility in Niagara, Ontario.