CannTrust Holdings is seriously undervalued, Beacon Securities says

CannTrust Holdings (CannTrust Holdings Stock Quote, Chart TSX:TRST) may have hit a snag in its expansion plans, but the company still stands out among its cannabis peers in terms of production and, importantly, share price, says analyst Russell Stanley of Beacon Securities.

Earlier today, CannTrust provided an update on its expansion schedule, which is in the middle of its Phase II efforts to double the company’s capacity to 50,000 kg per year. Phase III will involve construction (already underway) of an added 35,000 sq. ft. greenhouse that would effectively double annualized production once again.

But the latter expansion was put on hold when on October 15 the Town of Pelham, Ontario’s City Council passed an interim control bylaw which restricts granting new land use permits for cannabis purposes for one year.

“We initially applied for ten permits relating to the development of our Phase III expansion. We’re still working with the municipality to have all those permits approved,” said Michael Camplin, General Manager of CannTrust’s Niagara operations, in a press release. “We respect the Town of Pelham’s process. We have multiple strategic alternatives available to us and we hope Pelham is one of them.”

In the meantime and as it works to get approval for Phase III, management says that it may accelerate its pursuit of other plans which go beyond its Phase III greenhouse.

Stanley is taking the news as having a “slightly negative” negative impact, yet stresses that in all likelihood, the effect on TRST’s longer-term production will be nil.

“We are maintaining our estimates for now, given that our 2020 forecast assumes a relatively modest contribution from Phase III, and we believe the company has ample time to resolve the Pelham permitting issue and/or make progress on its other expansion options,” Stanley says.

The analyst underlines the fact that CannTrust’s reported value of its inventory and biological assets ranks fourth in the Canadian industry and that TRST is currently trading at a 59 per cent discount to its broader peer group, based on Stanley’s 2020 financial estimates, and at a 50 per cent discount based on his 2019 estimates.

Stanley has reiterated his “Buy” recommendation and $21.00 target price, representing a 202 per cent return as of publication date.