Cannabis company CannTrust Holdings (CannTrust Holdings Stock Quote, Chart TSX:TRST) will commence trading on the NYSE next Monday, a move that Beacon Securities analyst Russell Stanley is taking as a positive for the company.
In a Wednesday update to clients, Stanley reiterated his “Buy” rating with the new target of $24.00 (was $21.00), representing a projected 12-month return of 110 per cent at the time of publication.
Vaughan, Ontario’s CannTrust announced on Wednesday that it would begin trading next Monday on the NYSE under the ticker CTST.
“We are continuously looking to deliver shareholder value and the NYSE listing is a natural progression for CannTrust,” said CEO Peter Aceto, in a press release. “We have taken steps to strengthen our management team to accelerate our growth as we face high demand for our products and expertise, both domestically and internationally.”
Stanley says the (currently) six US-listed cannabis companies are getting a significant scarcity premium, shown by their valuations: the six trade at an average of 87x EV/2020 EBITDA estimates versus the broader peer group which trades at an average of 23x. The analyst attributes the higher multiple at least partially to strong investor demand for the limited number of US-listed pot stocks.
“As more companies obtain NYSE/NASDAQ listings, we expect the scarcity appeal to diminish over time, but in our view there is little question that a US exchange listing is still viewed as a strong validation of the issuers that obtain them, particularly in a market that is still early in its development,” the analyst says.
“We view [CannTrust’s] announcement positively, as it should significantly expand the company’s investor audience,” he adds.
Stanley says his new valuation for TRST —23x his EV/2020 EBITDA estimate— is a 15 per cent increase over the previous 20x multiple but is still a 74 per cent discount to the US-listed group. He considers this a nonetheless conservative valuation given CannTrust’s “strong competitive position, large scale/low cost production capacity and demonstrated success in commercializing value-added cannabis products.
For catalysts, Stanley mentions the actual listing, the company’s fourth quarter results due in early March, further progress on capacity buildout and potential strategic partnerships and M&A activity.