Cannabis name CannTrust Holdings (CannTrust Holdings Stock Quote Chart TSX:TRST) has been on a downward slope ever since its March quarterly earnings but the stock could be in for a turnaround, says analyst Russell Stanley of Beacon Securities, thanks to a just-announced joint venture in the United States.
CannTrust on Wednesday announced a letter of intent to form a 50/50 joint venture with California-based Elk Grove Farming Company to secure 3,000 acres of farmland in South Carolina for hemp production. The JV would see CannTrust contribute genetics and expertise in cultivation, drying and extraction, with the resulting extract to be used for CBD products for sale in the US and would include both CannTrust’s existing proprietary lines as well as future formulations. TRST is expected to invest $20 million in the JV through to the end of 2020.
Stanley says he likes the move.
“This marks the company’s entry into the United States, beginning with the largest cannabis market in the country. We view the development positively, but are not yet specifically including it in our model/valuation, given that the venture is still at the non-binding LOI stage,” said Stanley in an update to clients on Wednesday.
The analyst says TRST is now trading at an 84 per cent discount to its US-listed peers and contends that the technical picture on the stock is “beginning to look more positive, given the stock’s positive response to [the JV news].”
Stanley has reduced his fiscal 2019 revenue estimate from $158 million to $126 million to reflect the likely timing of sales from the company’s upcoming outdoor cultivation footprint, which he had assumed to begin in Q4 2019 but is now pushing back to fiscal 2020. The analyst has reiterated his “Buy” rating and $15.00 target price, which represented a projected return of 110 per cent at the time of publication.