CannTrust Holdings (NYSE:CTST) and Organigram Holdings (NASDAQOTH:OGRMF) have quite a bit in common. They have the same last name. They're both Canadian marijuana growers. And they both have similar opportunities in front of them.
The two companies aren't exactly alike, though. Investors have been more optimistic about Organigram recently than they have been for CannTrust. But which of these two marijuana stocks is the better pick now? Here's how CannTrust and Organigram compare.
The case for CannTrust
Unlike some marijuana growers, CannTrust isn't losing money. The company posted earnings of 11.4 million Canadian dollars in Q1, marking CannTrust's third consecutive quarter of profits.
A big plus for CannTrust's bottom line is that 60% of its sales stemmed from cannabis extracts. These extracts enjoy much higher profit margins than dried cannabis. Even better, CannTrust's cannabis extract sales are growing rapidly. Q1 extract revenue was more than quadruple the amount in the prior-year period.
For now, all of CannTrust's sales come from the Canadian medical marijuana market, but that could change soon. The company teamed up with Apotex on a joint venture to develop products to sell in more than 85 countries where Apotex currently does business. Apotex ranks as the largest generic pharmaceutical company in Canada and No. 7 globally.
Then there's the likelihood that Canada will soon legalize the retail sale of marijuana to adults for recreational purposes. The key for CannTrust to succeed on this front is building the capacity to capitalize on what is expected to be very high demand.
CannTrust bought a 430,000 square foot greenhouse facility near Niagara in March 2017. Around 250,000 square feet of this space has already been upgraded to meet regulatory standards for cannabis production. The company should soon complete its effort to make the remaining 180,000 square feet ready. CannTrust expects to be able to produce 50,000 kilograms annually from the facility.
The company is also pursuing other market opportunities. In April, CannTrust announced that it was partnering with Grey Wolf Animal Health to develop cannabis products for pets. The two companies believe that the veterinary market for cannabis could be sizable, considering that nearly two-thirds of households in Canada own pets.
The case for Organigram
CannTrust isn't the only Canadian marijuana grower that's profitable. Organigram delivered all-time high earnings of CA$1.1 million in its latest quarter.
Most of Organigram's sales still come from less lucrative dried cannabis. However, the company's cannabis oil sales are growing quickly. The volume of cannabis oil sold in Q2 jumped 32% higher than the previous quarter and nearly quadrupled the volume sold in the prior-year period.
Organigram continues to enjoy strong momentum in the Canadian medical marijuana market, with its number of active monthly patients soaring 472% between March 2017 and March 2018. Like most other marijuana growers, Organigram is eyeing additional opportunities.
The company has lined up two key partners so that it can expand into international markets. Organigram announced in May that it was buying a 25% stake in Alpha-Cannabis Germany. The two companies plan to apply for approval to supply medical cannabis for the German market. Organigram also is partnering with CannaTrek Medical to sell medical cannabis in Australia.
Organigram has signed supply agreements with two provinces -- New Brunswick and Prince Edward Island -- for the adult recreational market. The company has also unveiled its suite of brands targeted for this anticipated market.
What about capacity for these new markets? Organigram currently claims annual production capacity of 36,000 kilograms. The company thinks that it will be able to grow around 113,000 kilograms per year by April 2020. Organigram has also lined up deals with other companies in recent weeks to boost its capacity.
Better marijuana stock
Both CannTrust and Organigram stand to benefit from the legalization of recreational marijuana in Canada and growth in the global medical marijuana market. I think that Organigram could be in better position to take advantage of those opportunities, thanks to its supply agreements with two provinces and international partnerships. However, CannTrust appears to be a little more attractively valued than Organigram.
In my view, choosing between these two stocks is nearly a toss-up. I'll give the ever-so-slight nod to Organigram, though. My hunch is that Organigram stock will probably rise more than CannTrust stock will after the adult recreational market opens in Canada.
However, either or both of these stocks could be squeezed when the day comes where supply exceeds demand in Canada. I think CannTrust and Organigram should perform fairly well at least over the next 12 months. After that, however, things could get really interesting.