The marijuana industry is budding before our eyes. This year alone, we've witnessed Vermont legalize adult-use pot entirely through the legislative process, seen the U.S. Food and Drug Administration approve the first cannabis-derived drug, and watched as two more states (Utah and Missouri) legalized medical marijuana, while Michigan expanded from medicinal pot to recreational use. And, of course, we stood in awe as Canada gave the green light to recreational pot.
We're also witnessing a transformation in the way investors analyze marijuana stocks. With Canada having legalized adult-use cannabis, operating results now matter considerably more than they ever have.
On Wednesday, following the close of trading, one of the major players in the Canadian cannabis space, CannTrust Holdings (NYSE:CTST), released its third-quarter operating results. While still very early in the game, CannTrust delivered sizable sales growth, a nominal profit, and -- perhaps most interestingly -- signaled its likely move to the New York Stock Exchange.
CannTrust Holdings Q3 results: The raw numbers
|Metric||Q3 2018||Q3 2017||Year-Over-Year Growth (Decline)|
|Revenue||*$12.59 million||$6.14 million||105%|
|Net profit per share||$0.00||$0.01||(100%)|
It was a solid quarter of growth for CannTrust, with total sales of 12.6 million Canadian dollars, an increase of 105% from the prior-year period. Canadian medical marijuana sales accounted for roughly CA$10 million, with the remainder being lower-margin wholesale revenue. It's worth noting that high-margin extracts accounted for CA$6.5 million of the company's total sales.
As for its bottom line, fair-value adjustments to the company's biological assets (i.e. cannabis plants) helped it, minus expenses, to generate CA$400,000 in net income, or $0.00 per share. Though down from a per-share profit of CA$0.01 in Q3 2017, it was nevertheless another profitable quarter.
What happened with CannTrust Holdings this quarter?
As you can imagine, given the lead-up to the Oct. 17 launch of recreational marijuana in Canada, most of CannTrust's focus has been on capacity expansion and its brands. Here are some of the highlights of what transpired during, and just after, the third quarter.
- CannTrust entered into supply agreements with nine of Canada's 13 provinces and territories during the quarter. The more supply deals the company has, the less scrambling it has to do to find a home for its cannabis.
- The company wound up launching a new recreational brand known as Peak Leaf during the third quarter. This is CannTrust's fourth adult-use brand, joining the previously launched Liiv, Synr.G, and Xscape.
- CannTrust made its first shipment of cannabis oil to Denmark, signaling the company's push into overseas markets where medical marijuana and/or alternative pot products are legal.
- Subsequent to the end of the quarter, CannTrust acquired 19.4 acres adjacent to its Niagara Greenhouse Facility that can be used for capacity expansion. The company is currently completing a 600,000-square-foot expansion of the Niagara Facility (450,000 square feet were completed and opened in late June).
- On Oct. 1, CannTrust announced that co-founder Eric Paul had stepped down from his role as CEO (Paul was named board chairman), with Peter Aceto named the new CEO.
- The company announced in its third-quarter operating results press release its intent to list its shares on the NYSE.
What management had to say
With strong sales growth and CannTrust on track with its expansion projects, management was nothing but smiles in the third quarter. Eric Paul said: "We are extremely pleased with our Q3 results that are a testament to the success of this Company and the incredible progress that we have made in such a short period of time ... The appointment of Peter Aceto as CEO, a globally recognized and seasoned professional, will be the perfect compliment to our leadership team and will lead our Company into the next phase of our rapid growth."
The newly appointed Aceto had this to add about the company's prospective U.S. listing: "CannTrust has firmly established itself as one of the top licensed producers in Canada with a global platform rooted in science and innovation. A U.S. listing is a natural step forward in our evolution as we look to broaden our investor base and expand our business on an international scale."
So, what's next for CannTrust Holdings? Essentially, it's more of the same.
The company will be looking to complete its more than 1-million-square-foot Niagara Greenhouse Facility, which features hydroponic growing and moving containerized benches (known as the perpetual harvesting system). Management has previously stated that peak production will be in excess of 100,000 kilograms once Niagara is fully operational, and also taking into account its Vaughan Facility. Like its peers, it'll also be focusing on marketing, branding, and pushing into new markets.
What's important for investors to remember here is that there's no precedent for an industrialized country legalizing recreational marijuana, so this is just as much a learning experience for these pot companies as it is for Wall Street and investors. Though it's a rapidly growing industry, it'll take time to mature. This means investors need to take these quarterly earnings snapshots in stride and maintain a long-term view.
Based on what we've seen from CannTrust in the third quarter: So far, so good.