Some investors might have been disappointed that CannTrust Holdings (NYSE:CTST) stock didn't pop after the Canadian marijuana producer listed on the New York Stock Exchange on Feb. 25. But any disappointment should be overshadowed by the fact that CannTrust ranked among the best-performing marijuana stocks last month, and its share price isn't too far away from doubling this year.
But if you're looking to buy CannTrust now, past stock performance isn't important. Instead, here are five things you should know about this high-flying marijuana stock before investing your money.
1. Solid production capacity
I know it's becoming a cliche, but capacity is king in the cannabis industry right now. Without products to sell, no company will increase its sales. The good news for CannTrust is that its production capacity should ramp up significantly in the not-too-distant future.
The company received a long-awaited green light in January to begin phase III construction of an expansion to its Pelham facility. Although CannTrust will only add 390,000 square feet instead of the 600,000 square feet initially planned, the company still expects to have an annual production capacity topping 100,000 kilograms by the second half of 2020.
2. Low production costs
Capacity helps drive revenue, but ultimately it's the bottom line that's important. To achieve consistent profitability, a marijuana producer must have low production costs. CannTrust checks off that box quite well.
CannTrust currently has a production cost of $0.83 Canadian per gram, which makes it very competitive with peers. Its target production cost is a super-low CA$0.25 per gram. CannTrust thinks it can achieve this goal in part using its cannabis flower genetics innovations.
3. Key partnerships
English poet John Donne wrote that "no man is an island." No marijuana producer is an island, either. It takes partnerships to achieve success. CannTrust has several of them.
The company teamed up with Breakthru Beverage Group, Canada's leading alcoholic beverage distributor, to reach customers in Canada's recreational marijuana market. CannTrust is also working with National Access Cannabis to launch over 200 cannabis retail stores throughout the country. In addition, the company is collaborating with GreyWolf Animal Health to develop cannabis products for animals.
4. International strategy
While Canada is certainly important, even bigger opportunities exist in international medical marijuana markets. Although it's still early for these markets, CannTrust already has a strategy in place.
CannTrust partnered with CannaTrek to sell medical cannabis products in Australia. It also established a joint venture with Stenocare, the first company to receive approvals to distribute medical cannabis products in Denmark. However, CannTrust hasn't moved into other key international markets yet, including Germany and Latin America.
5. Financial position
Most marijuana producers aren't profitable yet. But CannTrust reported positive net income in its third quarter, which ended Sept. 30, 2018, a streak of profitability that extends back to mid-2017.
There is a catch, though. CannTrust's net income continues to be boosted by fair value changes to its biological assets (its crops and inventory). However, the company should be headed for operational profitability as its sales continue to climb and it reduces production costs.
The big picture
CannTrust appears to be in a great position to prosper as the Canadian recreational market expands. The company could receive a nice boost later this year with the anticipated opening of the market for cannabis beverages, edibles, and concentrates.
For the company to keep up with its larger rivals, though, CannTrust will need to expand its international operations significantly. CannTrust is somewhat behind several of its peers but is ahead of others in pursuing global opportunities.
Based on projected 2020 production capacity, CannTrust offers an attractive bang for the buck compared to most other Canadian marijuana stocks. The company might not rank at the top of the industry, but I think that its valuation and overall strategy makes CannTrust a marijuana stock for investors to definitely consider.