Shares of CannTrust Holdings (NYSE:CTST) were crashing 16.8% lower as of 11:24 a.m. EDT on Thursday. The Canadian marijuana producer announced disappointing fourth-quarter results before the market opened.
CannTrust reported Q4 net revenue of 16.2 million Canadian dollars (around $12.1 million), up 132% year over year. However, the consensus estimate among analysts surveyed by FactSet was for net revenue in the quarter of CA$20.3 million ($15.2 million). CannTrust's net loss of CA$25.5 million ($19 million), or CA$0.26 per share ($0.19) was also much worse than the average analyst estimate of a loss of CA$0.04 per share ($0.03).
This was CannTrust's first quarterly update after listing its shares on the New York Stock Exchange (NYSE) last month. The company missed its opportunity to make a good first impression. CannTrust's disappointing results looked even worse in light of the fact that larger rivals Aurora Cannabis and Canopy Growth posted strong numbers in the last quarter.
However, one subpar quarter isn't a reason to worry too much. CannTrust still generated solid revenue growth in Q4. The company's production capacity is just getting cranked up, so CannTrust should be able to achieve stronger sales growth throughout 2019.
And while CannTrust's net loss was wider than anticipated, the company stated that it "made deliberate investments in operating expenses in support of its growth efforts." These investments included launching its recreational cannabis brands, adding staff to support research and development and international expansion, and listing on the NYSE. This additional spending could pay off over the long run.
There are two things that investors should especially watch with CannTrust over the coming months that matter more than its Q4 performance.
One is the company's efforts to increase production capacity. Completion of the phase 2 expansion of the Perpetual Harvest Facility should boost CannTrust's annual production capacity to 50,000 kilograms. The company should also move forward with its planned phase 3 expansion that's expected to increase capacity to 100,000 kilograms by the second half of next year. In addition, CanTrust is moving ahead with its plans to grow cannabis outdoors.
The company is also preparing for the anticipated launch of the cannabis edibles market in Canada later this year. CEO Peter Aceto said that CannTrust intends to be "an early mover in vaporization products and develop further partnerships to bring innovative products to market."
If CannTrust is successful in expanding capacity and launching new products later in 2019 that consumers want to buy, the disappointing Q4 results could soon be forgotten.