CannTrust Holdings Inc. (TSX:TRST) is a licensed producer and distributor of medical cannabis in Canada under the Access to Cannabis for Medical Purposes Regulations (ACMPR). The Company started production of medicinal cannabis at its hydroponic facility situated in Vaughan, Ontario and received its cannabis sales license from Health Canada on February 9, 2015.

CannTrust Holdings has a market capitalization of $642 million on the TSX. TRST trades at 3.0x EV/Sales for 2019 and 8.0x EV/EBITD for 2019 compared to Canadian-based peers, which trade at a median of 2.7x and 10.1x, respectively. The average analyst price target is $14.43.

Investment Thesis

• Broad cannabis product portfolio
• Expansion of production facilities
• Partnership with pharmaceutical and cannabis companies

Expansion of production facilities

CannTrust Holdings has a 50,000 square foot, state-of-the-art hydroponic indoor facility located in Vaughan, Ontario, where cannabis cultivation and processing of extracts takes place. The facility also has a distribution center for supplying the products to cannabis markets.

Another production site owned by CannTrust Holdings is in the Town of Fenwick within the Niagara region, which is a 430,000 square foot greenhouse facility. CannTrust Holdings acquired the real estate assets and related greenhouse equipment in March 2017. About 250,000 square feet of the Phase 1 site received its Health Canada Cultivation License under ACMPR in October 2017. The Company also received its Sales License in February 2018.

Currently, Phase 2 expansion at the greenhouse facility is ongoing and is expected to be completed by mid-2018. Overall, Phase 1 and Phase 2 is expected to provide an additional 40,000 kilograms of annual growing capacity. Furthermore, unused land of 36 acres at this facility provides CannTrust Holdings with an option to utilize it for significant future expansion.

Broad cannabis product portfolio

CannTrust Holdings’ main focus is to produce and deliver the highest quality, standardized, pharmaceutical grade cannabis products  The Company’s ongoing goal is to strengthen its market share in legal marijuana markets in Canada and to make its products available for legal cannabis markets across the globe. Currently offering cannabis dried plants and drops, CannTrust Holdings aims to widen its product portfolio by developing new and innovative products and dosage forms for controlled and responsible use of medical cannabis. In 2015, the Company, together with Club Coffee L.P., founded Cannabis Coffee & Tea Pod Company Ltd. (CCTPC) to launch BrewBudz globally. BrewBudz is a patented unit dose pod formulation permitting the administration of cannabis using single-serve brewing pods for use in Keurig, Nespresso, and Tassimo-type brewers. Brewbudz is available in United States presently and is going to be offered in Canada soon, along with cannabis capsules.

Partnership with pharmaceutical and cannabis companies

In order to achieve its growth objectives, CannTrust Holdings entered into an exclusive joint venture in December 2016 with Apotex Inc., Canada’s largest and the seventh-largest generic pharmaceutical manufacturer in the world. The partnership between the two is aimed at developing novel dosage formats and products for sale into more than 85 nations, where Apotex already has market share.

CannTrust Holdings also signed a joint venture agreement in March 2018 with Denmark-based STENOCARE, which was established in 2017. For reference, medical cannabis became legal in Denmark on January 1, 2018 after a unanimous vote by parliament. STENOCARE is one of the first Danish companies to receive its license to grow and produce medical cannabis, as well as to import and sell cannabis products in Denmark. At present, STENOCARE has agreements with two Danish pharmaceutical distributors, which together, service 99% of pharmacies in the Denmark. According to terms of the agreement, CannTrust will have a 25% equity stake in STENOCARE, as well as the right to appoint half of its Board of Directors. Initially, STENOCARE plans to sell CannTrust’s market-leading standardized cannabis products in Denmark, while working towards developing a domestic marijuana growing facility. The construction of the growing facility is anticipated to commence in Q2 2018, with technical expertise being provided by CannTrust Holdings.

Other countries that the Company anticipates shipping its products shortly include Australia, Germany, Mexico and Brazil.

Outlook and Valuation

In terms of valuation, CannTrust Holdings has a market capitalization of $642 million on the TSX. TRST trades at 3.0x EV/Sales for 2019 and 8.0x EV/EBITD for 2019 compared to Canadian-based peers, which trade at a median of 2.7x and 10.1x, respectively. The average analyst price target is $14.43. The Company’s diverse product portfolio, partnership with other pharmaceutical and cannabis companies, and expansion of production facilities makes it attractive for a certain-type of investor that is comfortable with higher-risk opportunities.