CannTrust Holdings Inc (TSE:TRST) Posts Strong Quarterly Results

Benjamin A. Smith
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CannTrust Holdings Inc (TSE:TRST) (OTCMKTS:CNTTF) (FRA:C9S) was the last major Canadian LP to report quarterly numbers this week, and they didn’t disappoint. The strong results give hope that TRST could attract buyers at levels ↓51.44% discounted from the October 15th close.

Starting with the all-important top line revenue number, CannTrust recorded revenues of $12.6M in Q3 2018, up 105% from the prior year. Cannabis equivalent sold from extracts rose ↑17% to a record 699.39 kg, while prices remained stable. Patient enrollments topped 50,000—a 61% increase from the comparable prior year period. Operating Expenses chimed-in at 91% of sales ($11.5M), versus 95% of sales ($8.6M) last quarter. There’s several positive top and bottom line takeaways in this report.

On the heels of Canopy Growth’s lackluster report, it’s a fresh reminder that not every Canadian LP is hemorrhaging capital. Although net income declined, it was the sixth consecutive quarter of in-the-black numbers—unheard of in Canadian weedstocks.

CannTrust also provided an update on their anticipated New York Stock Exchange listing. Although it was a canned response, it provided confirmation that the wheels are indeed in-motion. In their own words: “Any such listing remains subject to the approval of the NYSE and the satisfaction of all applicable listing and regulatory requirements.”

A Couple Of Questions Remain

Earning releases are supposed to highlight all the good which occurred during a company’s fiscal quarter. Given that the report highlighted the period ending September 30th, it comes as no surprise that CannTrust focused specifically on the numbers. Still, there’s a couple of material questions surrounding circumstances the company has yet to address.

The first pertains to CannTrust’s recent supply issues, which caused them to temporarily out of stock in several popular product lines. No status update on this recent hiccup is given—either in the presser or online. We do know that there was a $6.0 million draw-down on biological assets, although it’s unclear if it’s related to CannTrust’s recent inventory problems. The company is taking substantive measures to solve the issue according to the linked blog post (above), but we look forward to further clarification as it’s received.

The second pertains to now-former President and COO, Brad Rogers. The official word from new CEO Peter Aceto CEO is that “Brad chose to leave to pursue other opportunities and to spend time with family.” Yet, the timing of such a decision appears quite coincidental and unorthodox. Why would Brad Rogers leave the company now—less than a month after adult-use legalization—with the company’s best years just beginning?

On a related note, CannTrust has failed to address Mr. Rogers’ hasty departure in a conventional manner. The only word thus far was a simple, under-the-gun tweet. Does the company believe that Roger’s exodus isn’t material enough to require a specific public explanation?

Perhaps the plan was to address the matter at a later date. Fair enough. But thus far, the company hasn’t been completely transparent on at least two matters of shareholder interest.

Final Thoughts

Considering the extreme weakness on CannTrust stock, the results are likely strong enough for investors to begin nibbling again. TRST has been mercilessly pounded lately; some could argue with overzealous abandon. Either way, it’s a reminder that while much of the sector is still a long way from profitability, some Canadian LPs are doing just fine.

TRST requires an hourly close above $7.74/share before the near-term downtrend can be considered contained.

Benjamin A. Smith

Benjamin A. Smith

Ben is a research analyst and capital markets professional with nearly 20 years of experience. His areas of expertise are broad-based, and include extensive knowledge of macro economics, stock/derivative trading, commodity complexes, cryptocurrencies and technical/quant analysis. He also maintains an particular affinity for U.S. politics and the macro-regulatory environment facing...
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