BofA: CannTrust's Global Expansion 'Underappreciated'

Canadian cannabis company CannTrust Holdings Inc CTST announced an expansion Wednesday to the U.S. — and in Bank of America Merrill Lynch's view, the company's international ambitions are "underappreciated" by investors.

The Analyst

Christopher Carey maintained a Buy rating on CannTrust Holdings with an unchanged $7 price target, and a CA$9 ($6.83) price target on the TSX-listed stock.

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The Thesis

CannTrust's new joint venture with Elk Grove Farming will give the cannabis company the rights to produce hemp on more than 3,000 acres of farmland, Carey said in a Wednesday note. (See his track record here.)

This marks the first step in the company's expansion outside of its Canadian home base into the "attractive" U.S. CBD market, the analyst said. 

The Street may be guilty of not paying sufficient attention to the large CBD white space opportunity, which was federally legalized in late 2018, Carey said. The potential for CBD spreads across drug and convenience stores, grocery stores and general/specialty retailers, he said.

Canadian cannabis companies who boast superior capitalization and a reputation for demonstrating international strategies are likely to fare better in international markets, the analyst said.

CannTrust fits this profile and the stock looks attractive, especially at a lower valuation, he said. 

BofA's $7 price target is based on 4.5 times 2020 estimated EV/sales.

Price Action

CannTrust Holdings shares were trading down slightly at $5.35 at the time of publication Thursday. 

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Photo courtesy of CannTrust.