Cover growth The shares (NYSE: CGC) have exploded following the announcement of the entry into the US hemp market and the determination of investors to determine which stock of pots could be the next to offer higher yields than those of the US. market. According to the United Nations, the marijuana market is worth $ 150 billion a year. As a result, the major cannabis companies may experience remarkable growth as the prohibition of marijuana decreases around the world.
Although many companies are competing for market share in this emerging sector, CannTrust (NASDAQOTH: CNTTF) is my favorite marijuana stock to buy now. Is this action also suitable for your portfolio? Read on to find out how growth in production and sales could make this stock one of the most successful in 2019.
A market to win
The marijuana market is huge. In Canada, sales total about C $ 6 billion a year. In the United States, we spend about $ 50 billion a year. The opportunity to tap into these markets has already resulted in a wave of investment from the largest marijuana growers, including Canopy Growth.
However, Canopy Growth is far from the only company likely to experience significant sales growth over the next decade.
If they execute their plans successfully, small marijuana companies, including Aphria (NYSE: APHA), Cronos Group (NASDAQ: CRON), Tilray (NASDAQ: TLRY), and CannTrust could also be the big winners.
The Cronos Group aims for an annual production of 250,000 kilograms of Aphria North and has unparalleled financial strength as a result of a $ 1.8 billion investment by Tobacco Goliath. Altria (NYSE: MO) and Tilray's collaboration on marijuana medicine with the biopharmaceutical giant Novartis to make each one of them interesting investment ideas. However, these three actions have reasons why investors could do not want to jump and buy now:
In comparison, the purchase of CannTrust is now more logical. This is undoubtedly the most overlooked group of these potential players in the marijuana market. As a result, its market capitalization of $ 770 million means it offers investors the lowest price / sales ratio of the group.
The activity of CannTrust is underestimated
Given the multi-billion dollar caps that investors have awarded to Aphria, the Cronos Group, and Tilray, you might think that their business is much bigger than CannTrust. But that's just not true.
CannTrust's sales totaled $ 12.6 million in the last quarter of the third quarter of 2018. In the same quarter, sales of Tilray amounted to $ 12.9 million and those of the Cronos group to only $ 12.9 million. $ 3.9 million. Aphria's financial calendar is different, but its sales amounted to C $ 13.3 million for the quarter ended August 2018, so CannTrust is also competitive.
The growth rate of CannTrust is also good. In the third quarter, CannTrust sales jumped 105% from one year to the next. This was better than growth reported by Tilray and Aphria, and although the Cronos group's 186% growth was greater than that of CannTrust, growth in the Cronos group was much smaller.
In addition, CannTrust has made a profit and it is no small feat, as all marijuana companies reinvest a lot of money in their business to ensure their future growth. In the third quarter, CannTrust posted a net profit of $ 421,240, while the Cronos group lost more than $ 7 million and Tilray lost more than $ 18 million. If you cancel the investment gains, Aphria also loses money during the quarter ended August 2018.
In addition, the CannTrust product line is arguably one of the best in the industry. In the third quarter, it generated 52% of sales with high-margin extracts rather than low-margin dried flowers. By way of comparison, the excerpts accounted for 39% of Aphria's turnover for the quarter ended August 2018 and 29% of the Cronos Group's sales in the third quarter of 2018. Historically, they accounted for approximately 45% of Tilray's sales.
Why CannTrust could soar
In January, CannTrust announced that it had filed an application for listing on the New York Stock Exchange. A listing in a large US market would be important as it would open the property to larger investors. CannTrust is currently listed on the Toronto Stock Exchange and the US OTC market. However, many institutional investors are prohibited from holding foreign stocks or buying OTC shares due to insufficient volume and less transparent prices.
CannTrust did not say when the New York Stock Exchange could agree, but given that canopy growth, Aurora Cannabisand Aphria all got a green light in the last year. I think the odds are that the NYSE approves his request.
However, a bigger catalyst for the company is the recent approval of a major expansion of its largest greenhouse. The company is already completing an expansion that will soon bring its production capacity to 50,000 kilograms. This new expansion is expected to bring its capacity to 100,000 kilograms by the end of next year.
Last month, CannTrust also revealed that it was looking for additional production capacity "inside and outside of Ontario". This suggests that investors could see the company announce later this year a new, higher capacity goal for the future.
Overall, I think CannTrust's market capitalization underestimates the potential for increasing its income over the next two years because of its existing expansion efforts. If I'm not mistaken, buying shares could pay off.