While CannTrust (CTST) isn't expected to release its full Q1 2019 results until late May, the Ontario-based cannabis producer provided investors with a sneak peek at selected metrics from the just-completed quarter. Furthermore, CannTrust announced that it will be selling an aggregate US$200 million common shares for "general corporate purposes, including cultivation and facility expansion, expanded outdoor growing, international expansion, enhanced extraction capacity, upgrades for GMP Certification and biosynthesis development." While the equity offering will help shore up the company's balance sheet, it will also dilute current shareholders. So keep that in mind.
Let's take a look at the headline numbers for the company.
- Net revenue is expected to be approximately $17 million, an increase of 116% as compared to $7.8 million for the quarter ended March 31, 2018.
- Cost of goods sold is expected to be between $9 million to $10 million, an increase of approximately 231% at the midpoint of the range as compared to $2.9 million for the quarter ended March 31, 2018.
- Gross profit is expected to be between $27 million to $28 million as compared to $21 million for the quarter ended March 31, 2018.
- Gross margin excluding changes in fair value of biological assets is expected to be between 42% and 46%, a decrease of 19% at the midpoint of the range as compared to 63% for the quarter ended March 31, 2018. This estimated decrease is primarily due to lower per unit revenues realized from the adult-use recreational market as a result of the wholesale distribution model.
- Net income before income taxes and Adjusted EBITDA are expected to be between $12 million and $14 million and a loss of between $3.5 million and $4.5 million , respectively, an increase of 14% and a decrease of 1593%, respectively, at the midpoint of the ranges, as compared to $11.4 million and $0.3 million , respectively, for the quarter ended March 31, 2018.
- The Company harvested approximately 9,424 kg of cannabis from its Niagara Facility, representing an increase of 96% from the fourth quarter of 2018.
Investors appeared to embrace the preliminary earnings news, bidding up the stock by nearly 3%, as of this writing.
CEO Peter Aceto commented, "These preliminary results represent the excellent efforts the CannTrust team has made in increasing output at our Niagara perpetual harvest greenhouse. We are quickly approaching our stated capacity of 50,000kg per year from our Phase 2 expansion. Our 96% sequential increase in production over the prior quarter will enable us to service both our rapidly growing base of medical patients and the high demand in the recreational market for our award-winning products and brands [...] We expect gross margins between 42% to 46% in the first quarter of 2019, and plan to deliver continued improved profitability as our volumes increase, as we make targeted price increases and as we realize the benefits of our low-cost high quality production strategy."
Wall Street almost evenly split between the bulls and those choosing to play it safe. Based on 5 analysts polled by TipRanks in the last 3 months, 3 rate a Buy on CTST stock, while 2 maintain a Hold. Notably, the 12-month average price target stands at $12.38, marking a nearly 71% in return potential for the stock. Ultimately, Wall Street is not completely sure yet about this cannabis stock, but the bulls still win out in the bigger picture.
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