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Stone Fox Capital Advisors is a registered investment advisor founded in 2010. The firm offers portfolio management with a focus on opportunistic stocks providing secular growth trends at an affordable value. An emphasis is placed on fundamental analysis though charts are used for timing entry and exit points. Mark Holder graduated from the University of Tulsa with a double major in accounting & finance. Mark has his Series 65 and is also a CPA. Invest with Stone Fox Capital's model Net Payout Yields portfolio on IB Asset Management as he makes real time trades. The site allows followers to duplicate the model portfolio in their own brokerage accounts. You can find the portfolio and more details here: Follow Mark on twitter: @stonefoxcapital

Canntrust (CTST) Transforms from a Small Cannabis Stock Pony into a Unicorn

Prior to the market open yesterday, CannTrust (CTST) announced a large secondary offering. Investors shouldn’t be surprised that a small cannabis player recently uplisted to the NYSE would make a move to raise funds for expansion.

Relatively Large Offering

CannTrust announced the intent to sell an aggregate of $200 million worth of shares with approximately 15% of the shares being sold by common shareholders. As one would expect, the company listed the use of the proceeds as general corporate purposes such as cultivation and facility expansion along with international expansion.

Seeing some investors cashing out of shares is concerning, but the market will likely look past a $30 million cash out. At this point, the amount isn’t material to the market for any grave concern.

The stock has a market valuation of about $750 million so the approximate $170 million worth of additional shares amounts to slightly above 20% share dilution. The company had less than $100 million worth of cash at the end of December and was aggressively pursuing an outdoor grow plan with land purchased in British Columbia. The company raising funds wasn’t a big surprise.

Business Update

Along with the plan to raise more capital for expansion, CannTrust released preliminary Q1 results. The forecast is for revenues to jump to C$17.0 million for a 116% increase over last Q1, but only a minimal 5% gain from the C$16.2 million in the prior quarter.

As Health Canada stats have pointed out, legal cannabis sales in Canada haven’t increased much since the recreational market opened up last October. CannTrust lists greenhoue capacity approaching 50,000 kg per annum now and reaching a goal of 100,000 kg per annum. The Q1 harvest was 9,424 kg, nearly double Q4 levels.

The company saw revenue per gram increase in the quarter, but the amounts are misleading due to the general lack of legal supplies. For its part CannTrust plans to more than double existing sales in the next quarter or so from their indoor greenhouse plus add an additional indoor capacity along with 75,000 kg this year from outdoor growing space.

The Q1 cannabis sales rate was below 5,000 kg and will expand to possibly 75,000 kg per quarter by the end of 2020. The market has to contend with a 15-fold production capacity increase in a very short-time period where absorption of all of the additional supply has to raise major concerns.

Not to mention, the ability of CannTrust to buy only 200 acres of land in early 2019 and reach full capacity of up to 200,000 kg by mid-2020 places serious concerns about a flood of supply due to a lack of a moat for the cannabis sector.


The key investor takeaway is that CannTrust appears to have initially surprised the market with an announced $200 million secondary offering, but the news wasn’t a surprise to investors paying addition. The smaller Canadian cannabis company needed the cash to expand production capacity from a 50,000 kg annual rate in the current quarter to at least 200,000 kg and up to 300,000 kg by the end of 2020.

As the company goes from small player to major production contributor, CannTrust is likely to see the market valuation grow from a level far below $1 billion now as revenues could reach into the billions by 2021. Investors should see this capital raises as requirements for expanded and opportunities to own favorite cannabis stocks on weakness.

To read more on the nitty gritty of what’s going on in the rising cannabis industry, click here.


Disclosure: The author has no position in CannTrust stock.

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