CannTrust Announces Estimated $17 Million In Revenue, $200 Million Offering

Ontario-based CannTrust Holdings Inc. (TSX: TRST) (NYSE: CTST) reported preliminary estimates for the quarter ending  March 31, 2019, with net revenue expected to be approximately $17 million, an increase of 116% versus the $7.8 million for the same time period in 2018. CannTrust said that the estimated increase in revenue is primarily due to a 68% increase in medical patients combined with the contributions from the Canadian adult-use recreational market, which was legalized in October of 2018.

The net income before income taxes is expected to be between $12 million and $14 million as compared to $11.4 million and adjusted EBITDA a loss of between $3.5 million and $4.5 million versus $0.3 million, for the quarter ended March 31, 2018. The estimated decrease in Adjusted EBITDA is primarily due to deliberate and disciplined operational investments to support the Company’s planned growth initiatives. The estimated increase in Adjusted EBITDA is primarily due to increased gross profit, before the unrealized gain on changes in fair value of biological assets combined with lower operating expenses.

The gross profit is expected to be between $27 million to $28 million versus last year’s $21 million for the same time period last year. The estimated increase in gross profit is primarily due to an increased in unrealized fair value gains on biological assets and an increase in gross profit, before changes in fair value of biological assets. The expected gross profit is a nice turning point from last year’s gross loss of $8.3 million realized during the previous quarter that ended December 31, 2018.

“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.” said Peter Aceto, Chief Executive Officer. “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.”

Cost Of Goods Sold Decreases Sequentially

The 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. The company attributed the estimated increase in the cost of goods sold to an increase in sales. The estimated cost of goods sold represents a decrease of approximately 9% as compared to $10.5 million for the previous quarter. The estimated decrease in the cost of goods sold is primarily due to lower growing cost per gram as harvested quantities increased.

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. The estimated gross margin excluding changes in fair value of biological assets represents an increase of 9% at the midpoint of the range as compared to 35% for the quarter ended December 31, 2018.

$200 Million Offering

CannTrust also announced that it has begun an underwritten public offering of $200 million common shares, in which approximately 85% of the common shares are to be sold in the offering by the company and approximately 15% of the common shares to be sold in the offering by certain shareholders. In connection with the offering, the company and the Selling Shareholders expect to grant to the underwriters a 30-day option to purchase up to an additional 15% of the number of common shares sold in the offering.

CannTrust said that it intends to use the net proceeds of the offering for general corporate purposes, including cultivation and facility expansion, expanded outdoor growing, international expansion, enhanced extraction capacity, upgrades for GMP Certification and biosynthesis development. The company said it has not yet determined to pursue any particular research and development initiative requiring the use of a portion of the net proceeds of the offering and will evaluate research and development initiatives as they present themselves, including the terms, capital requirements or timing of any such initiatives.

Debra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Masters degree in Business Journalism from New York University.

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