CannTrust Holdings Inc. (NYSE: CTST) shares popped over 5% in early trading on news that the company had formed a joint venture with California hemp grower Elk Grove Farming Company. CannTrust is a Canadian cannabis company founded by pharmacists and this would be the company’s entry into the United States. The company said it expects to invest roughly $20 million in the operation by the end of 2020. The shares were lately trading at $5.22.
CannTrust signed a non-binding Letter of Intent with Elk Grove that will provide access to over 3,000 acres of farmland for hemp production. Elk Grove will be able to provide low-cost hemp with high cannabidiol (CBD) content. CannTrust and Elk Grove will each have 50% ownership of a new entity or joint venture.
The company said that prior to the commercial scale cultivation from the Joint Venture in 2020, CannTrust plans to execute on its processing strategy from the biomass produced from the Joint Venture, and its product development strategy. The company said that extracted product from the California operation in proprietary products has already been developed and that are ready for commercial production. The company specifically mentioned patented single-serve beverage pods.
“This agreement represents another bold move for CannTrust. Our U.S. operation is expected to deliver a significant increase in low-cost production capacity, which will leverage our expertise in standardized CBD-based product formulation, and will give the Company a foothold in the largest international CBD market in the world with an experienced and knowledgeable partner,” said Peter Aceto, Chief Executive Officer of CannTrust. “Following our successful equity offering, we have the liquidity we need to fund our ambitious growth plans including our greenhouse expansion in Niagara, our outdoor cultivation operation in British Columbia, our global footprint expansion and now our U.S. operation.”
According to the statement, Elk Grove has multi-generational experience in farming across a wide variety of commodities and value-added expertise in leading crop protection products, application, and input supply with operations throughout the State of California. “We are thrilled to be partnering with CannTrust. Our knowledge of farming operations in California coupled with CannTrust’s expertise in developing award-winning formulations is the perfect match to become a trusted supplier of CBD products in the U.S,” said Morgan Houchin of Elk Grove Farming Company.