Ahead of its second quarter financials due tomorrow, analyst Russell Stanley of Echelon Wealth Partners expects that CannTrust Holdings (TSX:TRST) will produce an EBITDA loss over Q2 as well as for the next two quarters as the cannabis company continues to scale up production. Nonetheless, the analyst is maintaining his Top Pick status and “Speculative Buy” rating for TRST, projecting a 12-month target price of $21.00.

Consensus estimates are pegging Vaughan, Ontario-based CannTrust to generate a loss of $1.9 million over Q2 on a topline of $9.0 million (Stanley expects $1.9 million and $9.4 million, respectively).

Last week, CannTrust provided an update on its partnership with Apotex Inc, Canada’s largest generic pharmaceutical company and the seventh-largest worldwide, saying that the exclusive partnership is accelerating in terms of research and development into alternate dosage formats for medical cannabis as well as quick-release and sustained-release formats for both THC and CBD.

Stanley says CannTrust’s supply agreements haven’t received the attention given to agreements locked up by other pot firms.

“In July, the company announced supply agreements with British Columbia, Alberta and Manitoba provincial buying authorities, and represent aggregate annual forecast sales volumes of 17,000 kg,” says Stanley in an update to clients on Monday. “We feel this development may have flown under the radar since the share price failed to react positively to the news at the time (TRST announced these agreements after their peers did, in favour of a more comprehensive update).”

Stanley says TRST is currently trading at a 65 per cent discount to its broader peer group and an 82 per cent discount to its $1 billion + market cap TSX-listed peers. (CannTrust’s market capitalization is currently $711 million.)

“Our 17.5x EV/2019 EBITDA multiple represents a modest 25 per cent premium to the group average,” says the analyst. “We believe that TRST warrants a premium given its track record of value added products (60 per cent of cannabis sales from extracts), future value added product development (with Apotex, for pets, and more to come) and balance sheet strength that fully funds expansion through 100,000 kg+.”

Stanley sees TRST generating Adj. EBITDA of $7.9 million on revenue of $87.1 million in 2018 and Adj. EBITDA of $134.9 million on a topline of $399.2 million in 2019. His $21.00 target represents a projected return of 213 per cent at the time of publication.