Beacon Securities has initiated coverage of cannabis licensed producer CannTrust Holdings Inc. (CannTrust Holdings Stock Quote, Chart: TSX:TRST) with a “Buy” rating and 12-month target price of $21.00, representing a projected return of 66 per cent at the time publication.

Analyst Russell Stanley says CannTrust excels on a number of fronts. The company is a market leader in terms of revenue mix, he says, with sales from higher margin products like oils and extracts constituting about twice the weighted average of its major producer peers. And with 50,000 kg of current annualized cultivation capacity along with funding for expansion to more than 100,000 kg, CannTrust is a production heavyweight.

“In the immediate term, winning the shelf space battle will require producers to reliably deliver very low-cost production and/or commercially appealing value-added products for a market that is still evolving,” Stanley said in a coverage launch on Thursday. “We believe CannTrust is one of a handful of producers positioned to excel on both fronts. The Company is already one of the largest producers in the country and is currently winning a 36 per cent share of new medical patient registrations. It also leads its peers in terms of revenue mix, with 60 per cent of last quarter’s cannabis revenue coming from the sale of oils/extracts versus the 30 per cent average amongst its closest comparables.”

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Stanley sees CannTrust’s experience in the industry (founded in 2013) and management pedigree (CannTrust’s new CEO is Peter Aceto, former President and CEO of Tangerine Bank) as pluses, while at the same time he highlights the company’s beefed up balance sheet, slate of supply agreements (with eight provinces) and likely US Exchange listing in the near term.

Canntrust Holdings Stock Trades at Discount to Peers

The analyst also sees TRST as currently trading at a substantial discount to its peer group, saying that the discount has ballooned from 17 per cent to now almost 50 per cent due to rapid multiple expansion by its peers.

Stanley thinks CannTrust will generate revenue and EBITDA in 2019 of $175.8 million and $51.3 million, respectively, and revenue and EBITDA in 2020 of $306.2 million and $117.9 million, respectively. His $21.00 target is derived from a 20x EV/C2020 EBITDA multiple valuation.