Licensed producer CannTrust Holdings (CannTrust Holdings Stock Quote, Chart, News: TSX:TRST) is trading at a “nonsensical” discount to its peers, says analyst Russell Stanley with Echelon Wealth Partners. In a note to clients on Wednesday, the analyst says that despite its stock underperforming, CannTrust has delivered on a number of important milestones, making it a “Top Pick” for Stanley and a “Speculative Buy” with an $18.50 price target.

Vaughan, Ontario-based CannTrust Holdings has made plenty of progress in terms of building up its operations ahead of rec legalization in Canada, says Stanley, but that’s not reflected in its current share price.

“Few cannabis companies accomplished so much during Q118, yet TRST fell 14 per cent during Q118 versus the adjusted average loss of 7 per cent for our tracking group and the loss on the Horizons Marijuana Life Sciences ETF (HMMJ-TSX, NR) of 10 per cent,” the analyst says.

The analyst points out that over Q1 of 2018, CannTrust obtained a sales license for its Niagara greenhouse facility, graduated from the CSE to the TSX, expanded its sales potential with a joint venture in Denmark and closed on $15 million in mortgage financing to support its Phase 2 expansion.

“Our comparable group of cannabis companies now trades at an adjusted average of 13.5x EV/2019E EBITDA, based on consensus estimates (TRST has a December 31 FYE, so its fiscal year is directly comparable to the calendar 2019 equivalents in our comparable group),” says the analyst. “TRST is now trading at 9.7x EV/2019E EBITDA, or a 28 per cent discount to the peer group, based on consensus estimates, and 5.8x EV/2019E EBITDA based on our forecast, for a 57 per cent discount.”

“When compared against the 24.6x EV/2019E EBITDA (based on consensus) at which the closest TSX-listed comparables trade, the discount widens to 61 per cent based on consensus estimates for TRST, and 76% based on our forecast,” he says.

Stanley predicts TRST will produce revenue and adj. EBITDA in 2018 of $111.8 million and $33.6 million, respectively, and revenue and adj. EBITDA in 2019 of $285.6 million and $110.9 million, respectively.

The analyst’s $18.50 target represents a projected return of 175 per cent at the time of publication.