Canadian cannabis producer CannTrust (CTST) on Wednesday said it planned to enter the U.S. hemp-derived CBD market via a joint venture that will focus on production in California, an announcement that sent CannTrust stock racing higher. Other marijuana stocks also rose.
CannTrust, in a news release, described the move as a “first step” toward full U.S. operations. And the company said the joint venture would help it tap rising demand outside Canada for hemp-derived CBD, or cannabidiol. CBD, often used for its calming, anti-inflammatory effects, is found in hemp and marijuana plants and has been at the heart of a North American wellness frenzy. The 2018 U.S. Farm Bill legalized hemp, which does not have the psychoactive ingredient found in marijuana.
CannTrust said it would form the joint venture with Elk Grove Farming, a farming management company that a news release said is based near Bakersfield, Calif. A company called Tech Agricultural Corp. owns Elk Grove Farming, the release said.
CannTrust and Elk Grove will each own 50% of the joint venture, which plans to obtain a long-term lease for more than 3,000 acres of farmland for hemp production in Southern California. The companies expect the joint venture to begin running next year.
That land is currently owned by the Houchin family, which does other agricultural business unrelated to cannabis in California, or through partnership investments, CannTrust said. The Houchin family also owns Tech Agricultural Corp.
CannTrust said the investment in the U.S. operation would likely reach $20 million through the end of next year. That investment includes its share of cultivation and harvesting duties as part of the joint venture with Elk Grove, along with investments related to processing and extraction. The investment, CannTrust said, “assumes starting with up to 300 acres for cultivation in 2020.”
CannTrust Stock Jumps
CannTrust stock jumped 8.7% to 5.36 in the stock market today. Wednesday’s jump follows a broader downtrend for the stock since it listed on the New York Stock Exchange in February. The stock has a weak Composite Rating of 11. The EPS Rating of CannTrust stock is also a weak 29.
Most marijuana stocks have weaker ratings from IBD, as the industry broadly loses money as it builds a base.
CannTrust stock got a lift last month following its earnings report. But the stock trailed lower in the weeks that followed. The company in May said it priced an offering of 36.3 million shares at $5.50.
CEO Peter Aceto, in the statement on Wednesday, said the offering gave CannTrust the resources it needed to fund its expansion plans. Those plans, he said, included adding to its greenhouse space in Niagara, as well as outdoor cultivation in British Colombia.
“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,” Aceto said in the release.
Under the deal, Elk Grove will run the farm, handle packaging and transportation, and provide warehouse space for drying the hemp product. CannTrust will offer up its knowledge of growing, drying and extraction. It will also provide legal hemp genetic materials.
CannTrust said it was “well positioned” to use extracts from the U.S. operations for products like its single-serve beverage pods.
Still, California’s legal cannabis market has struggled as taxes and regulations keep customers and businesses on the illicit market. And some analysts and industry executives say that it could take some time to develop the right concoction for cannabis drinks, whose effects can take some time to kick in.
After CannTrust’s announcement on Wednesday, Jefferies analyst Ryan Tomkins expressed tempered optimism.
“In a stock that has been lacking positive newsflow catalysts for months, this update is definitely welcome,” he said in a research note. “At the same time, we do urge some caution. It is not operational until 2020, the hemp will be sourced from a farm that has no hemp experience, and CannTrust still lacks a branded partner, something we think will be hugely important in the hemp CBD space.”
Other Marijuana Stocks Rise
Among other marijuana stocks, Canopy Growth (CGC), which reports earnings on Thursday, rose 1.7%. The stock was finding support at its 200-day line, after coming under selling pressure.
Tilray (TLRY) spiked 10.8%. Cronos Group (CRON) rose 0.9%, just below its 50-day line. Aphria (APHA) lost 1%. Aurora Cannabis (ACB) fell 1.1%, hitting resistance at its 200-day line.
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Authored By: Investor’s Business DailyArticle category: Marijuana Business NewsRegional Marijuana News: CanadaUnited States
READ MORE: https://420intel.ca/articles/2019/06/20/canadian-pot-stock-jumps-plan-enter-us-market-marijuana-stocks-rally