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CannTrust shares slip as it misses estimates despite surge in revenue

CannTrust Holdings Inc.’s stock plunged as much as 17 per cent on Thursday after it posted record fourth-quarter revenues — fuelled by the legalization of recreational cannabis last fall — but swung to a net loss and fell short of analyst expectations.

Peter Aceto, chief executive of the Vaughan, Ont.-based company, said despite the market reaction, CannTrust is “right on the mark,” with strong business fundamentals and products that are “resonating” with customers.

“Yes, we have areas for improvement. We’re investing in the business,” Aceto said in an interview.

“And so, at the end of the day, we think we need to continue to focus on the things that were really good at. And I think the markets will recognize that... We’re very optimistic for the future.”

  • In its first quarter to capture post-legalization recreational sales, CannTrust reported record net revenue of $16.2-million for the three-month period ended Dec. 31, up from nearly $7-million a year earlier.
  • The increase in revenue came as it posted a fourth-quarter net loss of $25.5 million or 26 cents per share, compared with a $6.3-million profit or eight cents per share during the same quarter in 2017.
  • Analysts had expected revenues of $21.2-million, and a net loss of $6.4-million amounting to a 4 cent loss per share, according to those surveyed by Thomson Reuters Eikon.

CannTrust said its operating expenses rose during the quarter due, in part, to higher marketing costs to launch its recreational brands, personnel hires and costs related to its listing on the New York Stock Exchange.

Aceto said on Thursday that adult-use legalization has been a “driver of growth” for CannTrust, but it is still “a brand new industry.”

“We are all working through this together, and we are learning as we go... We’re learning what consumer preferences are, we’re optimizing our supply chain and our business, and our ability to rapidly scale,” he said.

He said in preparation for legalization, CannTrust has had to train hundreds of new staff, absorb the cost of a much larger facility, and implement automation and process improvements, particularly related to product testing, quality assurance and product handling.

As well, CannTrust is absorbing the cost of the excise tax applied to medical sales, which several other licensed producers have also opted to do. It said this impacted revenue by $900,000 in the latest quarter.

– Canadian Press

Bill to let banks work with pot companies advances in U.S. House

A U.S. congressional panel advanced legislation Thursday that would allow banks to provide services to cannabis companies in states where it is legal. The bill would provide sought-after clarity to banks across the country that want to do business with the growing industry, where companies have struggled to gain access to the financial system.

The measure, which was broadly backed by a mixture of Democrats and Republicans, now proceeds to the full House, where it is expected to be passed by the Democrat-led chamber in the near future. However, the bill faces an uncertain future in the Republican-led Senate, according to analysts.

While all but three states allow for some form of legal cannabis use, marijuana is still illegal on the federal level. That has left banks largely unwilling to do business with businesses that sell marijuana or related enterprises, out of concern they could run afoul of federal laws. In particular, banks are wary that taking deposits from pot businesses while marijuana remains illegal at the federal level could violate anti-money laundering laws, which in turn could put at risk their federal charters or access to federal payments systems.

Currently, companies in the marijuana industry have extremely limited options for dealing with their finances, with many relying on strictly cash to do business. Numerous lawmakers noted that operating exclusively in cash can be extremely dangerous, making companies a target for theft.

The bill has the backing of the banking industry, where firms are eager for reassurance from the federal government they can engage in this sort of business. The American Bankers Association has told Congress it takes no stance on the legality of marijuana, but its widespread adoption by states “raises practical issues that must be addressed.”

Go deeper: Banking reform gets mostly a ‘meh’ from U.S. cannabis industry

– Reuters

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