Previously in this series, we saw that CannTrust (CTST) is expected to report sales growth of almost 197% year-over-year in the fourth quarter. Let’s look at how the sales growth is expected to translate into profitability.
CannTrust is expected to report a gross income of 9.3 million Canadian dollars. The gross income will grow from 1.63 million Canadian dollars in the fourth quarter of 2017 and from 8.79 million Canadian dollars sequentially. In terms of the margins as a percentage of sales estimate, the gross margin is expected to be 45%—compared to 23% a year ago and 70% sequentially.
The core profitability, as defined by the EBITDA, is expected to be 3.5 million Canadian dollars—up from a negative EBITDA of 2.5 million Canadian dollars and 2.9 million Canadian dollars sequentially. The EBITDA margins in the fourth quarter are expected to be 17% as a percentage of sales, which will be lower from 23% sequentially. Since the EBITDA was negative a year ago, it would be meaningless to compare it with the upcoming quarterly estimates.
In the initial years, the profitability will be less of a focus for investors (MJ) in CannTrust and its peers including Canopy Growth (WEED), Aphria (APHA), and Aurora Cannabis (ACB). These companies are expected to report increased expenses.
Next, we’ll discuss CannTrust’s bottom line or EPS.