CannTrust Holdings (TSX: TRST) (NYSE: CTST) made headlines this morning when the company announced its intentions to enter the U.S. market. CannTrust signed an LOI for access to over 3,000 acres of California farmland. The company plans to use this land for the production of hemp.
Due to the current federal ban on cannabis in the United States and the TSX exchange’s stance on those regulations, companies listed on the TSX or TSX Venture are not permitted to own U.S. Cannabis assets. If a TSX listed company decided to own U.S. cannabis assets anyways they could face the possibility of being delisted from the Toronto Stock Exchange or the Venture Exchange. Because of the 2018 Farm Bill which saw hemp legalized in the United States, TSX and TSXV listed companies are permitted to own U.S. hemp assets. Companies such as Canopy Growth (TSX: WEED) (NYSE: CGC) were one of the first TSX listed entities to take full advantage of the new U.S. hemp legislation. That is exactly what we are seeing here with CannTrust.
The non-binding letter of intent (LOI) with the Elk Grove Farming Company will allow CannTrust to produce low-cost high cannabidiol (CBD) hemp. CannTrust and Elk Grove will split the new deal 50/50.
CannTrust believes there will be an increasing demand for hemp-derived CBD internationally and sees this as an opportunity to become a trusted large scale producer and supplier of high-quality hemp CBD. The company’s expertise in genetics and value-add processing will ensure these products are of the highest standard of quality.
All of the hemp biomass produced by the new joint venture will be allocated by CannTrust for the production and formulation of hemp-derived CBD products for the legal U.S marketplace. CannTrust’s goal is to become a leading supplier of hemp-derived CBD products in the United States.
The multi-generational Elk Grove team specializes in consulting on agricultural development. They also have a strong knowledge of farming in California which is one of the top agricultural regions in the world.
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“This agreement represents another bold move for CannTrust. 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,” said Peter Aceto, Chief Executive Officer. “Following our successful equity offering, we have the liquidity we need to fund our ambitious growth plans including our greenhouse expansion in Niagara, our outdoor cultivation operation in British Columbia, our global footprint expansion and now our U.S. operation. We continue to focus on delivering on our vision of becoming a global provider of innovative cannabis-based and hemp-derived products.”
“We are thrilled to be partnering with CannTrust. Our knowledge of farming operations in California coupled with CannTrust’s expertise in developing award-winning formulations is the perfect match to become a trusted supplier of CBD products in the U.S,” said Morgan Houchin of Elk Grove Farming Company, LLC.
CannTrust in the USA:
- The Elk Grove deal is the 1st step in setting up full-scale U.S. operations.
- Once the California JV is complete CannTrust will have a long-term supply of low-cost industrial hemp.
- CannTrust plans to implement commercial scale cultivation in 2020.
- Prior to that, the company will execute its hemp biomass processing and product development strategies.
- Proprietary products have already been developed and are ready for commercial production in the U.S. market.
- Over $20 million is expected to be invested in the company’s new U.S. operations by the end of 2020.
- The capital investment assumes starting with up to 300 acres for cultivation in 2020.
For full details on the LOI and for the complete regulatory framework please read CannTrust’s full press release here.
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