Just as we thought we were coming to a conclusion in terms of the CannTrust (CTST) scandal, things took another turn, and this time we once again are going down an uncharted path. It has been a painful ride for many CannTrust shareholders watching the company trade from highs of over 15 dollars all the way down to a mere $1.70 CAD. In the most recent news released about the company, Health Canada has officially suspended its license under section 64(1) of the Cannabis Act (Canada). The stock was halted during trading on the New York Stock Exchange to resume trading, gapping down substantially and hitting fresh all time lows. The stock closed down 14% on the day and many investors wonder if anything positive will ever emerge?
The suspension from Health Canada states that CannTrust can no longer produce cannabis, other than cultivating and harvesting until they are back in compliance and the suspension is lifted. While CannTrust’s license remains suspended they will be permitted to cultivate and harvest existing lots or batches previously propagated, as well as conducting ancillary activities to those lots, including drying, trimming and milling. While their license is suspended, CannTrust may not propagate new lots or batches of cannabis or engage in the sale or distribution of cannabis. In the details of the notice, Health Canada will reinstate CannTrust’s licences under section 64(4) of the Cannabis Act if the reasons for the suspension no longer exist or if CannTrust demonstrates that the suspension was unfounded. CannTrust has made a lot of changes over the past few months when it comes to management, firing their CEO and laying off part of their workforce, but the company still has a long way to go in order to get their suspension removed.
As an investor in CannTrust, it seems as if we are in between a rock and a hard place. One thing we can look at is how much value the stock has long and hope that a larger player in the cannabis sector can scoop up the company for a discount. At this point, we feel that the best solution for CannTrust will be a buyout, and we have mentioned this many times over.
This comes at a very difficult time right now within the cannabis sector as many stocks are trading close to their yearly lows, with an overall bearish tone on the sector to begin with. We are looking for two things to happen in the coming months to give CannTrust a glimmer of hope. First off we need to see the sediment within the cannabis sector improve, it has been a long bear market and when times get tough and capital dries up, it’s hard for companies to make acquisitions no matter how good the deal really is. If companies can focus on near term profitability and pleasing shareholders in the short term, we could see sentiment improve, but for now, we remain neutral on the sector. Second, we need further transparency from canntrust as to what they are doing to mitigate the situation and bring the company closer towards compliance in hopes of removing the suspension.
We will see what the new CEO can do, and has promised that his main objective is to bring the company back to compliance, so right now we have to sit tight and hope for the best.
(Disclaimer: The author owns shares of CannTrust)
CTST shares were trading at $1.17 per share on Wednesday morning, down $0.12 (-9.30%). Year-to-date, CTST has declined -75.74%, versus a 21.25% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More...
