The past few weeks have been a lot less volatile for CannTrust Holdings (CTST) and investors who have bought the dip or attempted to catch the falling knife are wondering what is in store for CannTrust and how the whole ordeal will end. Recently there have been rumors that the two companies were interested in buying CannTrust. The names of HEXO and Aleafia Health were rumored to be the potential buyers although there are more companies interested but no names were mentioned. Last Friday it was rumored that Aleafia Health was planning to stage a hostile takeover bid for CannTrust at $4 per share. The news that leaked out was taken down shortly after, yet Aleafia Health shares jumped substantially. HEXO was the most recent company rumored to be interested in CannTrust. This ordeal comes at a time where so many cannabis companies are just starting to recover and show signs of life after such a harsh bear market many of these stocks have been in. There is no solid confirmation that we have emerged out of the recent bear market but share prices have been supported recently with Aphria breathing some optimism back into the sector after becoming the first âlarge-capâ Canadian licensed producer to become profitable.
One interesting question on our minds is, if the cannabis sector starts to rebound, will that support the share price for CannTrust and assist with a positive outcome for the company after they get over their hurdles with health Canada, along with their pending lawsuits. One wildcard that remains for CannTrust is the fact that health Canada has yet to come to a decision as to whether CannTrust will be allowed to keep their growing and extraction licenses and if so, how harsh the punishment will be. The longer Health Canada takes to come to a decision is punishment in itself as CannTrust is no longer selling products on the OCS as well as they currently have 13,000 kgs waiting to either be approved for sale or thrown out. This represents approximately 1-year worth of revenues for the company. CannTrust is currently in a sticky situation but if the company can overcome their issues with health Canada and maintains their license, the company could have a chance at making a comeback. There is no doubt that their reputation will be tainted, and market share lost, but over time the dust will settle.
The company currently owns several attractive assets including a large growing facility in Ontario, an extraction facility and a large plot of land that will be used for outdoor growing in BC. The company was on track to become one of Canadaâs great licensed producers but got caught in the growing pains of an extremely new industry. During these times companies grow impatient, try to cut corners and break rules and this does need to be kept under control. All in all, we remain neutral on shares of CannTrust hovering around $3 but see potential upside and downside depending on Health Canada’s final decision. A buyout before the decision could be a risky play but could also result in a huge gain if the company is allowed to keep their license. We will be keeping our eyes on shares of CannTrust.
(Disclosure: We are long CannTrust)
CTST shares were trading at $2.10 per share on Friday afternoon, down $0.15 (-6.67%). Year-to-date, CannTrust Holdings Inc. (CTST - Get Rating) has declined -56.46%, versus a 17.24% rise in the benchmark S&P 500 index during the same period.
About the Author: Aaron Missere
Aaron is an experienced investors 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...
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