CannTrust Sold Black Market Cannabis: Rich Breaks Down the News

CannTrust

Cannabis stocks have been seeing hints of the resurrection ever since August ended. Unfortunately for CannTrust Holdings (TSX:TRST) (NYSE:CTST), however, the summer slump might never end.

After months of bad press, falling stock prices, and the near-total erosion of consumer and industry trust, CannTrust has once again come under fire. News broke just before the weekend that the company allowed black market cannabis to enter one of its facilities. Ultimately, more than one thousand plants that were grown from illicit seeds found their way into CannTrust supplies, and an indeterminate amount of black market cannabis was sold into the legal cannabis market.

“When it rains it pours for CannTrust,” says Rich. Let’s take a look at the company’s past, present, and future to understand this news fully.

CannTrust: A History of Scandal

Back in July, Health Canada accused CannTrust Holdings of breaking cannabis cultivation regulations at its Pelham facility in Ontario. It quickly came to light that although the company received its license to grow cannabis in April, it had been growing the plant at the facility as early as October.

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In total, five unlicensed rooms in the Pelham greenhouse were used to grow cannabis illegally between October 2018 and March 2019. Health Canada subsequently put a hold on more than 5,000 kgs of CannTrust product, and the company voluntarily put a hold on a further 7,500 kgs. The value of this unsellable cannabis is estimated to be about $70 million CAD.

In the first two weeks of the scandal, the company’s stock on the TSX fell from $6.46 to $3.34. At the time, Rich called the ironically titled CannTrust stock a “Short-seller’s dream.”

As the weeks went by, CannTrust was hit by one lawsuit after another. By the end of July, it decided to oust two senior executives who knew the company was in violation of cannabis laws and made the decision to cultivate the plant anyway.

While August was a mostly quiet month for the bruised and battered CannTrust, many analysts believed the damage was irreversible. On August 6 Rich commented on the rumor that Aleafia Health (TSX:ALEF) (OTCQX:ALEAF) was going to take advantage of the greatly reduced stock price by initiating a hostile takeover of CannTrust Holdings, though as of yet nothing has come of this.

CannTrust Just Can’t Be Trusted

Investors who stuck with TRST stock through the scandal must have been dismayed to see the company returning to headlines on Friday. As expected, there was nothing but more bad news to report.

In order to conceal the fact that black market cannabis seeds had entered CannTrust’s supply, employees reportedly altered the names of up to 20 strains. This puts the company in further violation of Health Canada regulations and caused the stock price to resume its downward momentum. TRST stock opened at $2.28 today.

“It just gets worse and worse,” says Rich. “What kind of operation are you running there? CannTrust was supposed to be one of the best cannabis companies. And now it’s a train-wreck.”

On September 6 it was also announced that the company is laying off 20 percent of its workforce—a total of 180 employees.

“We have made the extremely difficult decision to restructure our workforce to reflect the current requirements of our business,” said Robert Marcovitch, CannTrust’s interim Chief Executive in a statement.

Since April, TRST stock has fallen 85 percent.

What do you think? Is CannTrust Holdings the newest cannabis casualty? Could it still be acquired by another company? Let us know your thoughts in the comments below.

Featured image: DepositPhotos © AndrewLozovyi