All week, Rich has been dissecting the CannTrust licensing scandal. For anyone who’s unaware, CannTrust Holdings (TSX:TRST) (NYSE:CTST) was caught by Health Canada growing cannabis in unlicensed rooms at the company’s facility near Niagara Falls. The regulatory body then put a hold on more than 5,000 kgs of product, and the company voluntary chose to hold onto a further 7,500 kgs of cannabis. The total value of this unusable pot is estimated to be around $70 million CAD.
Since then, the company’s stock has fluctuated rapidly as news spreads of class action lawsuits about to hit CannTrust. Today, the cannabis company is reporting to Health Canada about its findings into its own illicit activity. Rich walks us through the news and gives us some context on the industry as a whole.
CannTrust Can’t Be Trusted
“I would not be buying CannTrust today,” says Rich.
Since the scandal went public, the company’s stock has fallen by nearly 50 percent. While there has been intermittent growth, today, as it began its report to Health Canada, the company saw its numbers fall another $0.20.
“CannTrust is responding to Health Canada today, and hopefully it will be a positive outcome,” says Rich. “If Health Canada chooses to make an example of [CannTrust], it could be bad for the whole industry.”
What This Means for the Cannabis Sector
Interestingly, Rich says that the behavior that led CannTrust to get in trouble might be more prevalent in the cannabis sector than some investors would like to think.
“I believe the reality is that there will be more and more of this [illicit activity], and the solution is that Health Canada needs to start doing random testing of its licensed producers,” Rich explains. “Whether they’re small, medium, or large producers, just start walking into the facilities.”
By doing this Health Canada would be better able to dissuade cannabis cultivators from subverting or outright breaking regulations. Rich compares it to random drug testing of athletes, which protects the integrity of the athletes who don’t use steroids in order to cheat.
Where CannTrust Goes from Here
Rich says that he is worried about CannTrust’s future, noting that some analysts say it will take between 8 and 12 months for the company to recover from the scandal. Furthermore, he believes the scandal is not just a black eye for the company, it looks bad for the entire industry.
“I think there’s a lot of other companies doing this too. The question is, how is Health Canada going to stop it? And if they can’t stop it, how are they going to manage it?”
What do you think? Should Health Canada make an example of CannTrust to show that this sort of behavior won’t be tolerated? Does the regulatory body need to start randomly dropping in on cannabis cultivators in order to guarantee both the public and the investors that regulations aren’t being broken? Will CannTrust rebound faster than analysts predict, or is the company’s identity forever linked to disgrace? Let us know your thoughts below.
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