Investments are a fickle thing. The volatility of the market can never really be predicted, which is why a company on the way to rock bottom one minute can be back on its feet again in another minute. This seems to be the case with CannTrust Holdings Inc. (TSX:TRST) (NYSE:CTST).
While “back on its feet” may be a bit generous, as of this morning the greatly maligned company has seen a surprising increase in its stock value. From an opening price of $1.64, TRST leaped to a cool $2.00 before settling back down to $1.81. With a total increase of 5.23% throughout the day, CannTrust was Thursday’s biggest gainer on the Canadian Marijuana Index.
“All the good stocks are going down, and the guy who just got his license suspended is going up? What is going on in the cannabis sector?” laughs Rich. Let’s dive a little deeper to find out what this means for investors.
CannTrust’s Ups and Downs
Just one day after the company had its licensed revoked by Health Canada, CannTrust has almost fully recovered from the dip in its share price.
“Everybody thought CannTrust was done, but I told you that they weren’t,” says Rich. “I told you they would resurrect, and today the stock is running.”
It’s worth noting that this isn’t the only time CannTrust has seen a seemingly inexpiable upswing in stock price. On August 8, amidst the initial scandal that saw the company investigated by Health Canada for growing illicit cannabis in unlicensed rooms, TRST stock rocketed from $2.99 to $4.21. That’s a 40% increase, and it happened within minutes of the market closing.
This was after a titanic decline from $6.46 just a month earlier, but it was still enough of a move in the right direction that investors began to feel optimistic about CannTrust’s future prospects.
But that optimism didn’t last long. The stock almost immediately fell back down and continued to fall below $2.00. It turns out the spike in price was a mirage, and the deception was bolstered by rumors that Aleafia Health (TSX:ALEF) (OTCQX:ALEAF) was considering a hostile takeover of the company.
It’s possible that the same thing is happening here. Evidently, former Canopy Growth Corporation (TSX:WEED) (NYSE:CGC) CEO Bruce Linton recently advised Sundial Growers (NASDAQ:SNDL) to acquire CannTrust. That story about Linton—who Rich has previously called “CEO of the century”—was published the same day that CannTrust’s license was revoked.
If investors think that TRST is about to be acquired, they might grab the stock now while it’s still dirt cheap. An acquisition means some measure of faith would return to the company, and the stock price would consequently go up.
Will CannTrust Break Investors’ Hearts Again?
It’s impossible to tell what other skeletons are hiding in CannTrust’s closet. Today’s gains may be an indication of a brighter future for the company, or they may be another temporary spike.
Most analysts don’t expect an acquisition to save CannTrust just yet. While its license remains suspended, many of the company’s assets may not legally be used to produce cannabis, even for another cannabis producer. Furthermore, any share purchase acquisition would still have to be approved by Health Canada, which is likely enough reason to dissuade other companies from getting involved in CannTrust.
Still, Rich advises investors who have remained with TRST through thick and thin not to panic sell just yet.
“This is why you can’t short sell these stocks,” he says. “The cannabis sector is the wild west. You never know what’s going to happen.”
What do you think? Join the CannTrust conversation in the comments below.
Featured image: Canva