burned, TRST.T, Canntrust, illegal, health canada, violation, black market, license suspension, short

CannTrust (TRST.T) burned $77 million of black-market green, stock sees red

Every family has its black sheep, and cannabis, a commodity which engenders familial sentiment, is no exception–see: CannTrust Holdings (TRST.T).

In mid-October, CannTrust burned nearly $80 million worth of inventory and biological assets in a conciliatory overture to Health Canada, the nation’s preeminent regulatory authority.

The agency suspended CannTrust’s sales and production licenses in September 2019 after it was discovered the company was cultivating cannabis in a most surreptitious fashion.

Five unlicensed grow rooms hidden behind falls walls shielded the product from prying eyes, until a whistle blower, Nick Lalonde, alerted the authorities in an email dated June 14.

In the email, which was also obtained by the Financial Post, Lalonde told Health Canada that he had been asked to hang the white poly walls so that a greenhouse room could appear empty in photos the company submitted to have it licensed for growing. Lalonde implored Health Canada to investigate and even suggested how.

Since July, the company’s stock has taken a merciless beating, though it had already been burned by the effects of a bear-ish turn in the sector which began to take shape in March of this year.

CannTrust’s share price has dropped substantially since July 8, when news of the “non-compliant” grow rooms was first pushed out onto the wire.

burned, TRST.T, Canntrust, illegal, health canada, violation, black market, license suspension, short
‘Sell, sell, sell!’

The company’s licenses were then promptly suspended, its CEO was justly dismissed and CannTrust offered its sincerest apologies to the public at large for its conduct.

Robert Marcovitch, the company’s interim chief executive, said his company’s new goal is to “meet and exceed Health Canada’s regulatory standard, and to rebuild the trust and confidence of our primary regulator, investors, patients, and customers.”

If profit for investors was ever discussed in the undoubtedly plural board meetings following the company’s fall from grace, no mention was made in the release.

In fact, in an effort to turn over the proverbial leaf, the company even decided to argue the wholesale destruction of black market product, burned and blackened in contrition, had its upsides!

“The destruction process will allow the Company to free up much needed capacity to both implement remediation measures and store material that has been grown and processed in accordance with the Company’s license since April 5, 2019.”

To any shareholders who had the foresight to sell in March before the downturn, you have my congratulations. To any who had the miraculous wherewithal to begin closing their positions before the regulatory crucible described above, it would be best to keep that information to one’s self.

To those of you hoping the destruction of product will ingratiate themselves to Health Canada, it is my sincerest belief you will be sorely disappointed. This company will never again return to its high of $13.45.

None of the companies will surpass their peaks in the near-term–the days of overvalued cannabis companies are over–but CannTrust most certainly will never recover.

In this case, the options available to shareholders are few. A number of class action lawsuits has been started against CannTrust for willfully placing investors at risk of harm by engaging in non-compliant activities.

Good scotch and a little litigation is just the thing to keep one warm on a bitter autumn day, but these suits can take years before a judgement is handed out.

The other option, besides remaining long, is to take a more active role in the reorganization of this company.

Activist investors like Caligan Partners have been known to purchase large stakes in failing companies, cutting costs and engaging in proxy wars with management. In these skirmishes between activist investors and host corporations, sometimes the stock improves. Other times, the company is sold off piecemeal.

The question is, dear reader, is whether or not you feel a $1.70 stock, and given management’s history of strikingly inept decision making, is worth remaining long on. If so, bully.

If not, pledge your support to the Caligan’s of the world.


–Mr. Millionaire

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