Consumer Products

Resuscitating CannTrust Stock May Not Be Possible

Paul Ausick

Recently, Ontario-based cannabis grower CannTrust Holdings Inc. (NYSE: CTST) announced that it had received written notice that its stock does not meet New York Stock Exchange (NYSE) rules for continued listing. The company’s stock has failed to meet the exchange’s requirement that the share price remain above $1.00 for a consecutive 30-day trading period.

CannTrust may retain its eligibility for a NYSE listing at any time in the next six months. To do so, the trading price must once again rise above $1.00 per share for 30 consecutive days, as of the last trading day of that month or the last day of the six-month cure period.

Two weeks earlier, CannTrust had announced the appointment of Greg Guyatt as its new chief executive officer. At the same time, it said it would submit documentation to Health Canada, the federal agency that regulates legal pot sales, detailing how it had fixed the troubles at its Niagara facility. CannTrust wants and needs to reinstate the Niagara growing facility’s licenses to operate.

The company also has said that it had received an extension until April 15, 2020, from the NYSE to file its restated annual report for the 2018 fiscal year and its interim financial report for the first half of 2019.

Marijuana Stocks Continue Sinking

Since the beginning of 2019, Canada’s marijuana industry has delivered nothing but bad news. The carnage among cannabis stocks is awe-inspiring.

As of the market’s close on March 6, CannTrust stock had lost 90% of its value. Tilray Inc. (NASDAQ: TLRY) had lost 85%, Aurora Cannabis Inc. (NYSE: ACB) had dropped 79%, Organigram Holdings Inc. (NASDAQ: OGI) had shaved off 71% of its value and Canopy Growth Corp. (NYSE: CGC) had seen nearly 51% of its value evaporate.

Many of the cannabis companies’ problems have been of their own making. CannTrust, which had been growing pot in an unlicensed facility, certainly fits the bill on that score. Other problems may have been the result of unbridled optimism.

Last week, Canopy Growth announced that it would close two of its indoor growing facilities in British Columbia and it canceled plans to open another in Ontario. The company also said it would eliminate about 500 jobs in British Columbia as a result and would take a write-down of C$700 to C$800 million connected with the closures.

In its announcement, Canopy Growth singled out one big issue Canadian pot growers have faced: “Nearly 17 months after the creation of the legal adult-use market, the Canadian recreational market has developed slower than anticipated, creating working capital and profitability challenges across the industry.”

The development of a recreational market for marijuana was hampered by Health Canada dragging its feet in issuing licenses to growers and retailers. The knock-on effects were that customers for recreational pot turned to the black market, where supply was both plentiful and half the price.

CannTrust Needs More Than a License

Filing a revised annual report for 2018 and meeting the NYSE’s listing requirements are, perhaps, even more pressing requirements for CannTrust. The revised report is expected by the end of April, but any revision is likely to lower, not raise, the company’s financial position. If that is the result, meeting the NYSE listing requirement could get harder, not easier.

The company also faces a class-action lawsuit that could send it into bankruptcy. Since mid-February, CannTrust’s market cap has dropped from around $120 million to about $84 million. Although it will take time for the lawsuit to wind its way through the court system, a decision in favor of the plaintiffs could easily wipe out the company.

If not, the company still has to win back its distribution customers and somehow compete successfully with its legal and illegal rivals. All told, CannTrust faces some big challenges.

Because pot stocks have performed so poorly for more than a year now, the impact of the coronavirus on equities in general has hit these stocks particularly hard. CannTrust shares ended last week 13% or so lower, at $0.60 a share.

The S&P 500 was down 3.4% for the week, the Dow closed off 2.7% and the Nasdaq Composite was 4.0% lower.

CannTrust’s 52-week trading range is $0.59 to $10.17, and it last closed above $1.00 a share on February 5. The outlook is, shall we say, guarded.