Consumer Products

Is a Recovery in the Cards for CannTrust Stock?

CannTrust Holdings Inc. (NYSE: CTST) has been one of the most beat-up cannabis stocks over the past year, but not without reason. The company appears to be taking it from all directions, whether it’s from regulators, class action lawsuits or even its own inventory. Though this company has to deal with pressure from the black market, CannTrust needs to stay focused on the straight and narrow if it ever wants to get out of its current predicament.

The Dow Jones industrial average, S&P 500 and Nasdaq have been on a roller-coaster for the past month. While there have been some up days and some down days, the markets have been battered and beaten down to their 2016 levels.

CannTrust and the pot stocks in general are no stranger to getting beat up. Since the beginning of 2020, the ETFMG Alternative Harvest ETF (NYSEARCA: MJ), which tracks the marijuana industry, has fallen about 39%, as well as 72% over the past year.

Over the past 50 trading days, CannTrust stock has posted an average closing price of $0.81 per share. This number has been quickly dropping since this time last year, when CannTrust shares were above $9. The decline from that level has been spectacular. In fact, the share price is down about 95% in the past 52 weeks.

Here’s the question. Will CannTrust finally get its act together, or is this just a race to zero?

Original Sin Stock

Aside from being looked down upon for its poor stock performance over the past year, this is what many consider a “sin stock.” What that means is that the behaviors CannTrust may advocate are less than wholesome. Cigarette companies, beer manufacturers and casinos fall into this category too. This is not an indictment of the stock but merely a classification.

However, a priest may have to get involved because of the way that CannTrust has acted in recent months.

The Ontario-based cannabis grower recently 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.

It is possible for CannTrust to regain compliance for a NYSE listing at any time in the next six months. To do so, though, 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.

In addition, the company noted 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.

Prior to this, the company appointed Greg Guyatt as its new chief executive officer. At the same time, CannTrust 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 regarding its unlicensed rooms. If CannTrust wants to make any headway in the future, it needs to reinstate the Niagara growing facility’s licenses to operate.

Class Is in Session

Apart from these other delinquencies, CannTrust is at the heart of a class action lawsuit regarding its stock price. While this is obviously bad news, it seems to be par for the course for the cannabis industry. Like many of the other marijuana stocks, CannTrust is facing down a lawsuit.

The class action lawsuit was filed on behalf of shareholders who lost money investing in the company. In July of 2019, news broke that CannTrust was growing cannabis in a greenhouse in Pelham, Ontario, where regulatory approval was still pending. Ultimately, holds were placed on the company’s inventory, and CannTrust said that this would cause a product shortage.

The case alleges that CannTrust employees gave false information to regulators. Since it was reasonably likely to incur an inventory hold until the growing facility became compliant with regulations, the positive statements about operations were materially false and misleading.