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Cannabis Investors Learn The Hard Way To Play The Long Game

By Investing.com (Brenda O'Farrell/Investing.com)Stock MarketsJul 23, 2019 03:48AM ET
www.investing.com/analysis/cannabis-investors-learn-the-hard-way-to-play-the-long-game-200442910
Cannabis Investors Learn The Hard Way To Play The Long Game
By Investing.com (Brenda O'Farrell/Investing.com)   |  Jul 23, 2019 03:48AM ET
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Speculation in the cannabis sector has switched gears of late. No longer are the latest estimates of the size of the growing marijuana market the topic of easy conversation. Now, the conjecture is focused on the future of one specific company: CannTrust Holdings Inc (TSX:TRST), (NYSE:CTST).

The Ontario-based medical marijuana grower was thrust into the headlines earlier this month when it was publicly disclosed that it had contravened regulations by growing thousands of plants in unlicensed spaces in its greenhouse operations in Pelham, Ont.

Far-Reaching Fallout

The fallout from the revelation has been far reaching. It has resulted in the halt of sales of the company’s brands; product exported to Europe being put under quarantine; the launching of a formal inquiry by Health Canada, the federal cannabis licencing authority; the creation of a special committee to conduct an internal probe; and – by far the most dramatic for investors – the 50.49% plunge in the company’s market capitalization as investors turned and ran. The loss represents a nosedive of slightly more than C$500-million (US$380 million) in the value of CannTrust stock.

On Monday, the embattled marijuana producer issued a public statement about the special committee created to look into the non-compliance complaint. The four-member committee, chaired by Robert Marcovitch, a member of CannTrust’s board of directors, has also been tasked with making recommendations to the company’s board of directors on matters related to the controversy, specifically to report on how it will affect the company’s assets, inventory, sales and revenue.

Trying To Reassure Investors

The public statement was short on details, but did confirm that the company has submitted a response to the Health Canada non-compliance report, and is now awaiting a response. Marcovitch tried to reassure investors:

“The special committee takes these issues very seriously and is committed to working with Health Canada to bring the company into compliance. Although we want to move as quickly as possible, we are mindful of the critical need to be thorough. We are determined to identify the root causes for all non-compliance issues, to take appropriate actions to address and remediate any issues with the company's compliance culture and to restore trust in the company.”

But the statement did little to halt the stock's slide. CannTrust stock lost another 1.44% on the New York Stock Exchange yesterday to close at US$2.73 (-1.66% on the S&P/TSX Composite in Toronto to close at C$3.56). It is down more than 10.5% in the past week.

Buyout Talk

As the company awaits a ruling on its licencing, a report by BNN Bloomberg yesterday claimed bankers have had preliminary talks with two Canadian cannabis companies to see if there was any interest in a buyout of CannTrust. Such a move could avoid the grower losing its processing licences if Health Canada opts to come down hard in retaliation for breaking the rules. There is no sign of any deal being struck, however.

So as all eyes cast about to see who could make a move – or which company would even want to at this stage – investors are seeing a lot of red when it comes to stock prices.

Weighing On The Sector

The last month has taken a toll on just about all major cannabis companies, with stock prices being pummelled across the board.

After CannTrust, the hardest hit in the past month has been Quebec-based Hexo Corp (TSX:HEXO), (NYSE:HEXO), which plunged 16.49%, followed by Canopy Growth Corp (TSX:WEED), (NYSE:CGC), down 14.25% drop during the last month, followed by Aphria Inc (TSX:APHA), (NYSE:APHA) (-10.2%), Aurora Cannabis Inc (TSX:ACB), (NYSE:ACB) (-8.81%) and Cronos Group Inc (TSX:CRON), (NASDAQ:CRON)(-8.69%).

But if you're steering high into a longer term horizon, the big pot companies have still generated above normal returns. Here is how they rank on a year-to-date basis:

Cronos Group: +33.73%

Hexo: +31.21%

Aurora Cannabis: +29.79%

Green Organic Dutchman: 26.42%

Canopy Growth: +24.8%

Aphria: +3.18%

Cannabis Investors Learn The Hard Way To Play The Long Game
 

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Cannabis Investors Learn The Hard Way To Play The Long Game

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Wesley Carroll
Wesley Carroll Jul 23, 2019 3:15PM ET
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time to load up huh?
Vladimir Ivanov
Vladimir Ivanov Jul 23, 2019 11:20AM ET
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Be fearful when others are greedy and greedy when others are fearful. Second part of the sentence make sense now.
 
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