CannTrust (TRST.T) woes continue as auditor KPMG withdraws report

KPMG, CannTrust’s (TRST.T) independent auditor since 2018, has retracted its consolidated 2018 and Q1 2019 report on the company’s financial statements.

The company has spent the last month reeling from revelations by Health Canada that it had cultivated cannabis in five unlicensed grow rooms between October 2018 to March 2019.

Since then, CannTrust was also found to have shipped cannabis from these grow rooms internationally to Denmark and offers have been made to acquire the troubled weedco.

KPMG is still to remain CannTrust’s auditor and the company continues to cooperate with Health Canada.

KPMG’s decision was prompted by the Company’s caution against reliance on its financial statements for the year ended December 31, 2018 and for the three months ended March 31, 2019, as well as the recent sharing with KPMG of newly uncovered information from the Special Committee’s investigation, including information that led to senior leadership changes announced on July 25, 2019.

The senior leadership changes announced July 25, 2019, included the termination of Canntrust CEO Peter Aceto and the company’s chair, Eric Paul.

CannTrust also appointed a special committee to “investigate the Company’s non-compliance with Health Canada regulations and ancillary matters, to make recommendations to the Board of Directors regarding any actions to be taken by CannTrust as a result of the investigation, and to assess any impact on the Company’s bio assets, inventory, sales and revenue.”

But BNN Bloomberg raised questions about the committee’s impartiality after exposing familial relationshiups between committee members and existing sitting CannTrust executives.

For example, the independent committee is headed by Mark Dawber, currently a director of CSE-listed investment firm Gencan Capital (GCA.C). But CannTrust’s vice-chairman, Mark Litwin, is also Gencan’s president.

Richard Leblanc, a professor of governance, law, and ethics at York University, described Dawber’s relationship with CannTrust and Gencan Capital board members as well as Marcovitch’s family ties to Litwin as an interlock which needs to be remedied immediately.

–BNN Bloomberg

‘Getting more excited every day’

Peter Aceto, CannTrust’s former CEO, said he believed the company was “going to become a formidable leader in the global cannabis market” on an earnings call in May.

That obviously hasn’t taken place. Although there is only so much stock to be placed in analyst predictions, CannTrust fell well short of Bloomberg’s sales estimates, delivering only $17M in Q1 2019.

The Deep Dive estimated the hold placed on CannTrust cannabis means the company is missing out on approximately $187K in sales each day based on 3,000 kgs of product the company sold in Q1.

Furthermore, CannTrust has received a bevy of push from industry analysts like Citron Research.

Citron published a report as to why the SEC should investigate Village Farms (VFF.T), calling the company overvalued.

At the same $700 million enterprise value, you can invest in a much higher quality operator like CannTrust. Unlike the Canadian listed US multi state operators or vertically integrated players, Village Farms is at best a farmer with a track record of failure.

Here are the two companies’ charts for comparison.

CannTrust | Source: stockwatch.com
Village Farms | Source: stockwatch.com

These speak for themselves. CannTrust is likely beyond saving and should be sold off for parts. It’s created more distrust in an industry still struggling for legitimacy and has done nothing but create negative sentiment within the sector. Good riddance.

 

–Ethan Reyes

Disclaimer: ALWAYS DO YOUR OWN RESEARCH and consult with a licensed investment professional before making an investment. This communication should not be used as a basis for making any investment.

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