While Canadian investors digested their Thanksgiving turkey, CannTrust (TRST.T) announced that it has “destroyed approximately $12 million of biological assets and approximately $65 million worth of inventory that was not authorized by CannTrust’s licence,” bring the total value of the torched product to $77 million”.
Although the Toronto Stock Exchange was closed for the Canadian holiday, 5.7 million shares of CannTrust were traded on the NYSE.
CannTrust stock surged 13% to $1.04.
This means CannTrust won’t have to de-list from the NYSE, should the stock price remain above USD $1.00 minimum thresh-hold.
CannTrust’s current market cap is CND $170 million.
The value of the destroyed crop is about 45% of the total value of the company.
That wouldn’t normally be considered good news.
Holy Bible: Matthew 3:10-11: “Every tree that does not bear good fruit is cut down and thrown into the fire. He who is coming after me is mightier than I. He will baptize you with the Holy Spirit & Fire.”
CannTrust has committed some horrible sins.
To review, on July 8, 2019 “regulators seized CannTrust’s cannabis, after Health Canada discovered that it was growing cannabis in five unlicensed grow rooms at its Pelham, Ontario facility.”
“Health Canada has placed a hold on inventory which includes approximately 5,200 kg of dried cannabis that was harvested in the previously unlicensed rooms in Pelham, until it deems that the company is compliant with regulations,” stated CannTrust at the time.
We assume that TRST shareholders are praying the sacrificial burning of marijuana crops will cleanse the company of its sins, and perhaps – if God is just and merciful – allow the share price to be restored to its former glory.
“There’s a difference between incompetence and criminality,” wrote Equity Guru’s Chris Parry on July 24, 2019, “This is the equivalent of a Molson plant brewing 12k cases of tequila-flavoured kerosene and sending it to liquor stores.”
“Like an episode of the Trailer Park Boys, CannTrust put up fake walls, shifted plants from room to room, and talked their way out of issues rather than just following the rules,” recalled Parry. “It’ll suck if investors lose their money as a result of this debacle, but I warned a few days ago that trying to play the bounce on this deal was a dangerous game”.
CannTrust shed 65% of its market cap since Parry issued his warning.
Whether CannTrust is worth $170 million now – or just $170 – entirely depends on Health Canada’s willingness to forgive the sins of its since-fired CEO.
In the October 14, 2019 press release, CannTrust claims that it is making “significant progress on its commitment to take any and all actions required to bring the Company into full regulatory compliance”.
We “will not challenge Health Canada’s partial suspensions,” CannTrust declared magnanimously, “and remain focused on working collaboratively and transparently with the regulator to address [our] non-compliance matters”.
CannTrust’s “proposed remediation strategy”:
- Cannabis will be produced and distributed only as authorized
- Recovery of all unauthorized cannabis
- Educating key personnel about cannabis growing regulations
- Improved record keeping
- Improved inventory tracking
- Interim measures to reconcile information provided to Health Canada.
CannTrust shareholding warning: that may not do it.
Health Canada’s CEO Ginette Petitpas Taylor holds a Bachelor’s degree in social work.
“Ms. Taylor “spent her entire life advocating for a fair and just society,” states Health Canada, “She has volunteered for the “Coalition Against Abuse in Relationships,” and is a former “RCMP Victim Services Coordinator.”
It is possible that Ms. Taylor and her staff perceive current TRST management as “victims” – who deserve redemption, forgiveness and the largess of the Canadian government in providing them with “victims services”.
It is also possible that Health Canada may deliver CannTrust a less benevolent message.
“There’s an old damage control routine that goes, instead of admitting you have a problem, you focus on how you’ve fixed the problem you had, so the interested observer focuses on your fix and not your initial incompetence,” wrote Chris Parry on September 6, 2019.
“The entire top line of CannTrust’s executive team should have already been fired,” continued Parry, “The board of directors should be looking at strategic alternatives and the break-up of the business. Health Canada should shut the whole fucking operation down.”
“We are unable to process the material being destroyed or sell it to other licensed producers,” admitted CannTrust on October 14, 2019, “The destruction process will allow the company to free up much needed capacity” to store legally grown weed.
Boy, there’s a silver lining.
We just torched $77 million bucks worth of stuff that you (the shareholder) paid for.
But now we have lots of shelf space!
“CannTrust is confident that its detailed remediation plan will not only address all of the compliance issues identified by Health Canada, but it will also build a best-in-class compliance environment for the future,” stated interim CEO Robert Marcovitch.
CannTrust’s 13% NYSE share price surge on Canada Thanksgiving Monday suggests state-side investors share that confidence.
By 9 a.m. Vancouver time, TRST is up 45% to CND $1.78.
“The exact amount of material destroyed will be validated and verified,” CannTrust assured investors, “once the destruction is complete”.
Full Disclosure: Equity Guru has no financial relationship with CannTrust.