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CannTrust: Why Has the Stock Fallen Today?

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Aug. 19 2019, Published 1:28 p.m. ET

CannTrust Holdings’ (TRST) troubles continue to rise. Today, OCS (Ontario Cannabis Store) announced that it will return $2.9 million worth of products to the company. Notably, the products don’t comply with the master cannabis supply agreement.

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CannTrust’s stock price fell

OCS is responsible for distributing cannabis products to licensed cannabis stores in Ontario. The corporation operates Ontario’s online recreational cannabis store. Under the master cannabis supply agreement, any product that doesn’t comply with the applicable law is considered a “non-conforming product.” Also, OCS has the right to return the products at CannTrust’s expense. As a result, OCS returned all or most of the products. The company said that it will meet the obligations under the agreement.

Today, The Schall Law Firm and Levi & Korsinsky filed a lawsuit against CannTrust on behalf of shareholders. The law firms accused the company of making false and misleading statements. The lawsuits highlight concerns about increasing net losses due to the expenses incurred for returning the products. As a result, the company’s stock price fell. CannTrust was trading more than 5% down, while the broader market was strong. The S&P 500 Index was trading 1.1% higher.

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YTD stock performance

YTD (year-to-date), CannTrust has lost 57.5% of its stock price as of August 16. There were several reports about CannTrust not complying with Health Canada regulations. Also, media reports claimed that the company’s CEO and its chairman knew about the violations. The reports caused CannTrust stock to fall. The company has underperformed the broader equity market and its peers in 2019.

Peer comparisons

Aurora Cannabis (ACB), Aphria (APHA), and Tilray (TLRY) have returned 16.7%, 5.1%, and -55.6%, YTD, respectively. Meanwhile, the ETFMG Alternative Harvest ETF (MJ) and the Horizons Marijuana Life Sciences Index ETF (HMMJ) have returned 5.3% and 8.7%, respectively.

Earlier in August, Aurora Cannabis provided better-than-expected guidance for the fourth quarter. The company plans to increase its secured credit facility. The announcements might have led to a rise in the stock price. On August 1, Aphria reported an impressive performance in the latest quarter. The company beat analysts’ top-line and bottom-line estimates.

For more information on CannTrust’s valuation and analysts’ recommendations, read CannTrust: Current Target Price and Valuation Multiple.

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