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Why Is CannTrust Falling on Friday?

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CannTrust (CTST), a popular name in the cannabis sector, has been falling on Friday. Notably, the stock has fallen 6.2% as of 10:51 AM ET. According to a Reuters report, CannTrust confirmed that KPMG withdrew its audit report. The report discussed CannTrust’s financial statements for the March quarter and fiscal 2018. As a result, the stock fell almost 13% after the news in pre-market trading.

Auditors give their views on the company’s financial reporting. KPMG made the decision in light of CannTrust’s recent violations. The company prepared the financial reports before the violation was discovered. A MarketWatch report said that KPMG received new information from a special committee. The special committee was set up to investigate CannTrust’s violations.

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CannTrust’s struggle

CannTrust stock fell close to 53% in July. The company said that it didn’t comply with Health Canada’s regulations. In July, Health Canada seized five metric tons of CannTrust’s cannabis. The cannabis was being grown in unlicensed rooms. Health Canada regulates the marijuana industry.

The company made some leadership changes as well. For CannTrust, Chief Executive Peter Aceto and President Eric Paul left in July. The MarketWatch report said that The Globe and Mail uncovered emails. The emails showed that senior executives knew about the illegal actions.

CannTrust said that there’s still uncertainty about Health Canada’s pending decision. Health Canada will decide about CannTrust’s inventory valuation and biological assets, according to a Reuters report.

Peers in the red on Friday

CannTrust peers’ in the industry are also trading in the red on Friday. HEXO (HEXO) fell 1.7%, Aphria (APHA) fell 3.2%, and Canopy Growth (CGC) (WEED) fell 1.6%. In contrast, Cronos Group (CRON) has risen 0.22%.

Impact on the cannabis industry

The cannabis industry struggled in July after the scandal news spread. Corporate governance is an important issue with cannabis companies. Curaleaf also faced similar allegations about FDA violations. HEXO faced pressure after the possible scandal news spread. HEXO lost almost 20.7%, while Aphria, Canopy Growth, and Cronos Group fell nearly 22.3%, 18.3%, and 13% in July.

Despite the headwinds, some of the cannabis players have strong fundamentals to deliver long-term growth. Most of the cannabis players have reported strong earnings this quarter. Read Why IIPR’s Q2 Earnings Came in Strong to know more on IIPR’s Q2 earnings and What to Expect for Canopy Growth’s Earnings to learn more.

Amid the scandal, Jim Cramer favors two cannabis stocks—Cronos Group and Canopy Growth. To know more, read Why Jim Cramer Favors CRON and CGC. To learn more about investing in the cannabis sector, read Finding an Attractive Pick Among 12 Cannabis Stocks.

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