CannTrust loses its license
According to CannTrust, it received a notice from Health Canada. Notably, Heath Canada partially suspended the company’s standard cultivation license. CannTrust also reported that it received a “full suspension of its licenses for standard processing, medical sales, cannabis drugs and research issued under the Cannabis regulations.”
As a result, without the ability to legally process cannabis or conduct sale and research of cannabis products including medical, shareholders face significant risk. However, not all is lost. As we stated earlier, CannTrust can still harvest its current lots. However, the company isn’t allowed to cultivate and harvest new plants.
Why did the stock fall?
After the company reported the news, the stock fell almost 14% to $1.29 during the regular market session. The selling pressure extended well into the after hours.
The license suspension destroys value in several ways. Since CannTrust can’t cultivate and harvest new lots, it won’t participate in ongoing growth in the global cannabis market. The company’s revenue growth would come to a standstill. Losing ongoing revenues would impact the bottom line.
Cannabis companies like Aurora Cannabis (ACB) and HEXO (HEXO) have expanded their capacities. For example, Aurora Cannabis has built its Aurora Sky facility. The company is ready to carry out even more expansions. Similarly, HEXO also completed its greenhouse facility, which is over one million square feet, in April.
Long road to profitability
Given these activities, there has been a fair amount of capital expenditure in the expansion. Therefore, cannabis companies, including Canopy Growth, have booked huge upfront costs. As a result, the companies reported net losses. For the companies to become profitable, the ongoing sales from production through these facilities must continue. However, the scenario doesn’t apply to CannTrust.
The company could still sell its assets to a third party. Aphria (APHA) showed interest in CannTrusts’ assets. While CannTrust stated in its press release that Health Canada might reinstate its license, nothing is definite at this point. The company and investors’ fate remains uncertain.
If CannTrust’s license remains suspended, the company might face more selling pressure. The stock could go below $1. To learn more, read CannTrust Stock Might Fall Below $1.