Why CannTrust Is on a Long Road to Recovery


Jan. 11 2020, Updated 12:53 p.m. ET

CannTrust (CTST) stock is gradually recovering after it hit an all-time low of $0.82 last month. However, the worst for the company isn’t over yet. The company’s license remains suspended. And without this license, the company can’t cultivate or sell a new lot of cannabis. As a result, it’s top-line growth isn’t predictable.

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The CannTrust layoffs

While CannTrust awaits its license, it’s making other adjustments to preserve capital. For example, just last month, the company announced that it’s laying off about 140 workers. This move alone would save the company about 400,000 Canadian dollars.

Keep in mind that these savings only occur if the company recalls its employees in 35 weeks. If not, then the company stands to incur 800,000 Canadian dollars in severance.

The remediation plan

CannTrust submitted a remediation plan on October 21 to Health Canada. The plan outlines all the steps to bring the company back into compliance with regulations. And the remediation plan includes internal training, enhancements to infrastructure, and improvements in CannTrust’s governance structure. The company also indicated that it plans to complete the remediation steps by the end of the first quarter of 2020.

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Going forward

CannTrust faces a long road to recovery. As we step into the next few quarters, the company’s remediation plan must be addressed. Without the license, the company stands to miss out on early-stage advances into the cannabis market.

The Canadian market has entered into the next phase of cannabis legalization. This phase, called Cannabis 2.0, includes edibles. Investors should know that edibles are expected to command higher margins.

The depth and breadth of edibles products have enabled more opportunities for companies. For example, companies are developing beverages infused with cannabis, and some are developing chocolates while many companies are also venturing into the vape market.

CannTrust earnings

Consequently, the company’s next couple of earings will miss out on a lot of action. Eventually, this problem will dent investors’ return objectives.

CannTrust has lost about 87% of its value since its peak of $10.2 in March 2019. This loss far exceeds some of its cannabis peers. For example, Canopy Growth (WEED)(CGC) has lost about 57% over the same period, and Aurora Cannabis (ACB) has lost about 63%.

This volatility is why investing in ETFs makes sense since cannabis ETFs can lower your risk. For more details, see our Investor’s Guide to Cannabis ETFs.


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