Rout Deepens for Company That Grew Pot in Unlicensed Rooms
Rout Deepens for Company That Grew Pot in Unlicensed Rooms
(Bloomberg) -- CannTrust Holdings Inc. shares continued their rout after a ninth analyst downgraded the stock Thursday in response a regulatory breach that has forced the company to halt sales of nearly 30,000 pounds of pot.
The cannabis producer’s stock tumbled as much as 15% to the lowest intraday since September 2017, one month after its trading debut. It was down 6.3% to C$3.36 at 10:35 a.m. in Toronto, bringing its four-day loss to 40% and wiping out C$366 million ($280 million) in market value.
Several law firms have either filed or are investigating lawsuits against the company after Canadian regulators gave a non-compliant rating to its greenhouse in Pelham, Ontario. It was found to have grown pot in five unlicensed rooms between October and March, and CannTrust employees were also found to have provided inaccurate information to the regulator.
“I’m stunned to think that they could not have known,” said John O’Connell, chief executive officer of Toronto-based Davis Rea Ltd., which has sold its stake in Vaughan, Ontario-based CannTrust.
About 12,700 kilograms (28,000 pounds) of CannTrust’s cannabis inventory has been put on hold pending the outcome of an investigation by the Canadian government, and Ontario and Alberta have both stopped selling CannTrust products while the investigation by Health Canada is ongoing.
The Globe and Mail reported Thursday that the company allegedly hid thousands of pot plants behind temporary walls in order to stage photographs of an unlicensed growing room, citing a former employee. Those photographs were sent to regulators, the newspaper said said.
A company spokeswoman said CannTrust Chief Executive Officer Peter Aceto was unavailable to comment.
Canaccord Genuity analyst Derek Dley became the ninth analyst to downgrade the stock Thursday, cutting his rating to hold from speculative buy and his price target to C$5 from C$12.
“Clearly, the major concern among investors at this point is whether Health Canada will look to make an example out of CannTrust and potentially pull the company’s production license,” Dley wrote in a note. “While we had originally viewed this as highly unlikely, we are now acknowledging this could be within the realm of possibility.”
At a minimum, the company is likely to face a fine and have to destroy 5,200 kilograms of pot that were produced in the unlicensed rooms, he said. “Prior to Monday’s news of a compliance breach, CannTrust had been viewed as one of the highest-quality companies in the space,” he said. “The credibility of CannTrust has now been put into question.”
--With assistance from Michael Bellusci.
To contact the reporter on this story: Kristine Owram in Toronto at kowram@bloomberg.net
To contact the editors responsible for this story: Brad Olesen at bolesen3@bloomberg.net, Jacqueline Thorpe
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