Why CannTrust (TSX:TRST) Stock Declined Over 4% Yesterday

It seems there is no respite for CannTrust (TSX:TRST)(NYSE:CTST) investors. CannTrust stock was down 4.1% yesterday after the company announced that products worth $2.9 million were returned by the Ontario Cannabis Store (OCS). The OCS, which is in charge of Canada’s wholesale to retail distribution, deemed the products to be “non-conforming.”

This is the latest drawback for CannTrust and its investors. Last month, CannTrust shares fell over 50% after it was revealed that the company was manufacturing cannabis in unlicensed facilities. Government authorities such as Health Canada and the Ontario Securities Commission were forced to step in and are leading parallel investigations.

CannTrust’s auditor KMPG also withdrew its company audit report for 2018 and the first quarter of 2019. KPMG claimed that the audits were inaccurate. Yesterday, The Schall Law Firm filed a class-action suit against CannTrust. The law firm accused CannTrust of false and misleading statements, due to which investors suffered substantial damages

CannTrust investors have lost a whopping 80% since March this year. So, has the stock bottomed out?

A lot depends on regulatory bodies

CannTrust stopped the sales of products across segments shortly after the manufacturing scandal went public. The total inventory on hold has been valued at $51 million. It was later revealed that Health Canada has found another facility that did not comply with regulations.

Investors will be waiting with bated breath for the outcome of these investigations. In case Health Canada levies a fine that is not too hefty, expect CannTrust’s stock to move significantly higher. The company can also then restart operations and focus on core strategies.

However, will the regulatory bodies suspend CannTrust’s licences or revoke manufacturing permits? Will CannTrust, a company currently valued at $400 million, cease to exist?

Cannabis companies are under the microscope

According to a Forbes article last week, the Federal Bureau of Investigation (FBI) is looking into corruption activities in the cannabis industry.

FBI Public Affairs Specialist Mollie Harpen stated, “States require licenses to grow and sell the drug — opening the possibility for public officials to become susceptible to bribes in exchange for those licences. The corruption is more prevalent in western states where the licensing is decentralized — meaning the level of corruption can span from the highest to the lowest level of public officials.”

Other leading cannabis companies such as Curaleaf Holdings and HEXO are also facing regulatory problems. Last month, Curaleaf received a warning from the Food and Drug Administration for misleading claims on products.

HEXO was accused of aggressively promoting products on social media platform Snapchat. While HEXO was accused by a short-seller, the Snapchat platform is popular among the underaged populace and might cause a problem for the company.

It seems like cannabis companies are coming under the regulatory radar, and for good reason. Investors expect the highest level of ethics by the management of publicly traded companies.

Any behaviour short of investor expectations will result in massive pullbacks, as has been the case with several cannabis stocks.

One tiny small-cap stock to bet on ahead of Cannabis 2.0 on October 17th…

The first wave of cannabis legalization minted millionaires out of everyday investors, and it might be about to happen again.

Because when edibles are legalized in Canada on October 17th, experts project a new $2.7 BILLION market will be born.

Our last legalization stock pick is already up 1,211%, and now we’re recommending one tiny small-cap stock before Cannabis 2.0.

This could be our next +1,000% winner in the cannabis space.

Hurry, the second wave of cannabis legalization is about to hit and this stock could skyrocket.

Click here to learn more!

More reading

Fool contributor Aditya Raghunath has no position in any of the stocks mentioned.

Source: The Fool
Why CannTrust (TSX:TRST) Stock Declined Over 4% Yesterday
The Fool

The Motley Fool
Contributor for investorsnews.ca
The Motley Fool is dedicated to helping the world invest — better. Founded in 1993 by brothers Tom and David Gardner, The Motley Fool helps millions of people attain financial freedom through our website, podcasts, books, newspaper column, radio show, mutual funds, and premium investing services.

In all we do, we take a different approach.

We believe – and have proven over decades – that the individual investor can beat the market.

We believe that anyone can do it, even if they don’t have a lot of time or money to devote to investing.

We believe in a long-term outlook, helping people build wealth over time.

We believe that the person best positioned to take care of your financial future is you.

And we work tirelessly on behalf of our hundreds of thousands of members who are enjoying the opportunities that come with having enough money to do the things that matter to them.

While we are headquartered in Alexandria, Va., The Motley Fool advocates for the individual investor around the globe with offices in the UK, Australia, Canada, Singapore, and Germany.

Related posts