Scandals in the marijuana sector tend to impact not just the company in question but the entire market by association.
Despite legalization in countries like Canada and an ever-increasing number of states in the U.S., there still is a vague sense of skepticism on the part of major, institutional investors who regard marijuana stocks as a riskier, almost shadier investment opportunity.
While this hasn’t turned off more speculative buyers, these big cannabis scandals tend to linger on for a while when they do happen. The most recent of which involving CannTrust (NYSE: CTST) illegally producing marijuana without appropriate licenses have already led to the termination of the company’s top executives, as well as possible criminal charges.
Today, it appears that CannTrust might even go so far as to take itself private, looking for a buyer willing to gobble up the company at a fraction of its former cost.
CannTrust, whose stock has fallen by over 55 percent as of yesterday, announced that they had fired Greenhill & Co as a financial adviser to assist in reviewing possible options, including selling the company and going private. So far, over $380 million in market value has been erased following the scandal, putting the company at a steep discount for potential buyers interested in purchasing the company.
“We are certainly investigating our options with financial advisors. But we are conscientious about our shareholders, and we are doing what you would expect a bona fide public company to do,” said interim CEO Robert Marcovitch in the telephone interview on Wednesday. Marcovitch recently took the position from his predecessor, Peter Aceto, who resigned after the board of directors demanded he steps down from his position. Chairman Epic Paul also resigned from the company, as the duo were well aware of the illegal grow operation going on within the firm.
As the sixth-largest wee producer in Canada by revenue, the company halted all sales and shipments while Canadian regulators explore the situation. Analysts are waiting to see how Health Canada responds. Should regulators end up revoking CannTrust’s licenses for their facilities, the company’s assets would end up getting sold at bargain-bin prices.
The last time such a major cannabis scandal took place was in late 2018/early 2019 when Aphria (NYSE: APHA) fell drastically in response to short-sellers claiming insider involvement in their LATAM acquisitions.
While the stock ended up recovering, mainly because it’s Canadian assets were strong enough on a fundamental level, investors hoping that CannTrust could stage a similar comeback as Aphria are likely to be disappointed. Producing and selling cannabis illegally as well as selling it internationally is a much graver offense then overpriced insider acquisition deals for relatively minor companies across the world.
Shares of CannTrust shot up in response to the news, gaining back around 8 percent of the almost 60 percent lost over the past couple of weeks.
