Right now Canntrust is down, but are they out?
There is no denying that Canntrust's value has been decimated in a matter of days after the news that health Canada would be putting the company under investigation for growing cannabis in rooms prior to obtaining their license to grow. In a short week the stock declined consecutively every single day since the announcement to close the week down almost 50%. Its astonishing how fast a company who carried a strong reputation in the high growth cannabis sector can be demolished and have their reputation tarnished overnight. Now as serious as the news really is, there are always two sides to a story, and most of the time someone's loss is another one's fortune. The question remains on many of our minds, will this be the case for canntrust once the dust settles. This week is going to be a very crucial week for canntrust and their shareholders for a few reasons.
The Fate Lies in Health Canada's Hands
This is going to be a big week for Canntrust and I can see the stock having more volatility than last week. More than likely a large amount of short interest has accumulated on Canntrust after last week's news, and I wouldn't be surprised if we see a short squeeze in the trading sessions to come. There is a perfect catalyst coming up this week that could cause a massive bounce in shares of Canntrust. The company has until July 18th to respond to health Canada'sregulator'ss report. At that point Health Canada will determine if the company receives a fine of up to a million dollars Canadian or a suspension/cancellation of their federal license. In my opinion if health Canada eases back at all hinting at a possible fine and allows Canntrust to pick up the pieces of their broken reputation, shares will rally immensely. Often times when things look like they could not get any worse and there is no hope are the times that you need to think logically, weigh the pros and cons and see through the darkness. Its human nature to join the crowd and rain down negativity on Canntrust as many investors within the community have done so. I truly believe "this too shall pass" but let's talk about the worst-case scenario. If Canntrust was to lose their federal license than the company would indeed be in big trouble, at that point I think they would have to be bought out, rebranded and dismantled. Brands and reputation definitely carry value especially in the cannabis sector so Canntrust has taken a big hit.
How Far Will Health Canada take it?
In my opinion Health Canada is making an example of Canntrust and they came in guns blazing. On Friday we felt the waves of fear ripple through the cannabis sector with a broad selloff from large caps to small caps. Selling quality cannabis grown in licensed facilities should be on the top of their list, but completely destroying a company for breaking the rules once is another story. It would make more sense to even increase the size of fines for non-compliance in the future to deter companies from breaking the rules, but a suspension or complete withdrawal of one's license seems a little overboard. This would also look bad for the Canadian government allowing the destruction of so many jobs. We will be waiting on the edges of our seat this week to see the final verdict from health Canada but I wouldn't be surprised if we see more volatility than last week. At this point buying the dip in shares of Canntrust is very risky business but for a high-risk investor, there is lots of potential for returns. Buckle your seatbelts if you are on the Canntrust coaster, we could be in for a wild ride!
__________________________________________________________________________________________About the Author Aaron Missere is the CEO and founder of financial media company Departures Capital Inc. He is an avid and experienced investor, with a primary focus on the cannabis industry. In addition to being a featured contributor to StockNews.com and ETFDailyNews.com, he is an author for SmarterAnalyst.com. Aaron also currently hosts a weekly show on YouTube that recaps and explains the movement in the stock market, with a heavy emphasis on marijuana stocks.
CannTrust Holdings Inc. (CTST) was trading at $2.81 per share on Wednesday morning, up $0.06 (+2.18%). Year-to-date, CTST has declined %, versus a 12.77% rise in the benchmark S&P 500 index during the same period.
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