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Finance

ctst: CannTrust: A High Risk/Reward Investment

 

In 2019 CannTrust was caught by Health Canada for growing cannabis in unlicensed grow rooms.  This was the largest scandal to date in the cannabis sector. The company also sold that cannabis on the open market and eventually had their licenses suspended. 

At its highest level back in 2019, the CannTrust’s stock soared to above $10 per share. After the fallout, the stock crashed to $0.75. However, the stock has shown stability and is now trading over $1 per share.  

Trading over this $1 level is essential for CannTrust because in December the company was handed a delisting warning by the New York Stock Exchange (NYSE).  In order to stay on the NYSE, the rules indicate “The U.S. stock market requires the closing price of a listed company’s common shares to be at least US$1 per share over 30 consecutive days.” After the company’s stock sank below $1 the firm has 6 months to meet these requirements. 

So, is the worst over for shares of CannTrust? 

Some analysts on Wall Street seem to think so.  CannTrust was upgraded by stock analysts at ValuEngine from a “hold” rating to a “buy” rating in a research report issued to clients and investors this past Saturday, January 4th.  And Zacks Investment Research also upgraded CannTrust from a “hold” rating to a “buy” rating and set a $1.00 price target on November 14th.

The most likely reason for these upgrades is the impending launch of the cannabis 2.0 market.  Cannabis 2.0 is the term given to Canada’s next phase of the legalization of recreational cannabis, including cannabis-infused beverages, edibles, and concentrates used in vaping.  It was reported in September that CannTrust is preparing a range of products, including THC-infused water and coffee, and even pet food and chewable dog treats.

Despite what analysts have to say, there is significant risk involved with investing in CannTrust. First and foremost, if the cannabis market continues to sink, CannTrust could fall below $1 again.

Second, because Canada suspended their licenses after CannTrust was caught growing cannabis in unlicensed grow rooms, their financial results for the past 4 months are expected to be less than stellar.

However, there has been speculation that CannTrust could potentially receive their licenses back from Health Canada regarding their growing and extraction facilities in the not too distant future. If this happens, that would be very positive for the company and it’s stock.

Therefore, buying shares of CannTrust is a high risk/reward investment.  We view this company as a highly speculative play but remain cautiously optimistic that they can prevail. 

(Disclosure: The author owns shares of CannTrust)

 

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CTST shares were trading at $1.06 per share on Thursday morning, up $0.01 (+0.95%). Year-to-date, CTST has gained 14.31%, versus a 1.46% rise in the benchmark S&P 500 index during the same period.

About the Author: Aaron Missere

Aaron is an experienced investor who is also the CEO of Departures Capital. His primary focus is on the cannabis industry. He also hosts a weekly show on YouTube about marijuana stocks. Learn more about Aaron’s background, along with links to his most recent articles. More…

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