Analysts said the scandal will affect CannTrust for some time, beginning with the likely loss of sales from the 12,700 kilos of illicit cannabis. Bank of America Merrill Lynch analyst Christopher Carey said, “Due to uncertainty on go-forward financials, exacerbated by likely diminishing investor confidence, we see shares remaining weak.”

  • Bank of Montreal and Royal Bank of Canada both downgraded CannTrust and lowered their target prices as CannTrust’s shares sank. By Friday—four days into the crisis—CannTrust shares were down 44%, representing roughly $400M in market-value losses.
    Financial Post, The Straight, Bloomberg
  • CannTrust bought 81 acres in BC with which to build an outdoor production site, and initially predicted it could yield 75,000 kilograms per year. On July 3, due to license delays, the company announced the most it could yield this year would be 15,000 kilograms, provided the site was licensed and CannTrust planted its crop by August 5. That’s not going to happen on schedule.
    Business in Vancouver
  • Referring to CannTrust’s open application to grow outdoors, Lifford Cannabis CEO Lisa Campbell said, “just over $50 million in wholesale revenue on hold. Outdoor cultivation licence also 99.9% not happening. 75,000kg was 15,000kg as of last week is now 0kg expected outdoor yield.” She estimated the choice to grow in unlicensed rooms will cost CannTrust $350M in seized stock and lost outdoor revenues.
  • Two US law firms are investigating CannTrust toward class-action lawsuits, and calling for those who invested in the company to contact them. Bloomberg‘s David George-Cosh reported he has received press releases from nine law firms launching CannTrust class actions.
    Press Releases, Twitter

Founder and chairman Eric Paul said he wouldn’t call for CannTrust’s senior management to resign, though he couldn’t explain why management was unaware that thousands of kilos of cannabis was grown in unlicensed rooms over six months. Paul said, “It was quite a shock when I found out about it.”

  • Analyst Mike Zmuda noted, “It’s possible senior management was told the grow areas were properly licensed. Most of that workflow falls on the operational side. [… But] it is a very unlikely scenario.”
  • Cannalyst Craig “GoBlueCDN” Wiggins noted, “Eric Paul signed the audited year end financial [statements] where in the notes under Biological Assets they recorded (at the time) a record amount of Projected Yield. […] No one in [CannTrust] executive noticed this DOUBLING of Project Yield QoQ without new rooms?”

Quick Hits

  1. Citing the difficulty involved in caring for living plants, BC’s Liquor Distribution Board announced it would not carry clones. A spokesperson for the LDB said the only way BC consumers could access clones would be if LPs were allowed to sell to them directly, but direct sales by LPs are against BC’s cannabis law.
    MJ Biz Daily

  2. Organizers of the Journey Cannabis and Music Festival were forced to cancel the three-day music and bring-your-own-cannabis festival in Vaughan, ON after the City of Vaughan passed a bylaw outlawing smoking within the city boundaries. They claimed at no point during their permit meetings with the city did anyone mention the smoking ban.
    The Leaf

  3. The Wildfire Collective is a farm-style co-op that grows exclusively outdoors, and founder Mark Spear told the Globe is goal was to focus on producing small batches of high-quality product.
    Globe and Mail

  4. Companies producing edibles will likely start with only a few products, possibly based on the top-selling products in the US REC-legal states.
    The Star