Shares of CannTrust Holdings (NYSE: CTST) have plunged over 80% in the past 12 months, making it quite cheap with respect to its cannabis growing potential. It might look like an irresistible offer at this price, for a marijuana stock that comes with immense growth potential. Yet, it’s safe to stay clear.
If you have not been following the stock, the logic wouldn’t strike you too quickly. The Ontario-based company has been embroiled in two major scandals recently, making it quite difficult to convince investors that it is a credible firm.
The first was in July when it was discovered that CannTrust illegally grew marijuana in rooms hidden behind walls, besides exporting some of this to countries such as Denmark. Worse, the management allegedly knew about these wrongdoings but remained silent about it.
CannTrust had fired its CEO Peter Aceto following the incident.
Regulators are yet to announce a punishment, which could be anywhere between cutting down its inventory to scrapping its license. Though a takeover could put a gradual end to CannTrust’s woes, uncertainty surrounding the penalty faced by the company makes it an unattractive takeover target.
Even if a potential buyer comes forward, it will be tasked with the cumbersome job of convincing the regulators that its practices would change following the merger.
Amidst all this, CannTrust once again came under the hammer after the Ontario Cannabis Store returned about $3 million worth of its products for not conforming to the supplier agreement. This double whammy almost wipes of CannTrust’s credibility and makes regaining investor confidence a major hurdle.
On a whole, pot stocks may not be performing as one might have expected. Yet, when so many credible firms are out in the market, it makes little sense to try CannTrust even at the given valuation.