CannTrust plummets after disclosing regulatory non-compliance

What happens when new technology legitimizes a market that’s already worth nearly $350 billion?

We are about to find out.

The market is cannabis, and the tech is from a little-known company called TruTrace (CSE:TTT; OTC:TTTSF) that’s years ahead of the competition in this multi-billion-dollar niche segment.

Some of the cannabis grown by CannTrust Holdings Inc. in unlicensed rooms at its Niagara facility has already been shipped to provinces across the country, the company’s chief executive officer, Peter Aceto, confirmed on Monday.

The acknowledgment in an interview with the Financial Post came after CannTrust revealed Monday that Health Canada had put a freeze on more than 5,000 kg of marijuana at its Pelham, Ont., plant after finding it had been grown in five unlicensed rooms. The company’s stock closed down more than 20 per cent in Toronto following the announcement.

It is unclear when the unlicensed product was packaged and shipped to the provinces, or whether the product in question had been sold to Canadian consumers.

Cannabis stocks have lost their lustre of late, but the catastrophic implosion that accompanies a bubble bursts has yet to happen three quarters into year one of nationwide legalization.

While it may seem somewhat safer to invest in cannabis firms like Canopy Growth(TSX:WEED)(NYSE:CGC) now that they’ve had the opportunity to establish themselves in a post-legalization era, it’s important to remember that there are uncertain material side effects from mixing cannabis and politics.

HEXO Corp (TSX:HEXO) (NYSE:HEXO) has emerged as one of the more popularmarijuana stock in the sector and the reasons behind the popularity are not hard to see. One of the most important factors behind the positivity surrounding the company is its dominance in the province of Quebec, Canada.  HEXO has managed to capture the attention of the adult- recreational cannabis market and that could be the company’s springboard to success as it plans to expand further.

Canadian cannabis cultivator CannTrust (TSX:TRST)(NYSE:CTST) saw its stock plunge after Health Canada found that one of its greenhouse facilities was non-compliant. This comes on the back of what has been a tough few months for the burgeoning legal marijuana industry with significant doubts emerging about its viability in the wake of Canopy Growth’s shock fiscal fourth-quarter 2019 results. Those results were so disappointing that 40% owner liquor giant Constellation Brands was concerned and co-founder as well as co-CEO Bruce Linton stepped down and left the industry-leading cultivator.

Few industries are generating the buzz that cannabis is right now. After delivering close to $11 billion in global licensed-store sales last year, the expectation, according to the newest State of the Legal Cannabis Markets report from Arcview Market Research and BDS Analytics, is that worldwide licensed-store sales will nearly quadruple to more than $40 billion by 2024. That's growth Wall Street and investors simply can't ignore.

Following a miserable May that saw nearly three dozen pot stocks lose at least 10% of their value, June was nominally nicer to the green rush. The Horizons Marijuana Life Sciences ETF, an exchange-traded fund holding more than four dozen cannabis stocks of various weightings, rose by a modest 2%.

Then again, the data on individual stocks wasn't as pretty. Of the 60 I follow, just 21 ended the month of June higher (two were unchanged, as well). Pessimism was still readily apparent, but it was the most popular pot stocks -- those generally weighted higher in most marijuana ETFs -- that shone the brightest.

Cannabis producer CannTrust Holdings Inc says customers may experience temporary shortages after Health Canada found that its greenhouse facility in Pelham, Ont. is non-compliant with regulations.

The regulator found that cannabis had been grown in five unlicensed rooms between October and March of this year during which time CannTrust was applying for licences and that inaccurate information was provided to the regulator by CannTrust employees.The rooms received licences in April.

In case you haven't noticed, the legal cannabis industry is turning into a big-money business.

As recently as 2014, the global cannabis industry was just a seed that was beginning to find its roots. The duo of Arcview Market Research and BDS Analytics notes that worldwide licensed-store sales (i.e., legal sales that don't include cannabinoid pharmaceutical sales and general store cannabidiol revenue) were "only" $3.4 billion in 2014.