Trending >

CannTrust Holdings placed “Under Review” at Paradigm Capital

canntrust holdings analyst

A new development at CannTrust Holdings (CannTrust Holdings News, Stock Quote, Chart TSX:TRST) has Paradigm Capital analyst Corey Hammill changing his rating on the stock.

This morning, CannTrust announced it had received a compliance report from Health Canada that is greenhouse in Pelham, Ontario is non-compliant with certain regulations due to what the company described as inaccurate information provided to the regulator by its employees. Though TRST says it will implement a number of corrective actions, its stock tumbled more than 20 per cent Monday.

“Our team has focused on building a culture of transparency, trust and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgment, but the lessons we have learned here will serve us well moving forward,” CEO Peter Aceto said.

Hammill says there is value in TRST but cautions that these are serious events.

“These events have caused TRST shares to fall more than 20% on Monday morning and have led some investors to question the company’s organizational integrity,” the analyst notes. “On a positive note, TRST is looking to leverage its Canadian medical leadership to expand globally by partnering with strong local players in Australia and Denmark. TRST is developing innovative products, including CBD beverages, pet care products and confectionaries, which should help it maintain market share heading into Canada’s next wave of legalization. Furthermore, TRST appears to have a long-term plan to enter the biosynthetics space (exp. by 2022), which should significantly reduce its already low production costs to $0.005/g and help it maintain cost leadership; this will become more important as the industry supply chain becomes more saturated and competitive. TRST shares trade at 5.9x and 2.9x our 2019e and 2020e sales numbers versus the average of our Canadian LP tracking basket at 24.2x and 8.7x, respectively.

Hammill today changed his rating on the stock from “Buy” to “Under Review” and also placed his target, previously $15.00, under review.

“Despite the below-market valuation, we encourage investors to wait and see how the situation plays out to gain a better idea of the financial impact,” the analyst adds. “We estimate the product being held for Health Canada review has a value in excess of $50M. Given the magnitude of this inventory relative to 2019 revenue expectations, we are moving our rating and target to Under Review until there is more clarity.”

More Cantech Cannabis

  •  
  •  
  •  

About The Author /

Cantech Letter founder and editor Nick Waddell has lived in five Canadian provinces and is proud of his country's often overlooked contributions to the world of science and technology. Waddell takes a regular shift on the Canadian media circuit, making appearances on CTV, CBC and BNN, and contributing to publications such as Canadian Business and Business Insider.

Comment

Leave a Reply

Your email address will not be published. Required fields are marked *