"420 Investor" Alan Brochstein has a simple message to CannTrust Holdings Inc CTC CEO Peter Aceto: apologize for violating Health Canada rules and resign.
What Happened
CannTrust said in a press release Monday that it "accepted" a Health Canada finding that some of its cannabis was cultivated in five unlicensed rooms at a facility in Pelham, Ontario.
The cannabis producer appears to have taken a "shortcut" in reaction to the slow licensing process in Canada, Brochstein said during Benzinga's PreMarket Prep show Monday.
The announcement is "somewhat unprecedented" for a cannabis company selling to the legal market, and CannTrust may be forced to destroy all the product in question, Brochstein said. In this case, the financial cost would be easy to quantify and may total around $40 million, which implies Monday's stock move to the downside is a "huge overreaction," he said.
CannTrust could in theory lose its license, Brochstein said, although he added that he does not think it's a likely outcome.
Why It's Important
Investors place trust in companies, Brochstein said: "if you can't trust CannTrust, who can you trust?"
The news raises the question of whether CannTrust was aware it was breaking any rules at the same time it secured $170 million in a May capital raise, he said.
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What's Next
CannTrust CEO Aceto should be embarrassed by the company's missteps, issue an apology and follow up with his resignation, Brochstein said.
"I think he needs to go; I will say that publicly."
CannTrust shares were down 19.53% at $3.98 at the time of publication Monday.
PreMarket Prep is a daily trading show hosted by prop trader Dennis Dick and former floor trader Joel Elconin. You can watch PreMarket Prep live every day from 8-9 a.m. ET here. The replay can be found on Benzinga's YouTube channel, and the podcast is on iTunes, Google Play, Soundcloud, Stitcher and Tunein.
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Related Links:
CannTrust Plummets Following Health Canada Compliance Issue, Potential Supply Shortage
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