Matt Maurer speaks to Marijuana Business Daily about NYSE delisting CannTrust

Matt Maurer of Torkin Manes' Cannabis Law Group, speaks to Marijuana Business Daily about NYSE delisting CannTrust.

 

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The New York Stock Exchange’s regulatory enforcement arm has initiated the delisting process for CannTrust after concluding the Canadian cannabis producer “is no longer suitable for listing.”

NYSE Regulation said Tuesday it reached its decision after the Ontario-based company obtained a creditor protection order from the Ontario Superior Court of Justice.

“The Company has a right to a review of this determination by a Committee of the Board of Directors of the Exchange,” the NYSE said in a statement.

The NYSE said it “will apply to the Securities and Exchange Commission to delist (CannTrust’s) common shares upon completion of applicable procedures, including any appeal by the company.” 

A delisting would make CannTrust the first publicly traded Canadian cannabis cultivator to lose its listing on a major stock exchange.

CannTrust began trading on the NYSE in February 2019 as CTST.

Both the NYSE and the Toronto Stock Exchange, where CannTrust trades as TRST, previously warned the company that its listing was in danger.

Earlier Tuesday, the cannabis producer said it has been granted an initial period of creditor protection by the Canadian court, preventing creditors and plaintiffs in pending lawsuits from enforcing their claims against the troubled company for 10 days.

As a result, CannTrust said its shares will likely be delisted from the NYSE and TSX.

Regulatory scandal at Ontario facilities 

Once a leader among Canada’s licensed cannabis producers, CannTrust fell from grace after it was caught growing cannabis in unlicensed areas of its Pelham facility last summer.

A CannTrust facility in Vaughan then was deemed noncompliant with federal cannabis regulations, and the company’s federal cannabis licenses were subsequently suspended by Health Canada.

CannTrust destroyed tens of millions of dollars worth of cannabis plants in the wake of the scandal, and the company still hasn’t recovered.

Greg McLeish, an analyst at Mackie Research, stopped covering CannTrust after the unlicensed cultivation scandal.

McLeish said Canada’s cannabis industry took a reputational hit when the CannTrust scandal came to light, but at this point he doubts investor perceptions of the industry would suffer if CannTrust loses its stock market listings.

“I’m actually surprised that they’ve been able to keep the doors open as long as they have been able to,” he said.

“Nothing against the workers there, but the management was absolutely deceitful in the way they dealt with the street.”

Future in doubt

CannTrust “hopes to exit (creditor) protection well-positioned to rebuild its stakeholders’ trust and deliver high-quality, innovative products to its patients and customers,” the company’s board wrote in a news release issued Tuesday morning.

The stay of proceedings will allow CannTrust to finish a remediation plan for its Vaughan facility and seek reinstatement of its federal cannabis licenses from Health Canada, the company said.

It might also help the company address ongoing litigation claims and seek “strategic alternatives,” including a potential sale of the company.

However, CannTrust’s news release also warned the company’s future is up in the air.

“Without its cannabis licenses, the Company has been unable to generate any meaningful revenue since June 2019,” the release noted.

The company also said the COVID-19 pandemic has “exacerbated what were already difficult circumstances” for the company by potentially delaying Health Canada’s license application reviews and “making it even more challenging for CannTrust to attract new financing or a strategic partner.”

The prospect of CannTrust successfully finding a strategic partner at this point seems unlikely, said Matt Maurer, co-chair of the cannabis practice at Toronto law firm Torkin Manes.

“And part of that just happens to do with timing,” he said.

The days of building out large cannabis cultivation facilities in Canada are long gone, said Maurer, who observed that several Canadian cannabis producers have been shutting down such facilities and selling them off.

“We’re going from one period of time where everyone wanted a facility that was built, and ready to go, and licensed, to a glut of facilities coming online for different reasons that are up for sale,” he said.

“And how many buyers are there going to be for these facilities, or to partner with entities and make use of those facilities? So I think the timing for trying to sell those types of assets is unfortunately not very good.”

Challenges ahead

Maurer said it would be an uphill battle for CannTrust to reach the point where it could start selling cannabis again, given the challenges outlined by the company.

“And even if they do,” he added, “it’s going to take months to get products back out, and they’re going to need money to do that, and where are they going to get the money?

“And when they do get products out, are people going to be anxious to purchase CannTrust products? Maybe, maybe not.”

CannTrust had roughly 145 million Canadian dollars ($103 million) in cash as of March 20.

Even if its licenses are reinstated by Health Canada, CannTrust would need an influx of working capital in order to return to profitability, according to the company.

This article was originally published in Marijuana Business Daily.