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  • Ted Ohashi

More negative news to come on CannTrust Holdings (TSX: TRST)

I have reported on CannTrust Holdings (TSX: TRST) (NYSE: CTST) regularly as their gruesome tale slowly came to light. I had an advantage in reporting on this matter as I had followed the descent of Ascent Industries closely. Health Canada revoked Ascent’s licensing recently. Based on what happened with Ascent, I conclude there may be more negative news to come on TRST.


For TRST another shoe has dropped. Last week, Health Canada issued a Notice of Licence Suspension under the Cannabis Act (Canada). Specifically, Health Canada:

  1. Suspended TRST’s authority to produce and sell cannabis. Cultivating and harvesting are not included in the suspension.

  2. While the suspension is in effect, TRST may cultivate and harvest existing lots or batches previously propagated and conduct ancillary activities including drying, trimming and milling.

  3. While the suspension is in effect, TRST may not propagate new lots or batches of cannabis or engage in the sale or distribution of cannabis.

  4. Will reinstate TRST’s licenses if the reasons for suspension no longer exist or TRST demonstrates the suspension is unfounded.

  5. Considers the implementation of the following measures could potentially address the public health and safety risks that contributed to the decision to issue the Notice.

  • Measures to ensure cannabis will be produced and distributed only as authorized, including measures to control the movement of cannabis in and out of TRST's site; Measures to recover cannabis that was not authorized by TRST's licence; Measures to improve key personnel's knowledge of, and compliance with the provisions of the Act and the Regulations that apply to TRST; and, Measures for improving the manner in which records are kept, including a plan to improve the inventory tracking, and any interim measures to ensure that information provided to Health Canada can be reconciled.

TRST had requested a trading halt prior to releasing this information. TRST’s stock fell nearly 15% immediately after this news was disclosed and the stock resumed trading and the stock is down 87% in the last six months. Added to last week’s misery was news that the Alberta Gaming, Liquor and Cannabis Commission is returning all or substantially all of TRST's products valued at approximately $1.3 million.


A lesson from the Ascent (ASNT) case might come in handy. In that case, Health Canada suspended ASNT’s licenses following which ASNT submitted a response to argue the suspension should be lifted. Health Canada responded the submission was not sufficient and reported to ASNT that it intended to revoke the licenses. ASNT was then given a chance to argue why their licenses should not be revoked. This took on the characteristics of a judicial hearing laying out an appeal process should the decision go against ASNT.


This is a summary of the events that transpired:

  • Ascent Industries (CSE: ASNT) commences trading on Canadian Stock Exchange (August/14/2018)

  • ASNT reports partial suspension of licenses by Health Canada for issues with records (September/27/18)

  • ASNT allowed to cultivate, trim, cure, sanitize, harvest and maintain cannabis plants (October/2/18)

  • ASNT made formal submissions to reinstatement licences October/18/18

  • Appoints interim CEO (November/21/18)

  • Health Canada extends hearing date to December 17th at ASNT’s request (November/26/18)

  • Engages Clarus Securities to evaluate strategic alternatives in case it loses licenses (December/12/18)

  • Submits response to Health Canada’s proposed revocation of licenses (December/17/18)

  • Certain major ASNT shareholders assign all voting rights in trust (February/4/2019)

  • Receives repeat notice Health Canada is not convinced licenses should not be revoked (February/7/19)

  • Receives notice of potential suspension, revocation or non-renewal of licenses (February/15/19)

  • ASNT stock trading is halted (March/18/19)

  • Formally argues Nevada licenses should not to be cancelled March/28/19

  • Announces sale of Canadian assets (April/8/19)

  • Combined Forces Special Enforcement Unit of B.C. is investigating certain activities (April/11/19)

  • Announces financial report for December 2018 year was not filed on time (May/16/19)

  • Engages forensic accountant to investigate suspicious payments (May/16/19)

  • Health Canada revokes producer and dealer’s cannabis licenses (July/12/19)

There are several useful observations to be made:

  1. Looking only at the ASNT case, there are many “events” leading to, in this case, a revocation of licenses. Chances are many more “events” in CannTrust’s future.

  2. The “partial” suspension of TRST’s licenses might have been motivated by practicality. If Health Canada suspended all activity, the current crop would have been wasted. TRST is not allowed to initiate cultivation of new plants or sell any production. It seems to me, when the existing plants are harvested and processed, the suspension will be made total.

  3. CannTrust said “…federal regulators listed several measures that the firm could implement, which would address the various public health and safety risks that contributed to Health Canada’s partial suspension.” One interpretation is that Health Canada was providing TRST with guidance to end the suspension and retain their licenses. Another interpretation and, in my opinion a more likely explanation is the information was intended as guidance for a Licensed Producer to acquire TRST’s assets.

  4. If TRST sells its assets, it will likely not be an attractive outcome for shareholders. The reason prospective buyers are only interested in buying the assets and not the company is the assets come clean. The company brings with it all the skeletons in the closets whether there are any or not. It also brings with it potential liabilities from lawsuits. While the potential lawsuit liabilities could be extremely large, they are unknown and no one will step up to buy a company facing that level of potential loss.

  5. In my opinion, after the existing plants are harvested and processed, the suspension of licenses will be changed from “partial” to complete.

  6. In the ASNT case, Health Canada gave the company an opportunity to explain why their licenses should not be revoked. I guess that after the current crop is harvested and processed, this will be the next step. In the ASNT case, information was not leaked to the press so investors didn’t know for sure what had happened. In the TRST case, we have the leaked emails and other information. ASNT was unsuccessful in arguing the licenses should not be revoked. I cannot conceive of an argument TRST can make to avoid revocation of their licenses. Clearly this unauthorized activity on the part of TRST was carefully planned to the point of building fake walls to hide the illegal activity. It was widely known among senior management and also some lower level employees. It was not one rotten apple in the barrel; there was wrongdoing at both TRST locations. So I believe TRST will argue their case and fail.

  7. At some point, TRST shares may be halted on the stock exchanges. The two major exchanges TRST is listed on are Toronto and New York. If it is halted on one, it will be halted on the other. ASNT shares were halted in March 2019 and remain halted over six months later.

  8. A buyer will materialize and TRST will realize sale of assets is the only way they can proceed. So I suspect a sale will happen. It can happen at any time. The most difficult conditions under which to sell an asset is when the buyer knows you are a motivated seller. Once the transactions are completed, ownership of the assets purchased will transfer to the buyer and payment will be made to TRST. The proceeds from sale will remain in TRST until the legal claims against the company are settled. I’m not a lawyer but I suspect this doesn’t mean months. We’re talking years.

Conclusion: developments such as CannTrust destroy investor confidence and can send markets into a tailspin. You might call it an operating scam, that is, illegal activities in the operation of a business. I don’t think this is over and I continue to believe investors should stay away.


Unfortunately, there are also financial scams that can impact the industry and more on that is coming to the surface as described below involving Canada Cannabis Corp. (CCC) and Ben Ward, Silvio Serrano and Peter Strang. You may recall that Ben Ward was the Chief Executive Officer of Maricann Group which subsequently became Wayland Group, the company from which he resigned in August. This is another fiasco that is about to hit the news in a much bigger way although it only impacts CCC at this point. And percolating in the background is the Bridgemark debacle that I first reported on here on March 15, 2019. Bridgemark may be the largest financial scam of them all. It is not a cannabis problem but involves some cannabis players.


It is possible there was a “financial scam” at TRST as well. It is not the same as CCC or Bridgemark where it appears the perpetrators started off with a plan to fleece investors. I don’t think this was the case with TRST. However, the result is the same. Investors bought shares from the company and on the markets at a time when management of TRST knew there was material information that could adversely impact the stock price that was not disclosed. Since the initial reports, TRST stock has fallen sharply while management seems to have known what was taking place unbeknownst to the markets. Not only that, it seems clear to me that certain insiders who knew the facts sold shares to uninformed buyers. No one should forget that on August 1, 2019, CannTrust issued a statement that said in part, “…staff of the OSC [Ontario Securities Commission] advised the Special Committee’s legal counsel that an investigation has been opened into matters and parties related to CannTrust and the investigation has been assigned to the Joint Serious Offences Team of the Enforcement Branch of the OSC.”


I have read recent articles that suggest Health Canada has shown CannTrust the road to recovery. I don’t believe it for a second. I witnessed the Health Canada process put Ascent Industries through a long and tortuous process ending in revocation of licenses. As near as I can tell, what was going on at TRST was much worse than what happened at Ascent and the regulatory actions to date are following the same general template. CannTrust is not off the hook by a long shot.



The cannabis cycle has already been adversely effected by CannTrust and coming news with respect to CCC and Bridgemark Group won’t help. CannTrust itself is down 86.87% in the past six months. But I expect we’ll be well into the next cannabis bull market as these problems are dragged through the regulatory process and/or the courts. Through all this time, the shares of TRST may be halted and investors could be locked in.


The real message in all these disasters is to be very careful where you invest your hard earned money. There is an old saying that states, “When a person with experience meets a person with money, the person with experience gets the money and the person with money gets the experience.” Which are you?

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