Update on CannTrust (TSX: TRST) situation
Although CannTrust Holdings (TSX: TRST) (NYSE: CTST) had to share the cannabis stock headlines that doesn’t mean nothing happened. Here are some of the highlights:
The Ontario Securities Commission (OSC) approved a management cease trade order (MCTO) that prohibits the directors and executive officers from trading in TRST securities until all required filings have been made. Here are my observations: A) This is not a big deal. A more damaging cease trade order seems inevitable when TRST is delinquent in filing financial statements without a clear path to rectify the situation. That would mean no shareholders will be able to trade the stock. B) This is more of a question but does it mean former chair Eric Paul who was apparently forced to resign and has been a consistent seller of stock and Peter Aceto, Chief Executive Officer who was fired for cause can trade (sell) the stock?
The New York Stock Exchange (NYSE) has informed TRST it no longer has a Form 40-F on file for the 2018 fiscal year. A Form 40-F for Canadian companies is similar to a Form 10-K filed by U.S. companies. In a 40-F, management gives an overview including the important management discussion and analysis (MD&A) and audited financial statements. The NYSE has informed TRST that it will be monitoring the status of their late filing. The NYSE can halt trading and ultimately suspend and delist TRST securities.
TRST also reported it has not had any substantive discussions with Health Canada concerning remediation and Health Canada (HC) has advised it cannot provide any guidance about the timing or content of decisions concerning them. I interpret this to mean that HC is still gathering information and may not have considered what to do with respect to TRST including trying to fix it or revoking its licenses.
Law firms Thornton Grout Finnigan and Rochon Genova have commenced a class action on behalf of shareholders who acquired CannTrust shares between October 1, 2108, up to an including July 8, 2019. The action seeks damages from CannTrust, certain of its officers and directors and its auditors KPMG arising from alleged misrepresentations in the company’s public disclosures and financial statements. Clearly this extends the risk from TRST and KPMG that were always at risk to include officers and directors of the company. Taking the most pessimistic view, the financial risk is enormous.
Aside from new information such as additional improprieties and related actions, TRST is boiling down to how Health Canada decides to rule on the matter. My position looking from the outside in suggests if HC does not act quickly to revoke TRST’s licenses and steps are not taken to ensure the perpetrators aren’t the ones that benefit financially, they never will and, in the cannabis industry, the bad guys win again.