Will Ascent Industries have their licenses revoked?
Ascent Industries (CSE: ASNT) has until Monday to file their appeal to avoid Health Canada following through on their intention to revoke their licenses. On December 12, 2018, ASNT reported they engaged Clarus Securities "...to explore and evaluate a broad range of strategic alternatives to strengthen its balance sheet and maximize the value of the company."
My position is that ASNT will have their licenses revoked. The Clarus announcement appears to be ASNT preparing for the worst. I interpret the phrase "strengthen its balance sheet" as investment banking talk for "raise money" that should send a chill up the spine of shareholders and employees alike. Financing at this stage would be difficult and expensive. Without financing, it might mean contraction of activities including further employee layoffs. The term "maximize the value of the company" I read as "find us a bail out." As I explained here previously, I doubt anyone will step forward until the licensing decision is rendered or they receive Health Canada’s assurance that the licenses will be returned.
I have heard a couple of stories that explain what lies at the root of ASNT’s problems. These are rumours only and may or may not be correct. One is that a Health Canada inspector was looking at some accounts and realized they were records of sales to illegal dispensaries. On top of that ASNT hasn’t been approved to sell to anyone. The other is that an inspector stumbled across a stash of cannabis that was off the books and presumably for illegal sale. Either is a serious transgression although I reiterate these are educated guesses. I doubt anyone who knows the truth is talking.
Assuming the appeal is filed on time, in this case a quick response from Health Canada, I mean within a week or two, will likely be bad news because it probably means ASNT didn't present anything new for Health Canada to think about. My own conclusion is we will not see a response before weeks into the new year.
As I explained in an earlier Let’s Toke Business article, having their licenses revoked is not necessarily the end of the story. There are many alternatives. The company could be taken over which would make the relicensing faster and easier. The various parts of the company could be sold off separately. Finally, ASNT could go about reapplying for their licenses.
In any case, given the negative investor psychology that dominates the cannabis stock group, I think it will be a long road back for current shareholders. In The Cannabis Report Model Portfolio we owned a position in ASNT which was bought and sold at a profit.