Canntrust’s (TRST) stock is currently down over 21% today on news that the company has been dealing cannabis grown in unlicensed rooms. Despite CEO Peter Aceto’s warm and inviting smile in the photo above, his company is facing some harsh scrutiny in the market this morning.
According to Aceto, Health Canada inspectors made a surprise visit to the Niagara facility in June and issued a report on the company’s non-compliance on July 3. The department has demanded a formal response from CannTrust by July 17 to determine exactly how the unlicensed growing took place.
This is all the LP’s really have over the black market
The unlicensed cannabis has already been shipped and sold to provinces across the country. Although legal cannabis in Canada has its downside to consumers: dry, weak, excessive packaging, shipping delays etc. have been common complaints so far; legal cannabis is supposed to be reliable and trust worthy.
People who were buying legal, LP grown product bought into a promise that the company growing the plants were following all of the laws and regulations that maybe their neighbour down the road wasn’t. This is a really bad look for the legal sector as without this advantage, they are no further ahead than the black market.
It could be argued that the black market still has a huge advantage over the legal sector in less/no package restrictions, no lengthy Health Canada inspections, speedier product testing and trials, no shareholders to impress and wide distribution across illegal online and physical dispensaries.
A report earlier this year showed the black/grey market are still responsible for about 71% of the sales of cannabis in Canada. The report stated:
“Household spending on cannabis totalled $5.9 billion (in nominal terms) in the fourth quarter, with illegal cannabis accounting for $4.7 billion and legal cannabis $1.2 billion,” reads a Statistics Canada summary of the data. “Cannabis accounted for 0.5% of total household spending, and non-medical cannabis accounted for 11.2% of spending on alcohol, tobacco and cannabis in the fourth quarter.”
If the LP cannabis has this bad mark of unlicensed distribution on its hands, what is their selling point going to be in the market? Ironically, it’s a company called CannTrust that has hurt the consumer’s trust in the legal sector.
CannTrust released a statement this morning regarding the debacle.