Cannabis Weekly Wrap: CannTrust, Auxly, CuraLeaf, CBD

James West

This week’s focus is on Canntrust Holdings Inc. (NYSE:CTST), Auxly Cannabis Group,(OTCMKTS:CBWTF) CuraLeaf, (OTCMKTS:CURLF) and CBD.

CannTrust Holdings Inc,  in a dramatic purge sent CEO Peter Aceto and Chairman Eric Paul their walking papers after the company’s special committee found both men to be complicit in the scheme to deceive regulators, staff and investors.

Both CEO Peter Aceto, who was fired for cause, and Chairman Eric Paul, of whom the board demanded a resignation (not yet tendered) have not made any statement.

The stock responded favourably rising to close the week week at $2.28 per share after falling as low as $2.00 per share. The day before the story broke, the stock closed at $4.94 per share.

The lawsuits are predictably flying, with a new class action seemingly announced every day, and the damage to the reputation of Mssrs. Aceto and Paul, terminal.

But will these rolling heads be sufficient to avert a complete cancellation of CannTrust’s license to grow and sell weed? Should it be?

Investors have been severely damaged by the news of such a blatant and inexplicable lapse in governance. I personally do not believe Health Canada will act punitively beyond a fine, though its doubtful Canntrust can survive without being folded into another issuer. Those discussions are likely happening. But since a discount even at these prices seems more likely than any premium being paid by a potential acquirer, I’m staying away for now but there could be a short term punt in the stock as evidence by today’s lift.

Auxly Cannabis Group’s announced investment by Imperial Brands PLC – makers of Rothmans cigarettes, among other tobacco products – has committed to buy 20% of Auxly for $123 million in a convertible debenture that converts at $0.81.

Just in the nick of time, too, one could argue, since Auxly’s $100 million convertible debenture with BMO is due in January 2020. The convert price on that deal is $1.55, which means the likelihood of BMO exercising that right is almost nil. Especially since this deal values at and caps the stock price at $0.81 for the near and distant future.

The company’s revenues from cannabis product sales have yet to top $1 million in any quarter, begging the question of who’s doing due diligence at Imperial?

CuraLeaf ‘s receipt of a warning letter from the FDA is actually far more damaging to the company than is widely by mainstream media. The letter advises Curaleaf CEO Joseph Lasardi that the description of the language on the company’s “CBD Lotion,” “CBD Pain-Relief Patch,” “CBD Tincture,” and “CBD Disposable Vape Pen” products are unapproved new drugs sold in violation of sections 505(a) and 301(d) of the Federal Food, Drug, and Cosmetic Act (the FD&C Act), 21 U.S.C. 355(a) and 331(d). Furthermore, these products are misbranded drugs under section 502(f)(1) of the FD&C Act, 21 U.S.C. 352(f)(1). FDA has also determined that your “Bido CBD for Pets” products are unapproved new animal drugs that are unsafe under section 512(a) of the FD&C Act, 21 U.S.C. 360b(a), and adulterated under section 501(a)(5) of the FD&C Act, 21 U.S.C. 351(a)(5).”

Besides the implication for the rest of the industry by the FDA’s evident intent to enforce strictly the  deployment and use of such claims, the uncertainty as to the ways and means by which CBD products can legally be sold in America is now called into question. 

Worse, the downdraft in the cannabis share prices as result of the dubious and declining quality of transactions throughout the industry threatens to drive the total discount across the sector to over 50%, which does not bode well for the 100+ cannabis stocks waiting in the wings to debut on Canadian exchanges.

CBD as Far as the Eye Can See
I feel compelled to reiterate my warning to investors about the upcoming implosion of the cannabis market due to oversupply. The perception commonly projected by publications of low cerebral throughput are apparently either unable or unwilling to put the lines on a chart that demonstrates unequivocally the imminent convergence of supply versus consumption. Any company proposing to become a driving force, or even profitable, by producing CBD, are smoking crack. They should be smoking weed. Stay away. 

More Cannabis Stocks News

Whither CannTrust?

Cannabis Sector FOMO Takes A Hard Left Turn In Early Trade

OrganiGram Holdings Inc Displays Noteworthy Relative Strength

James West

James West

Editor and Publisher

James West founded Midas Letter in 2008 and has since been covering the best of Canadian and US small cap companies. He covers global economics, monetary policy, geopolitical evolution, political corruption, commodities, cannabis and cryptocurrencies. As an active market participant, James is not a journalist and is invariably discussing markets...
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Midas Letter is provided as a source of information only, and is in no way to be construed as investment advice. James West, the author and publisher of the Midas Letter, is not authorized to provide investor advice, and provides this information only to readers who are interested in knowing what he is investing in and how he reaches such decisions.

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