CannTrust Holdings (TSX:TRST)(NYSE:CTST) stock was down 1.94% in late afternoon trading on July 11. Shares have plunged over 40% over the past month.
This week, CannTrust confirmed that it had received a non-compliance order from Health Canada for growing cannabis in unlicensed rooms. Analysts did not respond well to the news. On Tuesday, Bank of Montreal and Royal Bank analysts slashed CannTrust’s rating from "outperform".
The company has seen its market capitalization halve over the past week. Analysts were particularly critical of CannTrust’s explanation, or lack thereof, for the infraction.
Cannabis stocks were already reeling coming into this summer. Canada’s top producers have posted disappointing earnings as recreational sales have slumped since legalization. In addition to these baked-in concerns, CannTrust is now wrestling with a temporary hold from Health Canada on CannTrust cannabis products. Its products are now removed from the Ontario Cannabis Store and Alberta cannabis retailers.
The selloff may be overdone, but the pressure is on for CannTrust to make changes. Shares had an RSI of 12 at the time of this writing. This puts CannTrust deep in technically oversold territory.
Even value investors should take a wait-and-see approach with this stock right now. The cannabis sector is a dicey proposition to begin with right now, and CannTrust’s malfeasance greatly increase the risk for buyers right now.
