CannTrust, owner of this facility in Vaughan, Ont., seen on Sept. 17, 2019, was spending roughly $19-million in cash each quarter to fund its operations, according to filings in March.Tijana Martin/The Globe and Mail
One day after Health Canada suspended CannTrust’s cultivation, sales and processing licences, analysts are struggling to put a value on the business given its uncertain future.
CannTrust’s share price rose 1.2 per cent to $1.72 in Toronto on Wednesday, after a decline of 14.5 per cent the day before. The Ontario-based cannabis grower’s market capitalization is now $240.5-million, close to the amount of cash on its books.
The current valuation suggests investors are largely discounting the worth of the company’s greenhouse and processing facility, which could be forced to close for an indefinite period of time if CannTrust fails to appeal the licence suspensions. The company valued its property and equipment at $70.5-million in March.
“As of June 30, 2019, [CannTrust] had $250-million in cash, suggesting a value of $1.77 per share,” Eight Capital analyst Graeme Kreindler wrote in a note on Wednesday.
“However, the inability to sell product, along with probable outlays including legal/professional fees, lawsuits, maintenance capex and employee severance, present burdens on the balance sheet that will likely erode its value over time,” Mr. Kreindler wrote.
The licence suspensions came three months after Health Canada discovered the company had grown around $51-million worth of cannabis in unlicensed rooms. Health Canada has given CannTrust 10 business days to provide a response “with reasons why the suspension is unfounded.”
CannTrust is allowed to keep its existing plants alive during the appeal period, but cannot plant new crops, process cannabis or sell it.
Just keeping the lights on will be expensive, Royal Bank of Canada analyst Douglas Miehm said in a note on Wednesday, and Canntrust “could face meaningful cash burn over the coming months.”
CannTrust was going through around $19-million in cash per quarter to fund its operations, according to filings from March. In September, CannTrust laid off 180 people, roughly 20 per cent of its work force. But those layoffs will only lead to $9-million in annual cash savings, the company said at the time.
There is still a possibility that the licence suspension will be lifted, but the timing of this remains unknown, Mr. Miehm wrote.
In a news release on Tuesday, CannTrust said Health Canada outlined steps the company would need to take to get its licences reinstated, which include changing how it grows and distributes cannabis, recovering any illegally grown cannabis it sold and improving its employee training.
The company did not respond to questions about whether it intends to appeal Health Canada’s suspension in the next 10 days.
CannTrust has hired investment bank Greenhill & Co. Canada to conduct a “review of strategic alternatives,” including a possible sale of the company or its assets. But the uncertainty surrounding the licences makes it hard for other companies to place a bid, Mr. Miehm wrote.
“We see few, if any, interested parties as most LPs in Canada generally have or are already building the infrastructure needed to support domestic demand and may not want to deal with the lawsuits facing the company,” Mr. Miehm wrote.
Bank of Montreal analysts Tamy Chen and Peter Sklar stopped trying to determine a price target for CannTrust on Wednesday, saying that it was “difficult for [them] to assess the eventual regulatory outcome.”
Canaccord Genuity Corp. analysts, meanwhile, said in a note that they would “remain on the sidelines” owing to “the lack of clarity regarding timing on any potential resumption of sales, combined with the company’s severely tarnished reputation.”
Hanging over CannTrust’s share price is the possibility of a cease-trade order, wrote Mr. Kriendler of Eight Capital.
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Mark Rendell