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Health Canada handed CannTrust Holdings Inc. a slim shot at redemption by setting out the steps the company must take to win back government licences that are now suspended. But don’t count on a comeback.

If management can somehow work its way back into the federal regulator’s good books – no easy task – it’s likely to be a rival cannabis producer that benefits, by swooping in to snap up the company’s assets. As the poster child for all that has gone wrong with marijuana legalization, CannTrust’s name is mud in the capital markets, and it will struggle to get the cash it needs to survive and rebuild.

CannTrust owns everything needed to become a credible player in cannabis – except, now, credibility and licences. The company has massive greenhouses in the Niagara region, a processing facility in Vaughan, Ont., a portfolio of recreational cannabis brands and more than 70,000 medical marijuana customers. What CannTrust lacks is the ability to do anything with those assets, except perhaps to cough them up to somebody else.

Health Canada formally suspended CannTrust’s production licences on Tuesday, the latest in a series of regulatory setbacks. Federal regulators have stopped all cannabis sales from the company. The sanctions come after Health Canada investigators, acting on a whistleblower’s tip, discovered in June that CannTrust had grown thousands of kilograms of cannabis in unlicensed facilities.

In July, a special committee of CannTrust’s board bid farewell to the company’s CEO, Peter Aceto, and its chairman, Eric Paul, both of whom apparently knew of the unlicensed grow areas. The board then hired investment bank Greenhill & Co. Canada Ltd. to run a review of strategic alternatives, including “a sale of the company or a portion thereof.”

CannTrust said on Tuesday that Health Canada could “potentially” reinstate its licences if the company makes a number of improvements to its operations, including ensuring cannabis will only be produced and distributed as authorized and improving its record-keeping. However, CannTrust faces a real risk of running short on cash before it wins back its licences, as the mandate for Greenhill & Co. shows.

CannTrust’s was burning through $16-million a quarter to fund its operations before the company’s regulatory issues became public. Early in September, the company laid off 120 employees or 20 per cent of the work force to cut costs. In addition to keeping the lights on, CannTrust faces significant costs to deal with regulatory issues. Class-action lawyers are lining up to sue the company, which lists its stock on both the Toronto and New York exchanges.

Upstart cannabis companies typically burn far more cash than they raise through marijuana sales. They count on regular trips to the capital markets to keep their coffers full as they expand operations. But CannTrust will struggle to tap public investors, to put it mildly, in the wake of a US$200-million equity offering in May that left a stench on Wall Street and Bay Street. The financing – led by BofA Merrill Lynch, Citigroup, Credit Suisse Securities and RBC Capital Markets – featured significant stock sales from company insiders, including Mr. Paul, the former chairman.

CannTrust’s share sale in May played out at US$5.50. CannTrust’s shares closed Tuesday at US$1.29 on the NYSE, down 14 per cent during the session. What was a billion-dollar company earlier this year now has a market capitalization of US$181-million.

No rival wants to shoulder the regulatory burden that comes with a full-scale takeover of CannTrust, according to investment banking sources. However, executives at several cannabis companies have already said they would be interested in specific parts of the business, under the right circumstances.

Health Canada’s road map to regaining cultivation licences provides potential bidders with the information they need to make offers for CannTrust’s greenhouses, production facilities, recreational brands or the medical marijuana business. So the most likely end to the CannTrust saga is the breakup of the company, rather than redemption for the business.