Science

Why investors shouldn’t give up on the North American cannabis sector

Trust in big cannabis companies has been shaken after a spate of bad news but upcoming players like GreenStar Biosciences Corp. (CSE: GSTR) prove the sector is still full of potential

After a horror week for CannTrust, investors ask themselves: Can the company, and the sector, survive what is proving to be a miserable year for cannabis companies. CannTrust shares have lost more than 20 percent in value over the past week. Investors seem to be rushing for the door but how bad are things really?

License revoked

For Tilray, things are bad. The Canadian health authority Health Canada was to blame for the crash by withdrawing the license for the production and sale of cannabis products from the Canadian cannabis group. This was the authority’s response to weeks of quarrels over CannTrust, in which the company had to temporarily stop its sale. Specifically, this involved the results of investigations by the authorities according to which the group launched products from unlicensed cultivation on the market.

The licence withdrawal hits the company hard. Not only is the company no longer allowed to produce cannabis, a spokesman for the authorities also declared that all products would be confiscated at the affected sites, so that the sale of stock products would come to a complete standstill.

Previously, investigators had investigated the company’s sites in Pelham and Vaughn. An insider had reported to the authorities that CannTrust was operating unlicensed facilities.

Can CannTrust get back on track?

CannTrust can get its license back if certain conditions are met. A government release stated that Health Canada would reinstate the licenses “if the reasons for the suspension no longer exist or if CannTrust can demonstrate that the licenses were wrongly revoked.”

In concrete terms this means: CannTrust must either remedy or invalidate the deficiencies complained of. However, the company’s behaviour over the past weeks suggests that the measures were taken for good reason and that the whistleblower who informed the authorities apparently actually had insider knowledge – so it is likely to be difficult to completely dispel the allegations. As a result of the events, CannTrust had, among others, dismissed its CEO Peter Aceto. The management is said to have been aware of the machinations and to have exported parts of the illegal cannabis abroad.

The company will therefore probably focus on eliminating the causes – which could prove to be a long road. Only when the authorities are satisfied is there a chance that CannTrust will get its licence back. And only then can we begin to rebuild lost investor confidence. But it may be too late by then because the air is getting thinner and thinner across the industry. Recently, Aurora had disappointed Cannabis with a much higher than expected loss, even Tilray hasn’t been doing well, even though the company promised to be in the black soon in some regions.

The industry as a whole is faring better

Despite the bad news for Tilray the sector as a whole actually has some very positive long term signs. The spate of bad news is likely to come to an end and despite oversupply problems there is likely to be a period of levelling out followed by renewed growth.

In light of the recent scandals that heavily affected stock prices of big cannabis companies (Canopy Growth, HEXO, Tilray), some investors are turning their eyes to upcoming promising players. A Canadian investment firm GreenStar Biosciences Corp. (CSE: GSTR) has developed a business model around identifying and investing in high-potential regional cannabis companies to build a comprehensive portfolio of top marijuana companies in North America. With a lot of experience in the cannabis sector in Canada, the company is able to utilize their expertise to help other companies grow.

Their strategy is already paying dividends. One of their most successful partner companies is Cowlitz, a producer and processor of high quality cannabis products at low prices, based in Washington state. Cowlitz grew tremendously in just five years of operations recording over $14 million in revenue by 2018.

Upcoming players like GreenStar provide some hope to cannabis investors who are currently despairing over crashing stock prices. These kind of high potential companies will help to offset some of the recent losses as the cannabis sector moves into a new epoch.

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