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Could CannTrust Shares Double in Value?

CannTrust Holdings Inc (TSX:TRST)(NYSE:CTST) has gone through a lot of turmoil since July when we first learned of the company’s illegal growing operations. Since then, shares have fallen by more than 75% in value. However, with such a massive drop in price, there’s definitely room for a big recovery for CannTrust – if it can get its cannabis licence reinstated, which would drastically turn things around for the company.

Before the scandal emerged, CannTrust was trading at around $6.5, which is more than four times the $1.5 price point that it has been hovering around lately.

Is a recovery probable?

While there’s little doubt that CannTrust shares would soar if Health Canada were to reinstate its licence, the big question is how likely is that to happen. To its credit, CannTrust has been making efforts to do what it believes is necessary to prove to regulators that it has improved its operations.

It announced in October that it was going to destroy inventory worth approximately $65 million as well as biological assets valued at around $12 million. The assets were not authorized by the company’s licence, and Interim CEO Robert Marcovitch says it is part of the company’s remediation plan, which he believes will help CannTrust get its licence back.

In a media release issued by the company, Marcovitch stated, “CannTrust is confident that its detailed remediation plan will not only address all of the compliance issues identified by Health Canada, but it will also build a best-in-class compliance environment for the future.” He went on to say that the company wants to not only meet Health Canada’s standards but to exceed them.

News that the company was taking these steps to destroy assets was seen as positive by investors with the stock jumping more than 50% the following day. Ultimately it comes down to Health Canada to decide whether the steps taken are sufficient for the public to have trust in CannTrust again, and that’s impossible to know at this point.

Path to reinstatement is there

The good news for CannTrust investors is that there is a path to reinstatement. News that Bonify would be getting its licence reinstated was a positive development for CannTrust because it could help give the company a model to follow in its attempts to win over regulators.

While the two companies’ situations are different, if CannTrust learns from the steps taken by Bonify, it could gain a better idea of what regulators are looking for from the company.

Bottom line

It’s still a long shot for CannTrust to get its licence back. But if it does, there’s little doubt that shares would skyrocket on the news, as the stock has been very volatile and we’ve already seen it make big gains even though there has been no official announcement from Health Canada.

While Bonify was the first case in which a cannabis company was able to get its licence reinstated, CannTrust’s scandal may prove to be too big for the company to recover from.

While there’s definitely a lot of potential upside for CannTrust’s stock, it’s still far too risky an investment to make for most investors, as it is essentially betting on Health Canada’s decision. The stock could double or triple, or perhaps go even higher than that. But the problem is that it could also end up going to zero as well, and that’s the scenario that I believe is more likely to happen.

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Fool contributor David Jagielski has no position in any of the stocks mentioned. The Motley Fool recommends CannTrust Holdings and CannTrust Holdings Inc.

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