For the second second time over the last couple of months CannTrust (CTST) has been found to be non-compliant with one of its facilities. This follows a string of negative news for the company, starting in March when it earnings report showed it missed big when measured against analysts' expectations.
On Friday a company auditor withdrew its results for the last quarter and full-year saying the data it drew from shouldn't be considered reliable.
The consequence is there is nothing investors can rely upon that can provide them with the information they need to make an informed investing decision concerning CannTrust.
The latest issue and why it matters
The latest negative catalyst came from Health Canada finding the facility in Vaughan, Ontario to be non-compliant. The conclusion came from inspections conducted from July 10 to July 16.
Health Canada observed that five rooms that had been formerly production areas had been converted to storage units without approval from the agency. There were also a couple of areas that had been built for storage purposes that had not gone through the approval process.
Other key issues found were that security and quality measures in place were "inadequate" and "insufficient." The company also failed to provide important information for the inspection on time.
To say this is sloppy and lazy practices by the management of CannTrust would be an understatement. From the things listed above, it's apparent much of the guidelines and parameters to operate in Canada were essentially ignored. It can't be defined any other way.
All of this isn't just bad news, but incompetence at best, and a lack of ethics at worst. I appears it's a combination of both.
All smoke and mirrors
What is readily apparent is CannTrust has been largely operating in a way that presents itself as a viable company, when in fact almost nothing that is going on there can be trusted. It's not just a question of being transparent operationally, but that the company has hidden some of its misdeeds from authorities and shareholders.
So when taking into account its auditor KPMG is unwilling to back up the prior results it had reported, it means it has no confidence that the data it drew from is reliable and accurate.
There's not one thing I would trust concerning CannTrust, even with the management change. That's not necessarily because of the integrity or ability of the existing management, but because I believe they have no idea how deep down the rabbit hole this goes yet. For now, they're just along for the ride until the real condition of the company is thoroughly examined and accurate conclusions can be drawn.
Lack of ethics and what appears to be laziness concerning the prior management is only one problem CannTrust faces. It also faces a period where auditors of different types - focusing on different parts of the company - will have to participate in a prolonged investigation in order to keep their reputations in tact. This is why KPMG disavowed its prior conclusions.
Another major problem is companies that may have been interested in acquiring some of CannTrust's assets are going to be resistant to doing so until they know if there are any underlying liabilities they may be taking on with an acquisition.
With the latest revelation concerning more non-compliance, it further increases the possibility CannTrust may lose its licenses.
There are so many things wrong with the company at this time, that I don't even consider it speculative any longer; it doesn't even reach that status in my opinion.
Unsurprisingly, investor sentiment is also negative, with individual portfolios in the TipRanks database showing a net pullback from CTST.
I don't see any reason for investors to take a position in the company as it stands.
Disclosure: No position.
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