Cannabis stocks rose Friday to break a six-session losing streak, led by CannTrust Holdings, which rallied more than 18% on the news that it has fired its chief executive as it works to clean house after a scandal involving illegal grows.
CannTrust shares CTST, +14.36% TRST, +13.95% have been hammered ever since Health Canada said it was seizing more than five metric tons of its cannabis after discovering it was being harvested in unlicensed rooms. The stock has lost more than 54% of its value in the past month as media reports uncovered the extent of the illicit behavior, which included building fake walls to conceal the grows. Even worse, the Globe and Mail uncovered email traffic that showed senior management were not just aware of the illegal activity but had ordered workers to continue with it. A Danish partner confirmed that some of the illicit cannabis had been exported, which is a breach of the Canadian Cannabis Act and an indictable offense.
For a full timeline, read: CannTrust fires CEO, president resigns as pot company deals with illegal-grow scandal
Late Thursday, the company said it had fired Chief Executive Peter Aceto with cause, and that it had forced President Eric Paul to resign.
“Our first priority is to complete the remaining items of our investigation and bring the company’s operations into full regulatory compliance,” Robert Marcovitch, chair of a special committee set up to investigate the matter and now interim CEO, said in a statement.
Not everyone was convinced the company is out of the woods, however. Mitch Baruchowitz, managing partner of Merida Capital, a private-equity fund with a focus on the cannabis sector, questioned the stock move in tweets, suggesting it might be a round of short-covering, or traders buying to cover short positions.
Curaleaf Holdings shares CURLF, +2.15% were also higher Friday, after the company said it has responded to a warning letter from the U.S. Food and Drug Administration and removed all statements about its CBD-based products that the agency said were not in compliance with its rules.
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The FDA cracked down on the company earlier this week for marketing products that it claimed could treat a range of serious diseases, including Alzheimer’s disease and cancer. The agency is in the process of drafting rules for CBD, a non-intoxicating ingredient in the cannabis plant that is believed to have wellness properties. The FDA views it as a drug, because it’s the main ingredient in the only cannabis-based drug to win approval in the U.S., Epidiolex, GW Pharma PLC’s treatment for severe childhood epilepsy. The regulator has told companies they cannot add CBD to food or drinks, although it appears more lenient about topicals, as long as companies don’t make health claims.
For more: Curaleaf shares tumble 8% after FDA sends warning letter over CBD health claims
“Upon receiving the letter, Curaleaf Hemp, the Company’s hemp-based CBD product line, immediately began an extensive review of its website and social media platforms to remove all statements that FDA identified as non-compliant,” the company said. “This includes removing the Curaleaf Hemp blog, and the third-party links in it, and removing any statements and social media posts to which FDA had taken exception.”
The company further informed the FDA that some of the products had already been discontinued.
“Our industry needs, wants and appreciates the work the FDA is doing to ensure there is regulation and compliance in the CBD marketplace,” said Chief Executive Joseph Lusardi. Shares rose 2.3%.
Aphria shares APHA, -3.77% APHA, -3.63% bucked the positive trend to fall 3.4%, after CIBC downgraded the stock to underperform from neutral citing a list of concerns that includes aggressive analyst estimates, potential asset impairment, a leadership void and less robust supply contracts.
See also: This company wants to be the Bacardi of cannabis — and it has plans for an IPO
“While we believe Aphria likely captures a high-single-digit market share, and last month’s partnership with PAX Era was a meaningful win, we see more risk than reward in the stock,” analysts John Zamparo and Krishna Ruthnum wrote in a note to clients.
Valens GroWorks shares VGWCF, +2.90% rose 2.9%, after GMP it came away from an investor day at the company’s facility in Kelowna, British Columbia with a bullish view of the company.
“The company showcased its breadth of extraction methodologies (including supercritical and subcritical CO2, ethanol and hydrocarbon), its analytical testing capacity and its cannabis-infused beverage technology,” said analyst Ryan Macdonell. “We came away impressed by the company’s operations and we believe the tour showed VGW’s readiness for the cannabis 2.0 products market.”
GMP rates the stock as buy with a C$10 ($7.58) price target.
Elsewhere in the sector, Canopy Growth was down 0.5%, Aurora Cannabis Inc. ACB, -0.15% ACB, +0.82% was up 0.3%, Tilray TLRY, -1.00% was down 1.0%, and MedMen MMNFF, -1.71% shares were down 1.7%. OrganiGram Holdings’s stock OGI, +1.72% was up 2.1%.
Hexo HEXO, -0.62% HEXO, +1.68% was up 0.2%, Cronos CRON, -0.67% CRON, +0.10% was down 0.2% and GW Pharma GWPH, +3.23% was up 2.1%. Software company Akerna KERN, +4.66% was up 3.1% and Charlotte’s Web CWEB, +4.51% was up 4.5%.
The ETFMG Alternative Harvest ETF MJ, +0.39% was up 0.5%, and the Horizons Marijuana Life Sciences ETF HMMJ, +0.49% was up 0.3%.
The Dow Jones Industrial Average DJIA, +0.04% was up 0.04% and the S&P 500 SPX, +0.52% was up 0.5%.
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