According to Eight Capital:
 
https://viiicapital.frontline.ca/PDFs/Reports/2019/july/trst070819.pdf
 
CannTrust Holdings, Inc.
 
(TRST-T: C$5.08), (CTST-NYSE: US$3.90) intraday
 
Rating: NEUTRAL (from BUY)
 
Target: C$6.00 (from C$11.00)
 
Lowering to Neutral on Regulatory Audit Uncertainty
 
In light of TRST's announcement this morning that it has received a compliance report from Health Canada regarding the non-compliance of its Pelham greenhouse with certain regulations, we are reducing our rating on TRST to NEUTRAL (from BUY) and revising our target price to C$6.00 (from C$11.00). Our target price is based on 7x CY2021E EBITDA (from 15x) of $87 MM. TRST currently trades at 5x CY2021E EBITDA vs. intermediate peers at 8x.

Our NEUTRAL rating reflects our view that:
 
• With TRST currently trading at all-time lows, we expect selling pressure and resulting weakness in the stock to remain significant in the near term. Cultivation activities in unlicensed rooms took place from October 2018 to March 2019, which coincides with recent management appointments, including CEO and CFO. As such, we believe that today's announcement materially impacts the credibility of management as well as investor confidence in the stock, which will take time to rebuild.
 
• Health Canada has placed a hold on 5,200 kg eq of inventory with an additional 7,500 kg eq of inventory voluntarily on hold by TRST. The total amount of inventory on hold represents approximately 71% of TRST's inventory balance as of its last reported quarter and 4.2x its last quarterly sales volume. Based on last quarter's average net sales price of $5.47/g, we estimate that between $28 MM - $69 MM in future sales could be at risk. Quality checks from the regulator are expected to be received in 10 12 business days. Until such a time, it remains uncertain as to the amount of inventory and future sales that could be impacted by the Company's non-compliance. Recalls for product sold within the aforementioned time frame could also negatively impact future financial performance.
 
• There remains a high degree of uncertainty with respect to the potential for future legal and regulatory repercussions. This includes a possible license suspension or revocation by the regulator. According to the Cannabis Act, the regulator may suspend a license in order to protect public health and safety. The regulator can revoke a license if the holder has contravened a provision in the Act since the license was issued. We believe there could also be spill-over effects from the announcement to the Company's key stakeholder relationships both domestically and internationally. We also question TRST's ability to secure outdoor cultivation licensing during a period in which it is under heavy scrutiny by the regulator. The Company noted that an outdoor harvest will not occur in 2019 if licensing is not secured by August 5, 2019.
 
• According to our discussion with management, all of the Company's 12 cultivation rooms are currently able to grow, harvest and sell cannabis. Therefore, we believe that the situation is limited to product grown during the aforementioned time frame, license status uncertainty notwithstanding. We estimate TRST currently has $293 MM in cash, leaving the Company sufficiently well-capitalized to at a minimum support its near-term domestic initiatives.