Government investigations, fired CEOs, and a sector in turmoil: Cannabis companies are facing a hidden threat, and the honeymoon might be over
- A recent poll conducted by Ipsos found that Canadians have a dim view of the cannabis sector.
- The sector has been buffeted by a string of bad news in recent weeks, including a federal agency seizing illegally grown cannabis at one of CannTrust's growing facilities, and Canopy Growth ousting its founder and longtime CEO Bruce Linton.
- See more of Business Insider's cannabis coverage here, and sign up for our new cannabis newsletter Cultivated.
A recent poll conducted in Canada by the market research firm Ipsos found that cannabis companies are suffering from extremely low favorability ratings, just ahead of mortgage lenders and tobacco companies and well behind oil-and-gas, carbonated soft drinks, and the alcohol industries.
The past few weeks of tough news for the Canadian cannabis sector probably haven't helped, to say the least.
Cannabis producer CannTrust's shares slipped almost 45% this week after a whistleblower told Health Canada, the federal agency responsible for inspecting cannabis facilities, that the company was growing cannabis in unlicensed rooms.
The whistleblower, a former employee at a CannTrust growing facility in Ontario, told The Globe and Mail that he had been asked by his superiors to hang white poly walls to hide thousands of plants from Health Canada investigators.
On Monday, CannTrust said that Health Canada had seized more than five metric tons of cannabis, and the company put a voluntary hold on seven metric tons of cannabis - over 15,000 pounds of pot. CannTrust CEO Peter Aceto said these holds affect the "majority" of the company's inventory and warned of cannabis shortages for both recreational and medical consumers.
The company's troubles didn't end there.
CannTrust's Danish partner, Stenocare, said it had received imports of the illegally grown cannabis and sold some to patients. The cannabis producer's stock continued to slide Friday after it put a further voluntary hold on all of its cannabis products and the company could be at risk of losing its grow license.
And CannTrust isn't the only major Canadian cannabis grower facing turmoil in recent weeks.
Canopy Growth fired its founder and chief executive Bruce Linton earlier this month, after a disappointing quarter. Constellation Brands' CEO, Bill Newlands, told CNBC that Canopy's board agreed they needed "a different leader to take us to the next phase of growth."
Constellation Brands owns a 38% stake in Canopy, and the cannabis producer's poor performance was starting to impact the beer giant's bottom line.
In May, MarketWatch reported that TILT Holdings - a Canadian Securities Exchange-listed cannabis conglomerate created out of a four-way merger last year - told investors the value of its assets was around $500 million. A month after going public, the company said its assets were actually worth around $7 million.
TILT's interim CEO, Mark Scatterday, released a letter earlier on Wednesday that continued to address concerns around the company, and said he was "unhappy with where the stock is trading."
Growing cannabis is hard, and figuring out how to operate in a brand new industry where the rules are constantly shifting is even harder. But all this turmoil in recent weeks points to a hidden threat for cannabis companies: based on public sentiment, the honeymoon phase might be over.
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