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Even Your Cat and Dog are Angry at CannTrust

July 25, 2019

He's a teammate on my Sunday night hockey team. His wife left him 5 months ago and now he's telling me that he is frequently getting high with his dog to cope with the pain. Unfortunately his dog is the only companion that he has and the dog seems to be enjoying it. Every time he's high he still seems to put 4 or 5 pucks past me. Even the retired cop on our team doesn't care, he said, "I've served and protected for so many years, to me it was just a paycheck." I asked my teammate, "Where do you get your marijuana?" He told me, "I get it from my dealer, he's able to give me credit. Sometimes I won't pay him back for over 3 months and he doesn't seem to care. He deals so much marijuana he doesn't know what to do with it. Since marijuana was legalized in Canada, his sales have actually skyrocketed simply because he offers far better prices. Even if he loses money, he doesn't care. He cares only about customer service and the business he brings in."

 

This got me thinking about a few marijuana stocks I've heard about on financial websites but never pulled the trigger in terms of investing in them. CannTrust shares fell over 22% last week after a report by The Globe and Mail informed the public that the company's executives were aware that it didn't comply with regulations set by Health Canada. CannTrust's CEO and Chairman, Peter Aceto and Eric Paul, apparently knew about the compliance issues a few months prior to the leak. CannTrust was reported to have grown cannabis in unlicensed rooms after a whisteblower from inside the company notified Health Canada. In response, Health Canada seized 5,200 kilograms of CannTrust's product sales while CannTrust themselves volunteered to hold out on the sale of an additional 2,300 kilograms.

 

Firstly, I can't see why these legitimate cannabis companies that received licenses to operate legally can't produce a profit. I would agree that there's a lot of regulations involved in obtaining a license in addition to capital requirements, however how can these illegal producers cultivate not only a cheaper product, but increase profits as a result of superior distribution capabilities? CannTrust's CEO knew he was producing marijuana illegally simply because he may have had distributors that achieved better profits by operating under the table.

 

Marijuana is a crop. Sure you can produce pills, cookies, oils, drinks, or other trendy products consumers believe they can get high on, but in the end you have to measure the product as a commodity no different than wheat and barley. Colorado and California both legalized marijuana yet the illegal black market seems to be doing almost better amidst the change. The police force doesn't have the resources nor capabilities to combat illegal marijuana as their workforce is overwhelmed by other criminal activities. The proliferation of marijuana in Colorado and California is due to purchasing real estate and mass producing marijuana by achieving interconnecting activities between supply and demand. The beauty of the supply side is that the black market continues to produce cheaper marijuana despite growing competition and regulations surrounding the industry.

 

Canada is currently heavily demanding Cannabis inspectors. Unfortunately there isn't that many in Canada despite commanding a hefty $75,000 yearly salary. The only way you're going to increase supply of these inspectors is by giving out more licenses to cultivate more production of marijuana. The Canadian police force can not break into a house or a large production facility without a tip recognizing the illegal production or distribution of marijuana. The police force has their own problems with drunk drivers, disorderly conduct, theft, and domestic violence.

 

Once you legalize marijuana a laissez-faire attitude arises whereby the crop becomes a non-issue. Sure the police officers want the big dealers and distributors, but the smaller ones grossing $200,000 to $250,000 are simply not a priority. Toronto police officers are making close to an average $100,000 a year, $69,000 once you factor in taxes. Factoring in mortgages, general expenses, and hockey expenses you're left with very little at the end of each month.

My teammate told me, "If you're a huge dealer the susceptibility of getting caught is a lot easier. The dealer is making a living just like everybody else. He's drawing a paycheck."

 

The retired cop nodded his head, "In a nutshell; when you lack resources it will be hard to effectively do your job, and that's why it all becomes just a paycheck."

 

Many investors on CannTrust have gone to Twitter to voice their displeasure. They've mentioned everything from corporate greed, management debacle, criminal behavior, incompetent executives, and so on. One individual may have said it best, "If CannTrust loses their license because of their criminal behavior, what happens to your shareholders? But more importantly, what about your patients and their medicine?"

 

The cannabis industry is now producing marijuana specifically for pets. Once you get your pet hooked on marijuana, your pet will never leave you.

 

 

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