This Marijuana Penny Stock Surged 40% Over Past Five Days: What’s Next?

Marijuana Penny Stock Jumps 40% Over Past Five Days What's Next
iStock.com/OpenRangeStock

CTST Stock Future

Finding winners in the marijuana stock market right now is challenging, to say the least. While the outlook for pot stocks remains strong, the immediate outlook is not hot.

After all, in the midst of a correction, coupled with fears of a looming recession, cannabis stocks have lost investor confidence for the time being and have been punished accordingly. All that being said, some marijuana stocks—especially marijuana penny stocks—continue to impress, despite the bleak outlook.

Enter CannTrust Holdings Inc (NYSE:CTST). CannTrust stock has been battered over the past few months, no doubt, but over the past five days, it has surged by over 40%. Can it keep this up?

To understand the future of CTST stock, you have to first understand its past. We’ve covered it extensively over the past few months, but I’ll give a short recap.

Advertisement

CannTrust stock was, at one time, one of the top pot stocks. By April it had doubled in value, making it one of the best-performing marijuana stocks on the year. But then it all came crashing down.

Courtesy of StockCharts.com

As can be seen in the above chart, there were three major drops in the CTST stock price.

The first drop occurred in April after the stock peaked. That was purely a function of investor confidence waning, with many beginning to believe that the company was overvalued. That happens all the time in the marijuana industry and usually isn’t something to get too worried about.

The second significant drop took place in May as the marijuana stock correction began to set in. CannTrust stock, already on the ropes, was therefore uniquely susceptible to the downturn.

The third big fall in cannabis share value, in July, is by far the most important. That’s when CTST stock took a major dive after a Health Canada audit found that the company’s marijuana production facility was in violation of regulations and the company’s license was suspended.

Most recently, in order to comply with Health Canada, the company destroyed CA$12.0 million worth of biological assets and about CA$65.0 million worth of inventory that was not authorized by CannTrust’s license. (Source: “CannTrust to destroy $77 million of plants and inventory,” Global News, October 15, 2019.)

As you’d expect, having the company’s license suspended has left the company floundering. Considering that this happened during the harshest period of the marijuana stock correction, you have a straightforward explanation for how CannTrust stock ended up losing more than 70% of its value year-to-date.

But then this happened: CTST stock started surging. And not just small gains; we’re talking massive growth over the past five days.

Courtesy of StockCharts.com

CannTrust stock has seen a 43% growth in five short days. Does that mean it’s prepped for a massive recovery?

Well, not so fast.

CannTrust Holdings is going to be facing the consequences of its license suspension for years.

You see, it’s not just the lost revenue in the short term; it’s the fact that the company’s leadership let this happen in the first place. It’s hard to place your trust in the company when it has so egregiously messed up.

Having said that, CTST stock is most certainly worth more than its current basement price.

After all, what made this stock so valuable in April is still largely intact. Sure, we have the license suspension and lost revenue, but even with that, this is still a company with strong production capacity and supply agreements.

Which brings us to a crossroads: on the one hand, you have a company that is most certainly undervalued, but you also have a company that has questionable leadership and has burned investors in the past.

It’s hard to forget these types of flubs. Other pot companies that have made lesser fouls have taken a long time to recover. Aphria Inc (NYSE:APHA), for example, had a year-long recovery following accusations that it was buying South American assets in bad faith.

The conclusion: CannTrust stock is a very strong short-term opportunity right now. Buying on the downswing and selling on the rise could be a great way to make fast cash. I doubt this past week will be the only big rush in CTST stock.

Conversely, I doubt those gains will be sustainable—at least not right now. With the marijuana stock correction and CannTrust’s recent misstep still fresh in investors’ minds, I don’t see the stock being able to provide long-term gains for a while yet.

That means both short-sellers and day traders have a very compelling reason to track and trade CannTrust stock, but long-term investors might want to steer clear. Or at least, if someone’s looking to invest long-term, they should be willing to wait potentially over a year to see significant returns.

The one caveat to all this is that the market may deem that, while CannTrust Holdings did make a major mistake, it was punished too harshly and is now a well-priced marijuana stock. That’s a real possibility, meaning that big growth is in the offing for CTST stock.

Which is all a long way of saying that CannTrust stock is unpredictable.

Analyst Take

The marijuana stock market has been short on gains over the past few months, which makes CannTrust stock’s recent performance all the more impressive.

Still, the company is not in the best of places following its license suspension, and I believe that it will have to keep paying for its mistake for a while yet.

Nevertheless, right now CTST stock is extremely volatile and it could produce massive gains for steel-nerved investors.