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Aug. 1, 2019, 8:14 a.m. EDT

Cannabis stocks climb after CannTrust says it’s reviewing options, including possible sale

Tilt is forced to restate past financials after Canadian regulator questions massive writedown and other issues

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By Ciara Linnane, MarketWatch , Max A. Cherney


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Cannabis stocks were boosted by news of possible sale of CannTrust

CannTrust Holdings shares rallied Wednesday to lead cannabis stocks higher, after the troubled company hired a financial adviser for a strategic review of its options, including a possible sale of the company.

CannTrust shares /zigman2/quotes/201332942/composite CTST -3.65%   /zigman2/quotes/206800806/delayed CA:TRST -2.81%  soared almost 12% on the news, recouping some of the 55% plunge over the past month after Health Canada seized more than five metric tons of the company’s cannabis after discovering it was growing in unlicensed rooms.

The selloff intensified after the Globe and Mail uncovered email traffic showing top management was aware of the illegal grow and a Danish partner confirmed that some of the product had been exported. The company pushed out Chief Executive Peter Aceto, and President Eric Paul resigned. A special committee continues to investigate the matter, and has now hired Greenhill & Co. Canada Ltd.

Options under consideration include a partial sale, a strategic investment, a business combination or continuing with the company’s current plan.

Also in the news, Tilt Holdings, a Cambridge, Mass.-based cannabis company, r estated financial statements in response to 16 separate queries about them from the British Columbia Securities Commission.

Tilt, which trades on the CSE as well as on the U.S. over-the-counter market, shocked investors last year when it wrote down the value of its combined businesses by nearly $500 million. That writedown was the subject of one of the regulator’s queries.

For more, read: How a freshly grown cannabis company managed to lose $500 million in less than a month

In the new documents, Tilt explained how it arrived at the outlandish valuation: executives had previously used a projected growth rates of up to 381% for the consulting business within Tilt and 217% growth for the Canadian cannabis business. Now it’s assuming those entities will grow at a modest 2%. The stock was up 14%, but it trades at just 89 cents, so that percentage gain is equal to just 11 cents.

Cannabis Watch: For all of MarketWatch’s coverage of cannabis companies

In regulatory news, Colorado saw a steep decline in opioid prescriptions after it legalized cannabis for adult use, according to a study by researchers at the Geisinger Commonwealth School of Medicine and the University of New England, as cited by advocacy site Marijuana Moment.

The study, which has yet to be peer-reviewed, compared Colorado with Maryland and Utah, which are similar to the first state to legalize in terms of population size, home ownership and education, among other factors. Researchers used data from a Drug Enforcement Administration program that tracks the distribution of certain narcotics.

Don’t miss: Cannabis companies are having a horrible summer as scandals mount and stocks slide

“Colorado had a larger decrease in opioid distribution after 2012 than Utah or Maryland,” the study found. “Therefore, marijuana could be considered as an alternative treatment for chronic pain and reducing use of opioids.”

Hexo shares /zigman2/quotes/206508254/composite HEXO -5.19%   /zigman2/quotes/200008967/delayed CA:HEXO -5.51%  were flat and Aurora Cannabis /zigman2/quotes/210559470/composite ACB -5.40%   /zigman2/quotes/203734337/delayed CA:ACB -5.87%  was up 1.4%. Snapchat /zigman2/quotes/205087158/composite SNAP -1.89% and Twitter /zigman2/quotes/203180645/composite TWTR -1.57% have published ads for the companies that are testing Canada’s restrictive laws on marketing weed. Screenshots of ads obtained by MarketWatch for brands, medical cannabis and other products may breach rules that ban advertising to teenagers.

Snap executives have testified in the United Kingdom that some elements of its age verification system are imperfect, specifically regarding how users who first sign up for the social network through its app, according to media reports in March. It wasn’t immediately clear the extent to which Twitter suffers from similar issues, and the company did not answer questions about it.

More on this: Snapchat and Twitter cannabis ads risk government crackdown

Elsewhere in the sector, market leader Canopy Growth /zigman2/quotes/200603886/composite CGC -2.65%   /zigman2/quotes/202205609/delayed CA:WEED -2.71%  was down 0.2%, Tilray /zigman2/quotes/209129655/composite TLRY -4.98% was up 0.7%, and MedMen /zigman2/quotes/201940908/delayed MMNFF +3.85%  shares were up 1%. OrganiGram Holdings’s stock /zigman2/quotes/209289540/lastsale OGI -3.49%  was up 1.2%.

Cronos /zigman2/quotes/206842762/composite CRON -6.09%   /zigman2/quotes/202715342/delayed CA:CRON -5.78%  was up 0.4% and GW Pharma /zigman2/quotes/209686240/composite GWPH -0.85%  was up 0.9%. Software company Akerna /zigman2/quotes/202667634/composite KERN -2.42%  was down 3.5% and Charlotte’s Web /zigman2/quotes/212650907/delayed CA:CWEB -2.72%  was up 3.1%.

The ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ -2.24% was up 0.6%, and the Horizons Marijuana Life Sciences ETF /zigman2/quotes/208856346/delayed CA:HMMJ -4.07% firmed 1.2%.

The Dow Jones Industrial Average /zigman2/quotes/210598065/realtime DJIA -0.95%  was down 0.2% and the S&P 500 /zigman2/quotes/210599714/realtime SPX -0.39%  was down 0.1%.

Read now: Cannabis industry’s lobbying on track to hit a new record

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Ciara Linnane is MarketWatch's investing- and corporate-news editor. She is based in New York. Max A. Cherney is a MarketWatch reporter based in San Francisco. Follow him on Twitter @chernandburn.

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