CannTrust Sinks Further Into Penny Stock Territory

A second CTST pot growing facility received a non-compliance letter

Aug 12, 2019 at 9:56 AM
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CannTrust Holdings Inc (NYSE:CTST) is down 26.2% at $2.39, on reports a second cannabis growing facility run by the Ontario-based pot firm received a non-compliance letter from Health Canada. The regulatory agency placed a hold on marijuana inventory at the location, which includes around 5,200 kilograms of dried cannabis, according to a company statement.

The pot stock has been unusually volatile lately amid major fundamental developments -- including the company ousting its CEO in late July after a whistleblower revealed illegal grow rooms. In fact, CTST's 30-day historical volatility settled last Friday at 190.3%, an annual high. The bulk of this action has been to the downside, with the shares off 60% in the past three months. Plus, Friday's 41% rally was quickly halted by the equity's 40-day moving average.

Options traders are positioned for a big bounce, though. The August 5 call is home to peak open interest of nearly 11,500 contracts, and data from the major options exchanges confirms significant buy-to-open activity here. In this case, speculators expect CTST stock to break out above $5 by front-month options expiration at the close this Friday, Aug. 16 -- territory the security hasn't seen since before an early July bear gap.

However, it's not an ideal time to be purchasing premium on CTST stock's short-term options, considering the elevated volatility expectations they're pricing in at the moment -- which dampens the benefit of leverage. The equity's 30-day at-the-money implied volatility hit a 52-week peak out of the gate this morning, last seen at 208%.

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