It hasn’t been a good month for CannTrust (TSX:TRST) shareholders. In early July, the company was caught illegally growing cannabis. Unfortunately, the news just got worse.

On Thursday evening, it was announced that the Ontario Securities Commission (OSC) has opened an investigation into the company. The investigation will be in partnership with the RCMP’s Financial Crime Program and the OPP’s Anti-Rackets Branch.

This has gone beyond mis-management of production. As new information has come to light, key company executives have been found to have sold shares after becoming aware that the company has been misleading Health Canada officials.

Two of those insiders, Eric Paul (former Chairman) and board member Mark Litwin sold a combine $34.5 million worth of stock as part of its U.S. offering via investment vehicle Cannamed. Cannamed also sold $6 million worth of shares in the period following November 16^th. Why is this important? Because that is the day that Paul became aware of the company’s illegal growing operations.

Poor management may have buried CannTrust

This is yet another sign that the marijuana industry is plagued by poor governance. If there were still investors hoping CannTrust would escape with a fine, it is time to re-think that position. All signs point to CannTrust being made an example of.

In the company’s own words “(We are) of the view that there is significant uncertainty with respect to the potential impact of pending Health Canada decisions”. This doesn’t exactly ooze confidence and represents an about face from initial company communications.

As a result of the OSC investigation, all company directors and officers are prohibited from selling shares until CannTrust reports second quarter results. Which brings up another bit of bad news.

Management also announced that it is likely to miss its Aug. 14^th filing deadline. Not only that, it “may also require restatement of certain of the Company’s historical financial statements” in light of Health Canada decisions. This is never a good thing.

It appears the only way out of this mess is for the company to sell itself. As such, it has hired investment bank Greenhill & Co. to conduct a “review of strategic alternatives”. This is code for a potential sale.

The problem with this however, is that the company will most likely be sold at a significant discount to its inherent value. At this point, no white knight is going to step in and offer a big premium for the company. Why would they?

CannTrust is dead money.