CannTrust Stock Plunges On Audit Citing Non-compliance, Cannabis Inventory Being Held

CannTrust Holdings Inc. (TSX: TRST)(NYSE: CTST) stock has fallen almost 20% after the company announced that a Health Canada audit found that the company was growing cannabis in five unlicensed rooms and inaccurate information was provided to the regulator by CannTrust employees. While the company’s name says trust, it seems Health Canada couldn’t trust the company to wait until the grow rooms were licensed before beginning work.

CannTrust said it has accepted Health Canada’s non-compliance finding and has taken actions to ensure current and future compliance. The company stated that the growing in the unlicensed rooms took place from October 2018 to March 2019 during which time CannTrust had pending applications for these rooms with Health Canada. These rooms were constructed in accordance with regulations and Good Production Practices, and licenses were issued for each of the five rooms in April 2019.  There are 12 rooms in total at the facility.

Health Canada has apparently placed a hold on inventory which includes approximately 5,200kg of dried cannabis that was harvested in the previously unlicensed rooms in Pelham until it deems that the company is compliant with regulations. In addition, CannTrust said it has instituted a voluntary hold of approximately 7,500kg of dried cannabis equivalent at its Vaughan manufacturing facility that was produced in the previously unlicensed rooms.

“Our team has focused on building a culture of transparency, trust, and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgment, but the lessons we have learned here will serve us well moving forward,” said Peter Aceto, Chief Executive Officer. The company couldn’t acknowledge how these actions would affect its financial statements.

Health Canada is conducting quality checks of product samples on hold at Pelham, with results expected in 10 to 12 business days. Due to the product on hold, some CannTrust said its customers and patients will experience temporary product shortages. The company said it is exploring options to mitigate these shortages.

CannTrust Reacts

CannTrust said it has implemented a number of corrective actions including:

  • Further comprehensive employee training
  • Retained external advisors for an independent review of compliance processes
  • Comprehensive review and update of processes and procedures
  • Voluntarily advised Health Canada of issues that may impact compliance at its Vaughan facility regarding product storage

The company has also hired Andrea Kirk, for the newly created role of Vice President, Quality. Since joining the company in March 2019, she has hired and trained 17 quality and compliance professionals.

The stock has had a 52-week high of $11.97 and was lately trading at $3.95.

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.

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