CannTrust Withdraws KPMG's Accounting Report As Stock Falls Further

CannTrust Holdings Inc. (TSX: TRST)( NYSE: CTST) said that its independent auditor, KPMG LLP, Chartered Professional Accountants told the company that as of August 8, 2019, it is withdrawing its report dated March 27, 2019 on the company’s consolidated financial statements as at and for the year ended December 31, 2018 and its interim report to the Audit Committee dated May 13, 2019 on the unaudited condensed interim consolidated financial statements as at and for the three month period ended March 31, 2019.

In addition to that, KPMG said the reports should no longer be relied upon. CannTrust confirmed that KPMG remains CannTrust’s independent auditor.  The stock is falling another 5% on Friday morning to lately trade at $2.12.

“We will continue cooperating with our auditor and regulators, and take whatever steps are necessary to restore full trust in the Company’s regulatory compliance. Our medical patients, customers, shareholders, and employees deserve nothing less”, said Robert Marcovitch, the Company’s Chief Executive Officer.

This stems from the recent trouble surrounding the company’s illegal growing of cannabis in unlicensed rooms. That resulted in a Health Canada review as to whether CannTrust can release inventory that is being held and whether the company can retain its licenses. 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.

KPMG’s decision was prompted by CannTrust’s caution against reliance on its financial statements for the year ending December 31, 2018 and for the three months ended March 31, 2019, as well as the recent sharing with KPMG of newly uncovered information from the Special Committee’s investigation, including information that led to senior leadership changes announced on July 25, 2019.

Internal emails showed that former CEO Peter Aceto was aware of the illegal growing and was terminated “with cause.” It also seems that another former CEO and board chair Eric Paul sold stock in the company in November 2018 and had been aware of the illegal growing as well. Mark Litman another director of the company also sold shares during November. Thus, insider trading accusations are flying around as well.

Also back in November, the company’s former CFO noted that there were “deficiencies” in the company’s disclosure record in a letter to the Ontario Securities Commission. He said the company had agreed to take “remedial steps” to address them.

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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