More Trouble For CannTrust Causing Stock To Plunge Again

After the market closed on Friday, CannTrust Holdings Inc. (NYSE: CTST)said it received a report from Health Canada telling the company that “Its manufacturing facility in Vaughan, Ontario has been rated non-compliant with certain regulations.” CannTrust stock is dropping over 25% to lately trade at roughly $2.26 in pre-market trading as shareholders learn about the continuing problems with the facilities causing more uncertainty.

The news that the company’s facility has failed a recent inspection is troubling because it was supposed to have addressed problems from previous inspections in which the company was found to be growing cannabis in rooms that hadn’t received licenses.  Health Canada has said that it is currently unable to provide any guidance about the timing or content of its decisions regarding CannTrust.

According to a company statement, Heath Canada’s rating was based on observations made during an inspection completed during the period July 10-16, 2019, which noted:

  • The conversion of five rooms from operational areas to storage areas, which were used for storage since June 2018 without prior approval of Health Canada;

  • The construction of two new areas without prior approval of Health Canada, one of which was used to store cannabis since November 2018;

  • Insufficient security controls at the manufacturing facility;

  • Inadequate quality assurance investigations and controls;

  • Standard operating procedures that did not to meet the requirements under regulations; and

  • Documents or information that was not retained in a manner to enable Health Canada to complete its audit in a timely manner.

The company has held back cannabis inventory as a result of the non-compliance issues. The company has said that it is trying to remediate the problems with Health Canada which has resulted in changes in the company’s executive suite.

The company’s interim CEO Robert Marcovitch said, “We are continuing to work hard to regain the trust of Health Canada, our patients, shareholders, and partners. We have retained independent consultants who have already started addressing some of the deficiencies noted in Health Canada’s report. We are looking at the root causes of these issues and will take whatever remedial steps are necessary to bring the Company into full regulatory compliance as quickly as possible.”

Separately, CannTrust said that it pre-paid the outstanding mortgage of approximately $13.3 million to Meridian Credit Union which was secured by its greenhouse in Pelham, Ontario, as well as associated interest and administrative costs.

Debra Borchardt

Debra BorchardtDebra Borchardt

Debra Borchardt is the CEO, Co-Founder, and Editor-In-Chief 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 Masters degree in Business Journalism from New York University.


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