Published: Mon, July 08, 2019
Finance | By Loren Pratt

CannTrust slumps after Health Canada finds unlicensed pot cultivation

CannTrust slumps after Health Canada finds unlicensed pot cultivation

"These rooms were constructed in accordance with regulations and good production practices, and licences were issued for each of the five rooms in April 2019", the company said.

The announcement is "somewhat unprecedented" for a cannabis company selling to the legal market, and CannTrust may be forced to destroy all the product in question, Brochstein said. It went on for the period between October 2018 through to March 2019, and in addition, it has also been revealed that CannTrust employees had also given inaccurate information to Health Canada.

In a new development, CannTrust Holdings has had a setback today as it emerged that an audit by Health Canada on its Pelham facility in Ontario found that the company was in violation of a set of regulations.

CannTrust's Nasdaq-listed stock fell 19 per cent in premarket trading following the disclosure.

CannTrust said the regulator has placed an inventory hold on about 5,200 kilograms of dried cannabis harvested from the rooms.

CannTrust has also voluntarily held ~7,500 kg of pot harvested at its Vaughan facility that was produced in previously unlicensed rooms until it can be verified as compliant.

That being said, CannTrust has stated that with so much of its cannabis supply being held up right now (12,700 kilos to be precise), it will be hard to get any product to vendors.

CannTrust said in a statement it has accepted Health Canada's non-compliance finding and has taken actions to ensure current and future compliance.

"It (the non-compliance) adds a meaningful overhang to the story over the next several quarters, at least", RBC Capital Markets analyst Douglas Miehm said in a note, citing risks to revenue growth.

The company said the impact of these matters on CannTrust's financial results are unknown until Health Canada completes its quality testing of product from its Pelham greenhouse, which is now on hold. The company said it is exploring options to mitigate these shortages.

Ryan Tomkins, an analyst with Jefferies, said in the near-term there will "undoubtedly be a financial impact".

"The fact the company never spotted this, or indeed still doesn't know how it happened, is a concern", he said.

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