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CannTrust stock plummets as crisis deepens, wholesalers halt shipments


Shares of CannTrust Holdings Inc. dropped to their lowest level since 2017 as a crisis stemming from a Health Canada investigation of illegal cultivation at one of its greenhouses continues to spook investors.

CannTrust shares closed down more than 17 per cent to $3.34 on the Toronto Stock Exchange on Friday, down sharply from its closing price of $6.46 one week ago before the company disclosed Health Canada’s findings involving its Ontario greenhouse.

The Canadian cannabis company said Monday it had been notified by Health Canada that the regulator had discovered unlicensed cultivation at its Ontario greenhouse between October 2018 and March 2019, before the five rooms received the appropriate licences in April 2019.

Former CannTrust employee Nick Lalonde said he was asked to put up fake walls and obscure unlicensed plants in photos that were submitted to Health Canada.

The allegations, first reported by the Globe and Mail, were repeated to The Canadian Press by Lalonde on Thursday.

“We were hanging them up to cover up all these plants, thousands of plants… and then we would be taking these photographs,” said Lalonde, who previously worked in CannTrust’s Niagara-area greenhouse.

He added that a supervisor indicated that the photos were destined for Health Canada and the walls concealed the cultivation in unlicensed rooms.

“This is a government entity… I’m not okay with this,” Lalonde said he replied at the time, adding that he had notified regulators of his concerns once he left the company in May.

CannTrust chief executive Peter Aceto has said “mistakes” were made and it is conducting a thorough review with the help of external advisers to determine what transpired.

On Thursday, it announced that an independent special committee of CannTrust’s board of directors has been established to “investigate this matter in its entirety.”

CannTrust did not respond to repeated inquiries from The Canadian Press on Friday.

CannTrust also announced on Thursday that it had implemented a voluntary hold on the sale and shipment of all cannabis products “as a precaution” while Health Canada visits and reviews its Vaughan, Ont.-based manufacturing facility.

“CannTrust is working closely with the regulator through the review process and expects to provide further detail of the duration of the hold and other developments as they become available,” the company said in a statement.

The company placed a hold on medical sales through its customer service line and online as of 11:59 p.m. on Wednesday.

CannTrust said Health Canada put 5,200 kilograms of cannabis on hold and CannTrust voluntarily put another 7,200 kilograms of product on hold, but would continue with cultivation and sales.

There are 12 product names and 26 lots affected by Health Canada’s investigation, including pot strains Easy Cheesy and Flix n Chill, according to an email sent by the Ontario Cannabis Store to retailers.

“We have voluntarily decided to place a hold on the sales of the impacted products until further notice,” the OCS said in the email obtained by The Canadian Press. “That means we will not fulfil any orders you may have made for these products on this week’s order submission. Of note, we have also decided to withhold direct product sales through our online channel.”

Other affected products listed were Bali Kush, Buddha Haze, Diesel, Fantasy Island, Kinky Kush, Pink Grapefruit Haze, Tailgate, TGIF, Tropical Breeze and Yin & Yang.

The shipping dates for these lots ranged from Feb. 21 and July 4, according to the email.

CannTrust’s Danish partner said on Thursday it had upped the amount of CannTrust’s products it has put in quarantine, pending Health Canada’s investigation.

Stenocare said in a statement that it had received updated information from CannTrust that showed five batches of the Danish company’s inventory originated in the five unlicensed rooms and these products have been quarantined for potential destruction. Earlier this week, Stenocare said only one “very small” batch of products had been affected.

On Friday, the Nova Scotia Liquor Corporation told The Canadian Press that it had placed all CannTrust product in its distribution centre on hold.  

Authorities in Alberta had also removed from sale and distribution or put on hold certain affected products from CannTrust.


Companies in this story: (TSX:TRST)

Armina Ligaya, The Canadian Press


CannTrust files response to Health Canada, names special committee members



TORONTO — The fate of CannTrust Holdings Inc. is in Health Canada’s hands after the cannabis company formally responded to the regulator’s finding that it was growing pot illegally at its Ontario greenhouse.

The licensed producer said Monday it officially submitted its response to Health Canada and it awaits the regulator’s response, while an investigation into what transpired by CannTrust’s special committee is “ongoing.”

The federal regulator said it received CannTrust’s response late on July 17 and reviewed it on July 18 and “will thoroughly review the information submitted and will take it into account in its decision making process.”

“Health Canada will not hesitate to take additional action if it feels warranted to protect public health and safety,” said spokesman Andre Gagnon in an emailed statement.

CannTrust’s stock has fallen more than 40 per cent since early July, when it disclosed Health Canada’s findings that the company had grown cannabis in several rooms at its Pelham, Ont. facility. The company said the unlicensed pot growing in question took place between October 2018 and March 2019, before the licences were issued for these five rooms in April 2019.

The regulator has put on hold 5,200 kilograms of CannTrust’s inventory, including some samples that are undergoing testing, and the licensed producer voluntarily put on hold 7,500 kilograms of products linked to the unlicensed rooms.

As well, Health Canada has said that the company provided “false and misleading information” to its inspectors. Former CannTrust employee Nick Lalonde has said he was asked to put up fake walls and obscure unlicensed plants in photos that were submitted to federal regulators.

Health Canada said there are a number of enforcement tools it can use under the Cannabis Act, which include the suspension or cancellation of a federal licence or the issuance of administrative monetary penalties up to $1 million.

However, some CannTrust product that originated from the unlicensed rooms had been sold, including to various government retailers in Canada and to its Danish joint venture partner Stenocare, which has quarantined and blocked from sale five batches of product until regulators complete their probe.

And on July 11, CannTrust put a voluntary hold on all sale and shipments of its cannabis products as a precaution as the investigation continues.

As well, cultivation, sales and exporting of cannabis unless authorized under the Act are criminal activities, the penalties for which range from fines to imprisonment for up to 14 years in prison.

These provisions under Division 1 of the Cannabis Act “are primarily intended to address situations where possession, production, distribution, sale, and import/export of cannabis takes place outside the legal system (for example by unlicensed individuals or organizations),” said Health Canada spokeswoman Tammy Jarbeau in an emailed statement.

It is unclear whether this would apply in the case of CannTrust.

Health Canada said it is law enforcement that has the authority to take action against illegal cannabis activity and “against those who operate outside of the legal framework,” Jarbeau added.

Matt Maurer, a cannabis lawyer with Torkin Manes, said lawmakers’ intention when drafting those provisions of the Cannabis Act was to target illicit market sales and players.

However, if CannTrust or any other company is doing something that is not in accordance with their licence, it may fit the definition, he said.

“In this case, if what turns out to be true is that there were grow rooms that were not licensed then … on a real technical definition, that would be illicit cannabis,” he said.  

That being said, whether heavier penalties would be levied will likely depend on the severity of the infraction, Maurer said.

Jumping ahead and growing in rooms before a licence is received is “pretty low on the scale,” he said.  

“Was it that they just got a head start, or was there a lot more to it?” Maurer said.

CannTrust on Monday offered more details on its previously-announced special committee that is investigating what happened, including naming U.S. sports executive Robert Marcovitch as its chairman.

Other members of the special committee are board directors Shawna Page, Mark Dawber, and John Kaden.

It added that the committee’s mandate also includes making “recommendations to the Board of Directors regarding any actions to be taken by CannTrust as a result of the investigation, and to assess any impact on the Company’s bio assets, inventory, sales and revenue.”

The special committee “takes these issues very seriously” and it is committed to working with Health Canada to bring CannTrust into compliance, said Marcovitch.

“Although we want to move as quickly as possible, we are mindful of the critical need to be thorough,” said Marcovitch, a board director and former chief executive of K2 Sports.

“We are determined to identify the root causes for all non-compliance issues, to take appropriate actions to address and remediate any issues with the Company’s compliance culture and to restore trust in the Company.”

On Monday, CannTrust shares closed at $3.56 on the Toronto Stock Exchange, down roughly two per cent from Friday’s close of $3.62 and down sharply from $6.46 on July 5, prior to CannTrust’s disclosure.


Companies in this story: (TSX: TRST)

Armina Ligaya, The Canadian Press

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