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CannTrust puts hold on sale and shipment of all cannabis products pending review


TORONTO — CannTrust Holdings Inc. says it has put a hold on product sales and shipments of all its cannabis products as a precaution while Health Canada reviews its Vaughan, Ont., 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 release late Thursday.

“At this time, the impact of these matters on CannTrust’s financial results are unknown until the regulatory review process is complete.”

The company said it has also established a special committee of its board of directors to do its own investigation.

CannTrust 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.

It said as a result, Health Canada put on hold roughly 5,200 kilograms of CannTrust products from that facility, and the licensed producer put a voluntary hold on an additional 7,500 kilograms of pot products which were also linked.

CannTrust’s chief executive Peter Aceto has said that represented the “majority” of its inventory and warned of potential shortages ahead.

Earlier Thursday, Stenocare, CannTrust Holdings Inc.’s Danish partner, quarantined more medical pot products linked to illegal cultivation at the Canadian company’s greenhouse and warned of possible shortages in Denmark as a result.

Stenocare said contrary to the initial information it got from the licensed producer, it has now received documentation that shows that five batches of the Danish company’s inventory originated in growing rooms that did not have government approval.

“As a result of the new information, all products delivered from Stenocare relating to the batches in question will be put in quarantine, which means that they will be isolated and blocked from being sold until the Canadian health authorities, Health Canada and the Danish Medicines Agency have concluded in the matter,” the company said in a statement.

Stenocare, which caters to medical cannabis patients, added that “most, yet not all” of the CannTrust products in its inventory and that it has supplied to the Danish market since June 10 are linked to the unlicensed cannabis cultivation.

It was a reversal of Stenocare’s comments earlier this week when it said only one “very small” batch was connected to the unlicensed growing, which Health Canada continues to investigate.

CannTrust announced a joint venture with Stenocare that saw it receive a 25 per cent equity stake in the Danish company in March 2018 and made its first shipment of cannabis oil to Denmark in September 2018.

The company was not immediately available to comment on Thursday. Peter Aceto said on Monday that “mistakes” were made but CannTrust is working to get back into compliance with Health Canada and is conducting a thorough review to determine what transpired.

Stenocare said it was in close dialogue with the Danish Medicines Agency, which regulates medicinal products in the country, about the matter.

“The most likely consequences from this new situation is that there will be a temporary shortage of medical cannabis products to the Danish market,” the company said in a statement. “This will have negative financial consequences to Stenocare irrespective of the fact that CannTrust is contractually committed to deliver fully licensed and approved products.”

CannTrust’s shares closed down 1.94 per cent to $4.04 on the Toronto Stock Exchange on Thursday. That’s sharply down from its closing share price of $6.46 the previous Friday, before CannTrust disclosed Health Canada’s findings on Monday.

Stenocare’s wider quarantine comes one day after authorities in Alberta and Ontario pulled or put on hold CannTrust’s products until Health Canada completes its investigation.

The Alberta Gaming, Liquor and Cannabis Authority on Wednesday said it was placing the affected lots of CannTrust’s products on hold as a precautionary measure. The decision impacts online product available through and AGLC distribution.

“It is at the discretion of privately licensed Alberta retailers to work in consultation with CannTrust and Health Canada to determine whether they will continue to sell existing inventory, should they have affected products,” said Heather Holmen, an AGLC spokeswoman, in an emailed statement.

Earlier Wednesday, the Ontario Cannabis Store said it had removed certain CannTrust Products from its online store and distribution to physical outlets.


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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