Canadian regulators placed a hold on more than 5,000 kg of cannabis grown by CannTrust after an audit found that the company had been cultivating plants in five unlicensed grow rooms at its Pelham, Ontario, facility. The unpermitted cultivation took place between October 2018 and March 2019, when CannTrust had several business license applications pending with Health Canada.
The company’s public shares fell 20 percent on both the TSX and the NYSE Monday following the “non-compliant” designation.
“Health Canada has placed a hold on inventory which includes approximately 5,200 kg of dried cannabis that was harvested in the previously unlicensed rooms in Pelham, until it deems that the company is compliant with regulations,” CannTrust said in a statement. “In addition, CannTrust has instituted a voluntary hold of approximately 7,500 kg of dried cannabis equivalent at its Vaughan manufacturing facility that was produced in the previously unlicensed rooms.”
The rooms in question are part of a 200,000-sq.-ft. facility expansion in Pelham. Another expansion is under way in nearby Niagara.
For Q1 of this year, from January through March, CannTrust harvested around 9,400 kg of cannabis and sold more than 3,000 kg of cannabis. At the same time, the company reported record quarterly revenue of $16.9 million.
While Health Canada continues to investigate CannTrust’s compliance, the company predicts a product shortage for its customers. "Our team has focused on building a culture of transparency, trust and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgement, but the lessons we have learned here will serve us well moving forward," said CEO Peter Aceto.
In an interview with Financial Times, Aceto said that some of the cannabis grown in unlicensed rooms had already been shipped "to the provinces," though it's unclear whether he was referring to wholesale product or to retail products sold to customers. In a subsequent email to medical patients, CannTrust management wrote that "all products sold to customers and patients have passed both testing at Health Canada’s certified labs and CannTrust’s quality control processes and safety reviews."
Following the audit, New York City law firm Bragar Eagel & Squire, P.C., is investigating “whether CannTrust has violated the federal securities laws and/or engaged in other unlawful business practices.” The firm is seeking information from anyone who may have purchased or otherwise acquired shares of CannTrust.