Economy

Cantrust: non-compliant with Canada cannabis regulations

Cantrust: non-compliant with Canada cannabis regulations”

CannTrust Holdings Inc. shares plunged more than 20 per cent Monday after it was revealed that Health Canada discovered illegal growing operations at a greenhouse and seized thousands of kilograms of the pot producer's inventory.

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.

According to Aceto, Health Canada inspectors made a surprise visit to the Niagara facility in June and issued a report on the company's non-compliance on July 3. It will be determined whether the cannabis meets the regulatory standards before it is allowed into the market.

The non-compliant rating is based on observations by the regulator regarding the growing of cannabis in five unlicensed rooms and inaccurate information provided to the regulator by CannTrust employees. The hold may be lifted if Health Canada deems the company compliant with regulations, but until that decision has been made official CannTrust has put about 7500 kg of dried product from its Vaughan facility - grown in the unlicensed rooms - on a voluntary hold. These products passed quality control testing at Health Canada certified labs and the company's own quality control processes, CannTrust said.

The company did not disclose the financial impact from the non-compliance, while Miehm said he believes volumes from the held inventory represent the majority of CannTrust's products.

"The company is unlikely to have product available for sale from Pelham until Q4/19, forcing it to source from other LPs".

He added that by July 17 CannTrust will provide a written response to Health Canada, including an explanation, mitigating factors and changes the company has made. While the company's name says trust, it seems Health Canada couldn't trust the company to wait until the grow rooms were licensed before beginning work.

USA -listed CannTrust Holdings (NYSE: CTST) tumbled over 22 percent on Monday after the company admitted that Canadian regulators had seized its cannabis after discovering it was growing weed in unlicensed facilities. Results are expected in 10 to 12 business days. Jefferies analyst Ryan Tomkins said the company had been disappointing in terms of its execution. The Company is exploring options to mitigate these shortages. Even if the executives of CannTrust get off scot-free from this affair, it will have a lasting impact on the company's share price as well as future sales. "For us, this will make institutional investors think twice, and could also likely make it harder for CannTrust to attract high quality" partnerships with consumer-packaged goods companies.

As of market close, shares of CannTrust in NY had dropped to a price of US$3.83, while in Toronto the stock was valued at C$5 per share.



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