CannTrust falls as OSC launches probe amid pot production scandal

Noah Zivitz, BNN Bloomberg

Investors cautious on cannabis as OSC opens CannTrust probe

VIDEO SIGN OUT

CannTrust Holdings Inc. disclosed late Thursday afternoon it's being investigated by Canada's largest securities regulator as the fallout from an unlicensed production scandal spreads.

According to the company's press release, the Ontario Securities Commission gave notice Thursday that "an investigation has been opened into matters and parties related to CannTrust and the investigation has been assigned to the Joint Serious Offences Team of the Enforcement Branch of the OSC."

OSC spokesperson Kristen Rose confirmed via email the investigation is underway, but declined to provide any additional details.

The Joint Serious Offences Team is a partnership between the OSC, RCMP and Ontario Provincial Police that handles potential serious violations of the law, according to the OSC.

CannTrust has been in a state of turmoil since July 8, when it first announced that it had run afoul of federal regulations after Health Canada discovered illegal cultivation at one of its Ontario facilities. As a result, 12,700 kilograms of its cannabis was placed on hold; all shipments and sales have been frozen; former CEO Peter Aceto was fired with cause; and company co-founder and chairman, Eric Paul, was forced to resign.

CannTrust interim CEO vows to 'exorcise the demons' following illicit pot scandal

Robert Marcovitch, interim CEO of CannTrust Holdings, joins BNN Bloomberg to discuss the illicit cannabis production affected the company and how scandal-plagued producer hopes to navigate its current issues.

In its release, CannTrust pegged the value of the inventory that's on hold at $51 million. CannTrust also warned Thursday that it will likely miss the Aug. 14 filing deadline for its latest financial report amid "significant uncertainty" about the potential impact of Health Canada’s decisions on the company's inventory valuation and revenue recognition.

Under its enforcement powers, Health Canada could potentially fine CannTrust up to $1 million and suspend or revoke its licences.

"Until Health Canada has made determinations with respect to the exercise of its regulatory powers, the potential impact on the company's operations and financial condition remains unknown," CannTrust said.

The company said in its release that it has also applied for a management cease trade order as it waits to file its second-quarter report and restate any previous financials, if necessary.

Shares in CannTrust were down nearly five per cent to $2.73 as of 9:55 a.m. ET Friday.

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the stunning formation of the entirely new – and controversial – Canadian recreational marijuana industry. Read more from the special series here and subscribe to our Cannabis Canada newsletter to have the latest marijuana news delivered directly to your inbox every day.