David George-Cosh

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CannTrust Holdings Inc. said Wednesday it will put $50 million into a trust that will be earmarked for investors who filed class-action lawsuits against the company after it received a non-compliance order from Health Canada.

The move is to cover claims stemming from a production scandal that led federal regulators to suspend its ability to grow and produce legal pot.

The company said that the "restructuring support agreement" it entered into with plaintiffs still needs to be negotiated to finalize "in good faith."

"Today's announcement represents a significant milestone towards the resolution of [nearly] all of the civil litigation claims that were filed against CannTrust following the company's non-compliance with certain Health Canada regulations," Greg Guyatt, CannTrust chief executive officer, said in a statement. 

The Vaughan, Ont.-based company was found to be non-compliant by Health Canada in July 2019 after an inspection uncovered that CannTrust employees grew thousands of kilograms of cannabis in unlicensed areas at its production facility. Shortly afterward, allegations were made by a former employee that CannTrust hid cannabis plants behind false walls from Health Canada inspectors. BNN Bloomberg also reported that the company sourced cannabis seeds from the illicit market for some of its legal products.

In February 2020, an Ontario Superior Court judge tasked Henein Hutchison LLP to lead a class action lawsuit against CannTrust representing plaintiffs who lost money investing in the company between June 2018 and Sept. 17, 2019, as well as during a prospectus offering conducted by the cannabis producer in May 2019.

A month later, CannTrust filed for creditor protection, which granted the company a stay of proceedings against any litigation. This allowed it to make plans to address the class action and any other lawsuits it might face. 

Health Canada reinstated CannTrust's licences in September, allowing the company to produce and sell legal cannabis again. CannTrust began selling its products to the Canadian medical and recreational market last month. The company said it has approximately $74 million in cash on its balance sheet, down from about $90.5 million in December. 

Cannabis Canada is BNN Bloomberg’s in-depth series exploring the ongoing growth of the Canadian recreational cannabis industry. Read more here and subscribe to our Cannabis Canada newsletter to have the latest news delivered directly to your inbox every week.