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Jul 8, 2019

CannTrust runs afoul of Health Canada; shares plunge in Toronto

CannTrust's long-term credibility at risk from Health Canada audit, says analyst


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CannTrust Holdings Inc. (TRST.TO) says it was found to be non-compliant with certain Health Canada regulations at one of its facilities in Ontario, resulting in some inventory being placed on hold.

In a release early Monday morning, the Ontario-based cannabis producer said the federal regulator flagged production that was underway in five unlicensed rooms at its Pelham, Ont. greenhouse between last October and March, as well as false information that was provided by company employees. CannTrust said it had pending applications for production in the five rooms and that licences were eventually obtained in April.

Health Canada has placed a hold on 5,200 kilograms of dried cannabis inventory, and the company voluntarily placed a hold on an additional 7,500kg of dried cannabis equivalent that was produced in previously unlicensed rooms at its Vaughan, Ont. facility.

CannTrust warned that as a result of the inventory on hold, some customers and patients will face product shortages. The company also said the impact on financial results from these incidents are unknown.

"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 CannTrust CEO Peter Aceto in a release

Shares of CannTrust fell more than 20 per cent in early trading in Toronto. 

“Today's update was the last thing [CannTrust] needed,” wrote Jefferies analyst Ryan Tomkins in a report to clients Monday

“They will have to go to the open market to fill the shortage gap with little bargaining power, which means they could pay inflated prices or take inferior product which could lead to lost market share,” he added. “Long term, it impacts credibility. The fact the company never spotted this, or indeed still doesn't know how it happened, is a concern.”