Jul 9, 2019

CannTrust's Danish partner quarantines pot products linked to illegal growing

CannTrust faces these three potential penalties as Health Canada investigates


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CannTrust Holdings Inc.'s (TRST.TO) Danish partner has quarantined a batch of products received from the licensed producer in connection with Health Canada's recent discovery of illegal growing operations at its Ontario greenhouse.

Stenocare said Tuesday that it has been in contact with the Danish Medicines Agency and the single batch has been put in quarantine for potential destruction, pending an ongoing investigation by Health Canada.

"All batches of products received by Stenocare from CannTrust, but one, are unrelated to the current issue," the Danish company said in a statement. "The related batch, very small and still in stock, has been identified ... This is not expected to have any negative impact on patients nor Stenocare."

Stenocare, which caters to medical cannabis patients, said it has worked with CannTrust to investigate the origins of all products it has received from the licensed producer for possible links to the five unlicensed rooms.

CannTrust announced a joint venture with Stenocare, as part of which it would take a 25 per cent equity stake, in March 2018, and made its first shipment of cannabis oil to Denmark in September 2018.

CannTrust said Monday that it was notified by Health Canada that it had found illegal growing in five unlicensed rooms at its greenhouse between October 2018 and March 2019, before receiving the appropriate licences in April 2019.

It said Health Canada seized roughly 5,200 kilograms of cannabis from the unlicensed rooms and CannTrust voluntarily put an additional 7,500 kilograms on hold from its Vaughan, Ont. facility, but confirmed that some product had been sold. CannTrust's chief executive Peter Aceto said this represented the "majority" of the company's inventory and warned of product shortages ahead.

He added that CannTrust was conducting a thorough review, and has tasked external advisers with a "root-cause analysis" to determine what transpired.

Shares of CannTrust were down 4.6 per cent to $4.77 on the Toronto Stock Exchange in afternoon trading, after falling more than 20 per cent on Monday after the announcement.

Stenocare warned on Tuesday that CannTrust may "face temporary irregularity in through-put."

"Stenocare operates with a significant inventory, which means that most likely this matter will have no impact upon Stenocare's continued ability to serve the market as required," it said in a statement. "Stenocare expects to be unharmed financially or otherwise from this unfortunate matter."