As CannTrust Holdings Inc. (TRST.TO) awaits its fate after running afoul of federal regulators, BNN Bloomberg has learned there’s early-stage interest behind the scenes to find a white knight that could potentially spare the cannabis producer from losing its licences if Health Canada exercises the full extent of its enforcement power.

Multiple sources directly familiar with the matter told BNN Bloomberg that at least two Canadian cannabis producers have been approached by bankers to gauge interest in acquiring CannTrust. Such a move could help keep the beleaguered company operating and stave off the worst-case scenario of losing its sales or processing licences as a result of unlicensed production at one of its facilities.

As well, one cannabis producer has reached out to Health Canada to inquire if the federal regulator would be amenable to another company taking control of CannTrust to ensure the company becomes fully compliant with growing and processing legal pot, one of the sources said.  

So far, none of the producers that were approached to potentially acquire the embattled cannabis producer have expressed interest in advancing those discussions to a stage where a deal is close to being made, the sources said. 

"The contingency liability is too high," said one of the sources, in reference to the potential legal and financial obligations that a buyer would inherit.

Spokespeople from Health Canada and CannTrust didn’t directly respond to BNN Bloomberg’s multiple requests for comment.  

On July 8, CannTrust said it was found to be non-compliant following a Health Canada inspection conducted on June 17. As a result of that infraction, Health Canada seized nearly 5,200 kilograms of cannabis believed to have been grown in unlicensed rooms, while CannTrust said it voluntarily set aside another 7,500 kilograms at another facility as it awaits a review and potential enforcement from the federal regulator.

Subsequent to that disclosure, a former employee who worked at the Pelham, Ont. facility where the illegal production occurred publicly alleged staff had been asked to install fake walls to hide cannabis that was grown in unlicensed rooms between last October and March.

Amidst the regulatory uncertainty, CannTrust announced on July 11 it was suspending all cannabis sales and shipments as a precaution while Health Canada completes its work. Its board of directors also appointed an independent special committee to investigate the situation.  

Graeme Kreindler, a research analyst with Eight Capital, said that cannabis companies would want clarity from Health Canada on CannTrust's status before considering a bid for the Vaughan, Ont.-based firm.

“CannTrust has always been a name that’s been recognized for execution and has a strong patient base and sales,” Kreindler said in a phone interview with BNN Bloomberg. “However, given the non-compliance and uncertainty with where Health Canada is going to land, I don’t think that anyone would want to take the risk of getting ahead of that.”

In a recent interview with BNN Bloomberg, CannTrust Chief Executive Officer Peter Aceto sidestepped a question about whether the company had any acquisition offers on the table, stating he remains focused on getting the cannabis producer back into compliance with Health Canada. 

It would be a shame to shut down CannTrust: Former president Brad Rogers

Brad Rogers, former president of CannTrust, joins BNN Bloomberg to weigh in on the issues engulfing the company in recent days. He says the CannTrust violations were a surprise to him and that the company should consider changing processes and management.

It’s unknown how CannTrust and its management team will fare in any enforcement action by Health Canada. Penalties range from a warning letter, to a fine of up to $1 million, to the suspension or complete revocation of its licences. 

George Robinson, chief executive officer of RavenQuest Biomed Inc., is one of a handful of people familiar with Health Canada's policies on enforcing non-compliant cannabis companies. 

He was appointed acting president and CEO of Bonify Medical Cannabis Ltd. in January, following the suspension of the Winnipeg-based company's cannabis sales licence after former management was found to have procured pot from the black market. 

Robinson told BNN Bloomberg in a phone interview that based on previous examples of non-compliant pot companies, he thinks it’s highly likely that CannTrust will see its cultivation licence suspended, but that a fresh management team could prevent it from being revoked entirely if it can rectify any outstanding issues. 

"You have to come in with people who are already security cleared and have a good record with Health Canada," he said. "More importantly, you need to have the white knight coaching a high-level core team to make sure it can operate the site correctly." 

That new team would have to design an "operational security plan" to show Health Canada how a newly-run CannTrust wouldn’t violate regulations again, Robinson said. 

"Given that the licence would change hands [to a white knight in the event of a sale], it would still mean that the seized product would be destroyed," he added. 

Robinson declined to discuss whether he's been approached by any interested cannabis producers to be part of a white knight team, but noted "the phone's ringing off the hook." 

CannTrust is due to deliver its response to Health Canada's inspection by Thursday. Health Canada will have an unspecified amount of time to further investigate CannTrust until it determines an appropriate level of enforcement against the company. 

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.

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