Health Canada hands down its ruling to troubled marijuana producer CannTrust, as the company now faces a suspension on its ability to produce cannabis.
After speculation following one of the biggest scandals in the nascent Canadian marijuana industry, Ontario-based cannabis producer CannTrust Holdings (NYSE:CTST,TSX:TRST) confirmed its licenses were suspended on Tuesday (September 17).
CannTrust informed its investors the company received a notice from federal regulators for the suspension of its license earlier on Tuesday, all for its violations of the Cannabis Act. The company was originally found to have started unlicensed growing at its Pelham, Ontario, facility.
Shares of the cannabis firm in Toronto tanked by double digits after being halted by regulators at 11:32 a.m. EDT. As of 3:59 p.m. EDT, the company was valued at C$1.70 per share, representing a nearly 15 percent drop for the day.
“The notice states that Health Canada has suspended CannTrust’s authority to produce cannabis, other than cultivating and harvesting, and to sell cannabis,” the firm said in a statement.
On Wednesday’s (September 18) trading session, CannTrust bounced back in Toronto, closing the day with a 1.18 percent recovery for a price per share of C$1.72.
CannTrust will continue to cultivate and harvest existing cannabis yields and conduct ancillary activities in the market. However, the suspension will partially affect CannTrust’s license for standard cultivation and fully halt the company’s processing, medical sales and cannabis research operations.
The cannabis company told investors its license would be reinstated by Health Canada once it can prove its has fully dealt with the reasons behind the suspension.
Health Canada also suggested measures, including controlling the movement of the drug in and out of CannTrust’s facilities and making sure key personnel within the company are fully aware of the provisions of the Cannabis Act that regulate the company’s operations.
The company said its management was reviewing the notice with company counsel and other advisors.
The troubles for CannTrust started in July when its Pelham, Ontario, was found to be non-compliant by Health Canada after it was discovered cannabis was being grown in rooms that were unlicensed.
From there, the reputation of the company fell further as more information about the scandal was revealed.
Any investor value for the firm was shattered following the initial confirmation of wrongdoing. Since the first announcement from the cannabis company, its Canadian shares plummeted over 60 percent in value.
An investigation by the Globe and Mail found that high-level executives in the company, including former CEO Peter Aceto and former chairman Eric Paul, were aware of the illegal growing operations.
The discovery, and an internal review of the company, lead to Paul’s forced resignation and the firing of Aceto, who was then replaced by Robert Marcovitch as interim CEO.
In the fallout, thousands of kilograms of CannTrust cannabis were put on hold. Ontario and Alberta also pulled the company’s products from shelves, and CannTrust’s Danish partner quarantined its stock.
Ontario later returned C$2.9 million dollars worth of cannabis product from the company, saying these were “non-conforming products” and didn’t comply with its master cannabis supply agreement with CannTrust.
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.