CannTrust Responds to Health Canada Amid Illegal Growing Probe

CannTrust Holdings (NYSE:CTST,TSX:TRST) confirmed on Monday (July 22) that it has submitted a report about the non-compliance claims it is facing to Health Canada. The claims relate to illegal cannabis growing activities at its facility in Pelham, Ontario.

“The company, under the special committee’s supervision, is continuing to engage with Health Canada and filed a response to the Health Canada report on July 17, 2019,” a press release reads.

The company’s reputation took a dive earlier this month when news of illegal growing operations and attempts to cover them up were revealed.

The Vaughan-based cannabis producer was allegedly growing cannabis in five unlicensed rooms between October 2018 and March of this year. The news broke when a former employee emailed Health Canada in June and told the government agency about the rooms.

The agency was also advised of CannTrust hanging false walls to hide the illegal operations, sparking an investigation and a hold on CannTrust’s products.

In the fallout, licensed retailers in Ontario and Alberta pulled CannTrust’s products from their shelves. The company’s Danish partner has quarantined imported stock until the matter is resolved.

The press release also includes an announcement about the selection of a special committee that will investigate the company’s non-compliance, assess the impact on CannTrust’s inventory and revenue and make recommendations for the company’s board of directors.

Committee members include sports executive Robert Marcovitch, who was formerly the president and CEO of K2 Sports, and Shawna Page, a former executive at TD Securities. There is also Navy Capital Green Management CIO John Kaden and Mark Dawber, FCPA and former audit partner at Moore Stephens Hyde Houghton and BDO Canada. The members have been meeting with the company’s legal counsel, McCarthy Tétrault, and other advisors over the past week.

In the release, Marcovitch said the committee plans to work with Health Canada to ensure compliance.

“Although we want to move as quickly as possible, we are mindful of the critical need to be thorough,” said Marcovitch. “We are determined to identify the root causes for all non-compliance issues, to take appropriate actions to address and remediate any issues with the company’s compliance culture and to restore trust in the company.”

In an emailed statement to the Financial Post, CannTrust said it submitted the report on July 18 and that Health Canada will “thoroughly review” the information to determine a course of action.

The statement also notes that “Health Canada’s next steps will be communicated to the licence holder,” but does not state when the investigation will be completed.

CannTrust’s share price has taken a hit in the aftermath of the investigation. CannTrust opened at C$3.65 on Monday, and has now dropped in value by over 43 percent since July 5, when the news of the illegal growing operations first surfaced.

The special committee’s deliberations are ongoing, the company’s statement indicates, and CannTrust is waiting for a response from Health Canada.

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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.