CannTrust Executives Knew About Unlicensed Rooms, Emails Show
CannTrust Holdings’ (NYSE:CTST,TSX:TRST) share price took another hit on Wednesday (July 24) when it was reported that executives, including the CEO, knew the company was growing cannabis in unlicensed rooms at a facility in Pelham, Ontario.
As reported by the Globe and Mail, internal company emails show that CEO Peter Aceto and Chairman Eric Paul were notified of the illegal growing operations in November 2018. Paul also advised staff on how to respond to Health Canada after an inspection.
Graham Lee, CannTrust’s director of quality and compliance, emailed Aceto and other high-level executives about the compliance issues.
The correspondence shows that Health Canada had completed an inspection, revealing a number of compliance breaches, but had missed the unlicensed growing rooms.
“We dodged some bullets,” Lee wrote, adding that Health Canada “did not ask about RG8E/W, which are unlicensed rooms currently full of plants.”
Paul was forwarded the email and responded, “We need to clearly point out that we have been diligent in submitting the applications for each new area and they have been slow in responding. We are supporting the legislation and we need their cooperation. Politely as always.”
This news has added to the controversy that the cannabis producer has faced in the past weeks surrounding claims that it was growing cannabis in five unlicensed rooms between October 2018 and March of this year. The news broke after a former employee contacted Health Canada and told the government agency about the rooms and about being instructed to hang false walls to hide the illegal growing operations.
The ensuing investigation led to a hold on thousands of kilograms of CannTrust cannabis. Ontario and Alberta have also pulled the company’s products from the shelves, and CannTrust’s Danish partner has quarantined all CannTrust stock until the matter has been resolved.
The company announced on Monday (July 22) that it submitted a report to Health Canada about the non-compliance claims on July 17 and is awaiting a response from the regulator. The announcement also indicates that CannTrust has selected a special committee to investigate the company’s non-compliance and make recommendations to CannTrust’s board of directors.
In an email statement to the Investing News Network, CannTrust Special Committee Chairman Robert Marcovitch wrote that the committee is “in the final stages of a thorough investigation of these matters as part of our due diligence requirements. We expect to conclude this investigation within days and will take all appropriate actions immediately thereafter.”
CannTrust has dropped almost 20 percent since closing on Tuesday (July 23) and 45 percent since July 8, when it announced that Health Canada had given its Pelham facility a non-compliant rating. The company opened at C$2.75 on Wednesday.
In the wake of the news, CannTrust has been downgraded by several analysts on TipRanks. Both Eight Capital analyst Graeme Kreindler and Merrill Lynch analyst Christopher Carey have marked it as a “sell.”
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Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.
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