CannTrust faces Health Canada problems, warns of cannabis shortages [UPDATED]
The firm needs Health Canada approval for cannabis produced in unlicensed rooms at its greenhouse facility in Pelham, Ont.
Shares in CannTrust Holdings Inc. plunged after the cannabis producer said Health Canada has ruled that the company’s greenhouse facility in Pelham, Ont., is not in compliance with certain regulations and warned of temporary product shortages.
The shares were down $1.23 or about 19% at $5.23 in late morning trading on the Toronto Stock Exchange after falling as low at $5.03 just after the market opened.
The company said Monday the rating was based on observations by the regulator regarding the growing of cannabis in five unlicensed rooms and inaccurate information provided to Health Canada.
CannTrust said the regulator has placed an inventory hold on about 5,200 kilograms of dried cannabis harvested from the rooms.
In addition, the company has placed a voluntary hold of about 7,500 kg of dried cannabis equivalent at its Vaughan, Ont., manufacturing facility that was produced in the previously unlicensed rooms.
“Due to the product on hold, some CannTrust customers and patients will experience temporary product shortages,” CannTrust said in a statement on Monday. “The company is exploring options to mitigate these shortages.”
CannTrust said Monday the growing in the unlicensed rooms took place from October 2018 to March 2019 when it had pending applications for the rooms with Health Canada. Licenses were issued for each of the five rooms in April 2019.
The volume of cannabis and cannabis equivalent put on hold by both Health Canada and voluntarily by CannTrust is believed to “represent the majority of product that CannTrust currently holds,” RBC Capital Markets analyst Douglas Miehm said.
“As a result, we believe there is meaningful risk to revenue growth over the coming months… CannTrust shares may also trade at a wider discount to the peer group given the outstanding questions about the company’s internal quality controls and/or governance,” he said in a note to clients.
CannTrust said it has implemented some corrective actions, such as the retention of external advisers for an independent review of its compliance process and it has voluntarily advised Health Canada of “issues that may impact compliance at its Vaughan facility regarding product storage.”
“We have made many changes to make this right with Health Canada,” CannTrust chief executive Peter Aceto said in a statement on Monday.
“We made errors in judgement, but the lessons we have learned here will serve us well moving forward.”