U.S.-listed CannTrust Holdings (NYSE: CTST) tumbled over 22 percent on Monday after the company admitted that Canadian regulators had seized its cannabis after discovering it was growing weed in unlicensed facilities.
Hitting a two-year low in response to the news, Health Canada found that CannTrust was growing marijuana in five unlicensed grow rooms at its Ontario facility in March when it’s application for regulatory approval was still pending.
“The non-compliant rating is based on observations by the regulator regarding the growing of cannabis in five unlicensed rooms and inaccurate information provided to the regulator by CannTrust employees…Health Canada has placed a hold on inventory which includes approximately 5,200 kg of dried cannabis that was harvested in the previously unlicensed rooms in Pelham, until it deems that the company is compliant with regulations,” CannTrust said in a statement. CEO Peter Aceto said that the company made a number of errors in judgement “but the lessons we have learned here will serve us well moving forward.”
As expected, the markets weren’t impressed by this admission from the company, with one particular research firm going on to say that this was a blatant move to skirt federal law.
Harvest Moon Research wrote in a note that this seizure was reflecting of CannTrust’s “overall disregard for Health Canada regulations and its licensing systems.” In particular, the firm said the issue first came to Health Canada’s attention when former employees, angered by a payroll leak from the human resources department, went to Health Canada to disclose how CannTrust was violating federal law.
Even worse, the research firm went on to say that CannTrust might have exported some of its illicitly produced cannabis to international markets, such as Australia and Denmark. Under the Canadian Cannabis Act, that would be a prosecutable offense that would come with a prison term.
This development comes at an already bad time, with market analysts starting to become somewhat bearish on the stock. Jefferies analyst Ryan Tomkins said the company had been disappointing in terms of its execution.
Despite the fact that Jefferies started coverage of the stock with a “buy” rating, citing its strong medical cannabis business in Canada. However, the company’s poor performance has led to many analysts question whether CannTrust should be downgraded, having fallen by 36 percent over the past three months.
At the moment, it’s unclear whether there will be other legal actions taken against the company. Even if the executives of CannTrust get off scot-free from this affair, it will have a lasting impact on the company’s share price as well as future sales.
Shares of CannTrust Holdings fell by over 22.5 percent at the time of writing. The past year has seen the stock rise and fall turbulently, often times tripling in value over the course of a few months before tumbling back down.
CannTrust Holdings Company Profile
CannTrust Holdings Inc is engaged in the business of producing and distributing medical cannabis in Canada. Its facility is located at Vaughan, Ontario in Canada. Its brands include LIIV, ESCAPE, SYNR.G and Peak Leaf. – Warrior Trading News