The biggest loser in the cannabis market recently has been CannTrust Holdings (TSE: TRST), which fell by over 20 percent on Monday after Health Canada announced it had seized marijuana the company had been producing illegally.
Specifically, the company had been skirting regulations, producing unlicensed cannabis in a number of rooms which were known only to corporate insiders. On Tuesday, shares slid even further after it was found that this illegally, unregulated cannabis was sold to international markets, specifically Denmark, where much of that weed was sold to retail consumers.
This news came about when a Denmark-based medical marijuana company confirmed on Tuesday that it had received a number of batches from CannTrust, and after conducting an investigation, concluding that it originated from the unlicensed part of the grow operation. Stenocare A/S, which received a shipment recently, said in a statement that despite the small size of the batch, it would be placed under quarantine.
In a statement titled “Stenocare Unharmed by Health Canada’s Audit of CannTrust,” the Denmark-based company warned that “Unauthorized production took place in five new cultivation rooms at the CannTrust facility during October 2018 and until March 2019. All CannTrust products, no matter where and when they have been cultivated, are subject to full external laboratory control.”
The finding opens up the door to potential criminal charges, as the Canadian Cannabis Act forbids the export of unlicensed marijuana and states that anyone convicted of such an offense would be liable to a hefty fine as well as a possible prison sentence.
Specifically, medical cannabis patients will likely face a temporary shortage as a result of the hold placed on CannTrust now that trust in the company has been significantly hurt. Retail stores have begun to cut back on CannTrust’s products as well, with the Ontario Cannabis Store website removing a number of the company’s products.
In an official statement released on Monday, CannTrust’s CEO Peter Aceto said that they had made an error in judgment and they have learned their lesson going forward. However, both investors and regulators likely won’t be satisfied with these platitudes.
In a sense, this was the worst case scenario for the company, as having internationally exported this illegally produced cannabis opens up the road to possible legal actions against the company.
Shares of CannTrust have fallen an extra five percent in response to today’s development, extending a further 22 percent decline seen on Monday. Having already lost almost a third of the company’s market cap, it’s likely that CannTrust will continue to decline in the days and weeks to come as it becomes a viable bet for industry short sellers looking to profit from the scandal.
Analysts have also become relatively unimpressed with the company’s recent performance, with this recent development only further adding to their concerns about the company.
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