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CannTrust Puts Sales, Shipments On Hold As Regulators Review Operations

July 16, 2019

One of Canada’s largest cannabis producers, CannTrust, has placed a voluntary hold on sales and shipments of all its products after regulator Health Canada recently discovered that some of its cannabis was grown in unlicensed areas.

Health Canada found CannTrust out of compliance after grow operations took place in five unlicensed rooms in its 12-room greenhouse facility in Pelham, Ontario. The unlicensed cultivation occurred from October of 2018 to March of this year, during which time CannTrust had license applications pending for those rooms. The pending licenses were issued in April.

With its product sales now on hold, “Some CannTrust customers and patients will experience temporary product shortages,” the company said, adding that it’s exploring options to mitigate the shortfall.

CannTrust, whose brands include Iiiv, Synr.g, Xscape, and Peak Leaf, said it was too early to tell how the issue would affect financials, but its share price has taken a significant hit, falling to C$2.57 ($1.97) at close of business on July 12, from C$4.93 ($3.78) a week earlier.

CannTrust posted C$16.9 million ($12.5m) in net revenues for the quarter ended March 31, up from C$7.8 million ($5.8m) in the year-earlier period. Some 67% of its revenue derived from medical sales, while 33% came from international and recreational wholesale operations.

Health Canada reportedly learned of the unlicensed operation after a CannTrust employee alerted them last month that the company had been hiding plants it knew to be in violation. According to the Globe and Mail newspaper, in the fall of 2018 the whistleblower was ordered to set up hanging walls to conceal the unlicensed area. He later sent photos to Health Canada. CannTrust hasn’t commented on those allegations.

Fallout from the affair has been significant. Health Canada placed a hold on 5,200 kg of inventory as it investigates, and CannTrust ultimately instituted a voluntary hold on more than 10,000 kg of cannabis in all. Multiple provinces had already pulled CannTrust products from their online, government-run marketplaces. Danish medical marijuana company Stenocare discovered that it received five batches of inventory from the now-quarantined operation. The overseas shipment of illegally grown cannabis opens CannTrust to further criminal liability and the potential revocation of their license to grow and distribute cannabis in Canada. In recent days, Health Canada revoked the license of smaller grower Agrima Botanicals for undisclosed “unauthorized activities” in the sector.

Breakthru Beverage invested $9.2 million in CannTrust last September and set up a subsidiary, Kindred, to represent CannTrust’s products in the Canadian market. “We were surprised to learn of the recent allegations involving CannTrust and we’re monitoring the situation,” a Kindred spokesperson told SND. “We place a high priority on operating with integrity, and we expect the same from all our partners.”

CannTrust has been among the top suppliers to the Canadian market, along with Canopy Growth, Aphria, and Aurora, so the moratorium on sales will have a noticeable effect on a market already suffering from supply shortages. Statistics Canada recently noted that the gap between prices in the legal and illegal markets is heading in the wrong direction. In the second quarter of this year, the agency reported, the price per gram of illegal cannabis in Canada fell from C$6.23 ($4.78) to C$5.93 ($4.55) compared with the prior quarter, while the per-gram price of legal cannabis rose from C$10.21 ($7.83) to C$10.65 ($8.16).—Danny Sullivan

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