CannTrust down 15% premarket on negative regulatory audit

CannTrust down 15% premarket on negative regulatory audit

Toronto-listed shares of the company were down 16% at C$5.42 in morning trade after touching C$5.03.

Cannabis producer CannTrust Holdings Inc says customers may experience temporary shortages after Health Canada found that its greenhouse facility in Pelham, Ont.is non-compliant with regulations.

In addition to growing in unlicensed rooms, Health Canada also issued its non-compliance rating based on "inaccurate information" provided to the regulator by CannTrust employees, though the company did not disclose the nature of the inaccurate information.

CannTrust has also voluntarily held ~7,500 kg of pot harvested at its Vaughan facility that was produced in previously unlicensed rooms until it can be verified as compliant. "The company is exploring options to mitigate these shortages".

Shares of CannTrust Holdings Inc plunged 22% to a more than one-and-half-year low on Monday after Health Canada found that the weed producer grew cannabis in unlicensed rooms, and the regulator restricted the company from clearing its inventory.

The company stated that the growing in the unlicensed rooms took place from October 2018 to March 2019 during which time CannTrust had pending applications for these rooms with Health Canada.

"As a result, we believe there is meaningful risk to revenue growth over the coming months".

Health Canada did not respond to a request for comment whether it would look to tighten regulations or increase inspections following the CannTrust violations.

The company said the impact of these matters on CannTrust's financial results are unknown until Health Canada completes its quality testing of product from its Pelham greenhouse, which is now on hold.

"We made errors in judgement", Chief Executive Officer Peter Aceto said.

Ryan Tomkins, an analyst with Jefferies, said in the near-term there will "undoubtedly be a financial impact".

CannTrust could in theory lose its license, Brochstein said, although he added that he does not think it's a likely outcome.

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