CannTrust Holdings (TSX: TRST) (NYSE: CTST) dropped a bombshell on investors this morning when the company announced the results of their Health Canada compliance report. In the report, Health Canada notified CannTrust that their Pelham, Ontario greenhouse is not compliant with certain Health Canada regulations.
Shares of TRST plummeted this morning with the stock closing today’s trading session down over 22%. CannTrust did, however, own their mistake and vowed to take action to ensure current and future compliance.
So what did CannTrust do to fail their Health Canada audit? Essentially the company was growing cannabis in rooms at their Pelham greenhouse that did not have a license to be in operation at that time. The Pelham facility has 12 rooms that are all currently licensed by Health Canada to produce cannabis. CannTrust’s violation actually took place during the period between October 2018 – March 2019. During that time CannTrust was growing cannabis in 5 rooms that they had not yet obtained a license for.
As a result of this violation, Health Canada has placed a hold on roughly 5,200 kg of dried cannabis that was harvested in the unlicensed Pelham rooms. The product will be held until CannTrust is compliant with Health Canada regulations. CannTrust has also put a voluntary hold in place on approximately 7,500 kg of dried cannabis equivalent at its Vaughan, Ontario facility which was produced in the unlicensed rooms.
In response to Health Canada’s product hold, CannTrust is warning its customers to expect product shortages. CannTrust’s operations in Pelham and Vaughan will remain fully licensed and the company will operate their business as usual. Health Canada is conducting quality checks of product samples on hold at Pelham, with results expected in 10 to 12 business days. It’s also important to note, all of the product sold in the past from their unlicensed rooms did pass quality control from both Health Canada and CannTrust itself. The issue here has to do with licensing and not product quality.
“Our team has focused on building a culture of transparency, trust, and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgment, but the lessons we have learned here will serve us well moving forward,” said Peter Aceto, Chief Executive Officer.
Today’s unfortunate news will undoubtedly have an impact on CannTrust’s credibility and financials moving forward. To what extent is yet to be seen. One can only speculate at this time. The truth is that CannTrust’s current adversity can serve as both a learning experience for the company as well as a disguised opportunity for investors. With the stock being down over 22% today this could be an opportunity for investors to take advantage of CannTrust’s mistake provided the company can eliminate these types of issues moving forward. Technical traders should note that CannTrust’s relative strength index (RSI) technical indicator closed trading today with a reading of 17.36. In other words, the stock is extremely oversold. Read our article on how to use the RSI indicator here.
CannTrust has taken its first corrective steps and implemented a number of new actions to prevent anything like this from happening again.
These steps include:
- More comprehensive employee training.
- The retaining of external advisors to independently review their compliance processes.
- A comprehensive review and update of processes and procedures.
- CannTrust voluntarily advised Health Canada of issues that may impact compliance at its Vaughan facility regarding product storage.
- The company added Andrea Kirk to their leadership team.
- Ms. Kirk will fill the newly created role of Vice President, Quality.
- Ms. Kirk brings nearly 20 years of experience from the pharmaceutical industry in quality and compliance.
- Her mandate is to lead the Quality and Compliance Department at CannTrust.
- Since joining CannTrust in March 2019, Ms. Kirk has hired and trained 17 quality and compliance professionals.
CannTrust has officially started the process of putting the “Trust” back in “CannTrust”. We look forward to following their progress and will provide our readers with updates on the situation as they become available.
Investors looking for additional information on CannTrust are encouraged to visit the company’s website here.
CannTrust is a federally regulated licensed producer of medical and recreational cannabis in Canada. Founded by pharmacists, CannTrust brings more than 40 years of pharmaceutical and healthcare experience to the medical cannabis industry and serves more than 72,000 medical patients with its dried, extract and capsule products. The Company operates its Niagara Perpetual Harvest Facility in Pelham, Ontario, and prepares and packages its product portfolio at its manufacturing centre of excellence in Vaughan, Ontario. The Company has also purchased 81 acres of land in British Columbia and expects to secure over 240 acres of land in total for low-cost outdoor cultivation which it will use for its extraction-based products.
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