CannTrust slides further after Health Canada suspends cannabis licences
Health Canada has suspended CannTrust Holdings Inc.’s licences to sell cannabis and curtailed its ability to produce new plants after it was found to be growing cannabis in unlicensed rooms, the embattled company announced Tuesday.
According to a press release, CannTrust received a notice from Health Canada stating that its licences for “standard processing, medical sales, cannabis drugs and research issued under the Cannabis regulations” were being fully suspended, while its licence for standard cultivation would be under partial suspension. CannTrust will now be barred from growing new lots or batches of cannabis and from selling or distributing any products, but will still be able to “cultivate and harvest existing lots of batches” as well as trim, mill and dry that product, the release said.
Health Canada confirmed the decision in an emailed statement to the Financial Post and said that it was being taken “in order to protect public health and safety.”
“Health Canada inspectors have delivered the notices of suspension to CannTrust Inc. today, and are seizing and detaining all cannabis products at both sites,” a spokesperson for the regulator said.
CannTrust stock was trading down almost 9 per cent Wednesday morning at $1.55 a share.
The blow may not necessarily be a permanent one, according to CannTrust’s press release. CannTrust may see its licences reinstated “if the reasons for the suspension no longer exist or if CannTrust demonstrates that the suspension was unfounded.” Health Canada, the release said, suggested implementing a series of measures to address the public health and safety risks such as controlling the movement of cannabis in and out of their facilities, recovering the illicitly-grown cannabis and improving its inventory tracking. Vaughan, Ont.-based CannTrust said it was reviewing the release with its counsel and that it has been working with Health Canada for months to address its concerns.
“Over the past two months, the Company has moved swiftly to assess and address Health Canada’s concerns, including areas of operational non-compliance,” CannTrust said in the release. “The Company remains committed to being in full regulatory compliance.”
The company will have 10 days to respond to the notice and argue whether it believes it to be unfounded.
The suspensions come after the health authority was tipped off by a whistleblower that CannTrust was growing illicit cannabis in multiple unlicensed rooms at its Pelham, Ont., greenhouse. Since then, the company has broadly shuffled its leadership, firing CEO Peter Aceto and demanding the resignation of chairman Eric Paul. Compounding its problems, the company has seen its stock slashed by more than 73 per cent since first announcing that Health Canada its greenhouse wasn’t in compliance in July.
CannTrust becomes the third — and by far, largest — cannabis producer this to see its licence suspended. In February, Health Canada suspended the sales licence of Winnipeg-based producer Bonify Holdings Corp. when an investigation revealed that it had been selling illicit product. B.C.’s Evergreen Medicinal Supply Inc. had its licence to grow and sell cannabis suspended in August after an unannounced inspection by regulators. Health Canada has only revoked the licence of one producer: Agrima Botanicals Corp.
StoneCastle Investment Management Inc. portfolio manager Bruce Campbell said the licence suspension was “devastating” for the company but can still see a scenario where it’s taken over. That acquisition wouldn’t be made by one of the larger cannabis producers such as Canopy Growth Corp. or Aurora Cannabis Inc., Campbell said. Most of the company’s remaining value lies in its physical assets — particularly in its facilities in Vaughn and Pelham — that could be attractive to a new producer looking to quickly scale-up.
Even then, it might not be worth the hassle for a white knight to swoop in, he said.
“There’s certainly assets there, it’s just a function of what price you pay for it and what kind of headache comes with it,” said Campbell, adding that a buyer would have to gain assurance from Health Canada that it won’t be penalized for mistakes made by previous management.
For investors holding out on hopes of a takeover, Campbell said he’d rather sell the stock than wait for a white knight. In that time, the stock could see further losses that would negate the value of a potential premium that would be paid out in a takeover, he said.
CannTrust’s stock was halted on impending news for nearly four hours on Tuesday and only began trading again within 30 minutes of the closing bell. The stock closed more than 14 per cent down at $1.70.