CannTrust's cannabis sales put on hold by Health Canada for unlicensed growing

Cannabis stocks down

Cannabis stocks down

Ontario-based CannTrust said it accepted Health Canada's findings, adding it had taken actions to ensure current and future compliance.

"It is unclear what Health Canada could decide with respect to the status of the affected inventory and finished products that were sold to the market".

Leading the headlines on Monday was CannTrust Holdings Inc (TSE:TRST) (OTCMKTS:CNTTF), which was dinged by Health Canada for growing cannabis in five grow rooms that didn't have a licence to operate at its Pelham, Ontario facility.

Health Canada says it made an unannounced inspection of the facility that resulted in an overall non-compliant rating.

Even worse, the research firm went on to say that CannTrust might have exported some of its illicitly produced cannabis to global markets, such as Australia and Denmark. It went on for the period between October 2018 through to March 2019, and in addition, it has also been revealed that CannTrust employees had also given inaccurate information to Health Canada. The hold may be lifted if Health Canada deems the company compliant with regulations, but until that decision has been made official CannTrust has put about 7500 kg of dried product from its Vaughan facility - grown in the unlicensed rooms - on a voluntary hold.

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

Peter Aceto, the Chief Executive Officer of the company, spoke about the regulatory issue as well and stated that it was an error in judgment.

In February, Health Canada suspended the licence of Winnipeg licensed producer Bonify after the company was found to be selling product it had obtained from the illicit market and failed to comply with good production practices.

"Based on our initial conversations with Health Canada, we believe that a revoked licensed and/or destroyed product while possible, are unlikely".

USA -listed CannTrust Holdings (NYSE: CTST) tumbled over 22 percent on Monday after the company admitted that Canadian regulators had seized its cannabis after discovering it was growing weed in unlicensed facilities.

"The company is unlikely to have product available for sale from Pelham until Q4/19, forcing it to source from other LPs".

As expected, the markets weren't impressed by this admission from the company, with one particular research firm going on to say that this was a blatant move to skirt federal law.

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

The company has also hired Andrea Kirk, for the newly created role of Vice President, Quality.

CannTrust's stock lost 20 per cent of its value on Monday, and continued its sell-off Tuesday morning - within an hour of morning trading, the stock had already dropped a further six per cent.

Note to readers: This is a corrected story.

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