CannTrust has put over 10,000 kilograms of its cannabis inventory on maintain after Well being Canada discovered 5 of its manufacturing rooms weren’t compliant with its insurance policies — creating a brand new problem for cannabis provide in Canada.
CannTrust stated in an announcement that Well being Canada’s non-compliance evaluation is because of cannabis grown in 5 unlicensed rooms in a 12-room facility in Pelham, Ontario, and on account of inaccurate data offered by CannTrust staff.
CannTrust says that cannabis was grown in these amenities from October 2018 to March 2019 whereas it had pending functions for his or her licensing with Well being Canada. Licenses have been issued for the rooms in April 2019.
Well being Canada has positioned a maintain on 5,200 kg of dried cannabis harvested within the 5 rooms till it deems the corporate is compliant, in accordance with CannTrust. The corporate says it is usually voluntarily placing on maintain round 7,500 kg of dried cannabis at its Vaughan facility that was produced on the unlicensed rooms.
“As a result of product on maintain, some CannTrust prospects and sufferers will expertise short-term product shortages,” CannTrust stated within the assertion. “The Firm is exploring choices to mitigate these shortages.”
Ontario has already confronted cannabis scarcity in Canada this 12 months, with the preliminary rollout of Ontario Hashish Shops (OCS) restricted to 25 shops on account of shortages.
CannTrust says Well being Canada is conducting high quality checks on the product in query in Penham, and outcomes are anticipated within the subsequent 10 to 12 enterprise days.
CannTrust shares plunged after the information broke, taking place $1.23, or 19 p.c, to $5.23 on the Toronto Inventory Alternate (TSX) within the late morning Monday, and fell as little as $5.03 after the market opened — its lowest stage since 2017.
The quantity of cannabis CannTrust has placed on maintain may pose bother for the corporate, as RBC Capital Markets analyst Douglas Miehm estimates it represents the vast majority of the corporate’s cannabis inventory.
“Because of this, we imagine there may be significant threat to income progress over the approaching months,” he stated in a be aware to purchasers. “CannTrust shares may commerce at a wider low cost to the peer group given the excellent questions in regards to the firm’s inner qc and/or governance.”
Jefferies analyst Ryan Tomkins stated he believes there’ll “undoubtedly be a monetary impression.”
“They should go to the open market to fill the scarcity hole with little bargaining energy, which suggests they may pay inflated costs or take an inferior product which may result in misplaced market share,” he stated in a be aware to purchasers.
CannTrust says that regardless of the non-compliance, “all product bought from the impacted rooms has handed high quality management testing at Well being Canada-certified labs in addition to CannTrust’s personal high quality management processes and security evaluations.”
“We now have made many modifications to make this proper with Well being Canada,” CannTrust CEO Peter Aceto stated in an announcement. These modifications embody hiring exterior advisors to make sure compliance and voluntarily advising Well being Canada of doable points at its Vaughan facility, in accordance with the corporate.
“We made errors in judgment, however the classes we’ve got realized right here will serve us nicely shifting ahead,” Aceto stated.