Beleaguered producer CannTrust Holdings Inc. (TSX: TRST) was dealt another blow when the Ontario Cannabis Store decided to return $2.9 million worth of its products today.
The firm’s reputation has taken a battering over the past month after Health Canada discovered unlicensed cultivation in five rooms of its facility in Pelham. The regulator placed a hold on around 5,000kg of dried cannabis harvested there, while CannTrust placed a voluntary hold on a further 7,500kg of cannabis equivalents.
Now provincial retailer OCS has decided that it cannot trust CannTrust’s products, declaring they do not conform with the terms of its master cannabis supply agreement. Any product that does not comply with applicable law is considered to be non-conforming product, giving OCS the right to return it at the company’s expense.
CannTrust said it would “fully perform its obligations”, but it pointed out that the OCS operates independently of Health Canada, which has not ordered a recall in respect of any of the company’s products.
Since the scandal broke last month, CannTrust has fired chief executive Peter Aceto and chairman Eric Paul has also resigned. News circulated alleging that Aceto was aware of the illegal grow rooms, while a whistle-blower claimed the firm used fake walls to hide illicitly cultivated marijuana from Health Canada officials.
It all left the company’s reputation in tatters and Aceto’s departure was inevitable, but it will be difficult for interim chief executive Robert Marcovitch to turn CannTrust around.
The firm has estimated that more than half of its current inventory could be destroyed, or it could lose its licence entirely, depending on Health Canada’s decision.
Investors that purchased shares after the unlicensed cultivation began in October 2018 have already launched lawsuits.
TRST has now fallen by 58% in 2019. The New York Stock Exchange is monitoring the late filing of its Q2 results, while KPMG withdrew its reports on the firm’s Q1 and full-year results. Greenhill & Co. has been hired to explore a potential sale of the business.
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