The future of CannTrust in the hands of Health Canada after the removal of the general manager, president


Part of cannabis and investments

Departures come after Health Canada inspectors found that CannTrust had grown thousands of kilograms of cannabis for tens of millions of dollars in unlicensed rooms in its greenhouse in Pelham, Ontario, between October 2018 and March of this year .

Tara Walton / The Globe and Mail

The fate of CannTrust Holdings Inc. is now in the hands of Health Canada, which has the power to suspend the CannTrust license or to release it with a lighter rebuke, after the dismissal of its CEO and the forced resignation of its president.

On Thursday evening, the cannabis farmer announced that he had put an end to CEO Peter Aceto "for just cause" after "new information" was revealed to the special committee of the CannTrust council, which is conducting an internal investigation. The company did not provide further details on the fire.

Eric Paul, president of the company, former CEO and major shareholder, was also invited to resign from the board.

The story continues under the announcement

On Friday the CannTrust stock price rose 16.7 percent, with the news that the CannTrust board of directors had taken its first significant step to respond to a scandal that took the company to three weeks. CannTrust shares have fallen by 53% in value since July 8th.

CannTrust dismisses CEO Peter Aceto, forcing the resignation of President Eric Paul

The president of CannTrust, CEO, was informed in November of the cultivation of cannabis without a license, e-mail exhibition

Departures come after Health Canada inspectors found that CannTrust had grown thousands of kilograms of cannabis for tens of millions of dollars in unlicensed rooms in its greenhouse in Pelham, Ontario, between October 2018 and March of this year .

In a statement on Thursday, CannTrust stated that it had made "voluntary disclosure to Health Canada" about new information obtained by the committee and that it is collaborating with federal regulators. Board member Robert Marcovitch, former CEO of the sporting goods company K2 Sports, took over as interim CEO at CannTrust.

Health Canada did not respond to a request for comment.

"The biggest uncertainty still remains if the company will retain its license or if the license is suspended and for how long," said Graeme Kreindler, an Eight Capital analyst, in an interview. "This is really the engine of the company that allows it to sell products and generate revenue and profits, so it still remains the biggest demand."

Earlier this week, The Globe and Mail reported internal emails of the company showing both Mr. Paul and Mr. Aceto had been informed of Health Canada's regulatory violations at the growing facility of Pelham in November 2018, seven months before the discovery of the regulatory authority the illegal practice.

An employee of CannTrust, to whom The Globe granted anonymity because he was not authorized to talk to the media, stated that the company was subjected to enormous pressure in the fall to expand its production numbers in order to improve financial results and increase the price of CannTrust shares. This was happening, the employee said, at the same time Health Canada took longer to approve licenses for new rooms.

The story continues under the announcement

Another employee, to whom The Globe also granted anonymity, said Health Canada inspectors visited CannTrust's Pelham facility frequently in recent weeks.

The idea that senior executives were made aware of unauthorized cinemas in November jeopardizes the regulatory position of CannTrust, said Canaccord analyst Derek Dley. "We now consider it more likely that Health Canada will suspend the CannTrust license," said Dley in a research note published Friday.

Any idea of ​​the company acquired by a rival cannabis producer is also in doubt given the uncertainty of the reaction of Health Canada, he said.

"As the company may no longer be able to sell its products and is not likely to be eliminated by a competitor, we have reduced our target to the estimated value of liquidity and physical assets per share," said Dley. He reduced his target price to $ 2.50 per share from $ 5.

Jason Zandberg, an analyst at PI Financial Corp., was more optimistic about the possibility of a takeover bid, but acknowledged that it would depend on whether the company retains its license.

"I am sure that anyone interested in acquiring them should sit down with Health Canada and find out what the probability is that, under new management, they can continue to operate," Zandberg said in an interview.

The story continues under the announcement

If the licensing problem could be solved, CannTrust "would be the most interesting resource [in Canada], given where the stock profile went and the biggest production profile that would be in play", he said.

CannTrust, which has blocked all sales while dealing with its situation, also faces other risks, including legal and regulatory ones related to its securities. In its statement on Thursday, CannTrust stated that it had not yet determined the effect of the situation on its finances, and it is not yet known whether any prior financial results could be reformulated.

To date, Health Canada has suspended two cannabis licenses: Ascent Industries Corp. and Bonify Medical Cannabis, either for purchase or sale in the black market.

In the case of Ascent, after Health Canada announced its intention to suspend the company's license, a number of other authorized producers have started bidding for Ascent's cultivation activities in British Columbia. After several months and more offer shifts, the assets were sold to a private company with no previous experience in the cannabis sector.



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