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PRINT EDITION
CannTrust to destroy $77-million in pot in bid to restore licences
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By DAVID MILSTEAD, MARK RENDELL
  
  

Email this article Print this article
Tuesday, October 15, 2019 – Page B1

CannTrust Holdings Inc. says it will destroy $77-million worth of cannabis in an attempt to get Health Canada to restore its licences, $26-million more than the previously disclosed estimate of the amount it would have to discard.

The cannabis regulator suspended the company's growing and processing licences on Sept.

17. Federal investigators discovered in mid-June that CannTrust had grown thousands of kilograms of cannabis in unlicensed parts of its greenhouse facility in Pelham, Ont., and later determined that the company had also breached regulations at its manufacturing plant in Vaughan, Ont.

The unlicensed growing took place in 2018 and early 2019.

Under the suspension, CannTrust was allowed to continue cultivating and harvesting existing batches of cannabis that were planted since late March, but could not plant more or sell cannabis.

The destruction of the inventory "is both an essential and integral part of CannTrust executing its remediation plan, as well as addressing Health Canada's remediation expectations," the company said in a statement.

CannTrust said on Monday it will not challenge the suspension of its licences.

It has already submitted an outline of its plans to Health Canada and will give it a detailed remediation plan by Oct. 21.

The goal, the company said, is "full regulatory compliance" and "the full reinstatement of its licences."

Investors had taken an increasingly dim view of the company's chances of survival, as its shares hit an all-time low of $1.15 in midday trading on Friday. The company's stock jumped 13 per cent - or 12 US cents - in New York Stock Exchange trading on Monday on the news about the amount that will be destroyed. The Toronto Stock Exchange was closed for the Thanksgiving holiday.

The $77-million includes $12million in biological assets - plants that are still growing - and about $65-million worth of inventory that was not authorized by CannTrust's licence. The inventory includes products that patients, distributors and retailers returned.

Because its licences are suspended, CannTrust cannot process or sell the cannabis to other licensed producers, the company said. The exact amount destroyed will be verified once the destruction is complete, it added.

In an Aug. 1 statement in which it said it would be unable to file financial statements, the company said Health Canada placed a hold on 5,200 kilograms of inventory from the Pelham facility and the company voluntarily held back about 7,500 kg in Vaughan.

At the time, CannTrust estimated the value of the problematic cannabis at about $51-million as of June 30.

The amount CannTrust will destroy seems to be a large portion of all the company's cannabis. In its most recent quarterly filing, for the period ended March 31, the CannTrust said it had $55.8-million of inventory and $21.8-million of biological assets.

While the figures are not directly comparable with the amounts in Monday's announcement because of the passage of time, the growing process and changes in market prices, they give some sense of just how much the company has to destroy.

The suspension is the most significant regulatory action Health Canada has taken since commercial medical-cannabis production was legalized in 2014 and recreational cannabis was permitted in October, 2018. The CannTrust scandal has rippled through the young industry, denting investor confidence and removing thousands of kilograms of cannabis from the market at a time of shortages in the new legal system.

After the investigation was revealed, CannTrust halted all cannabis sales, fired chief executive Peter Aceto "with cause" and forced chairman Eric Paul to resign. The company has since laid off 180 employees, about 20 per cent of its work force, and hired investment bank Greenhill & Co.

Canada to review strategic alternatives, including a possible sale of the company or its assets.

According to internal correspondence seen by The Globe and Mail, several members of CannTrust's executive team and board - including Mr. Aceto and Mr. Paul - were made aware of the unlicensed growing activity at least seven months before Health Canada discovered the violations.

A former CannTrust employee alleged that the company took steps to hide the unlicensed growing operations, including hanging temporary walls to stage photographs that were sent to Health Canada.

In the company's Monday statement, interim CEO Robert Marcovitch said CannTrust "is confident that its detailed remediation plan will not only address all of the compliance issues identified by Health Canada, but it will also build a best-in-class compliance environment for the future.

... Our goal is to meet and exceed Health Canada's regulatory standard, and to rebuild the trust and confidence of our primary regulator, investors, patients, and customers."

Associated Graphic

CannTrust employees move cannabis products to storage and shipping at their packaging and extraction facility in Vaughan, Ont., last year.

NATHAN DENETTE/THE CANADIAN PRESS


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