July 8, 2019 / 3:04 PM / 4 months ago

CannTrust slumps after Health Canada finds unlicensed pot cultivation

July 8 (Reuters) - Shares of CannTrust Holdings Inc plunged 22% to a more than one-and-half-year low on Monday after Health Canada found that the weed producer grew cannabis in unlicensed rooms, and the regulator restricted the company from clearing its inventory.

Health Canada found the company was growing cannabis in five unlicensed rooms between October 2018 and March 2019 and inaccurate information was provided to the agency by CannTrust’s employees.

The regulator placed a hold on about 5,200 kilograms of dried cannabis that were harvested in the rooms, while CannTrust also put voluntary hold on 7,500 kg of cannabis equivalents inventory that was produced in those rooms.

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

“We made errors in judgement,” Chief Executive Officer Peter Aceto said.

The hold on inventory would lead to temporary product shortages, the company said, adding it was exploring options to mitigate this.

“It (the non-compliance) adds a meaningful overhang to the story over the next several quarters, at least,” RBC Capital Markets analyst Douglas Miehm said in a note, citing risks to revenue growth.

The company did not disclose the financial impact from the non-compliance, while Miehm said he believes volumes from the held inventory represent the majority of CannTrust’s products.

Toronto-listed shares of the company were down 16% at C$5.42 in morning trade after touching C$5.03. Its U.S shares, which debuted on the New York Stock Exchange in February, tumbled 22%.

Shares of other cannabis producers also fell, with Canopy Growth Corp’s U.S.-listed stock, Cronos Group Inc and Aphria Inc down between 1% and 2%. (Reporting by Debroop Roy in Bengaluru; Editing by Maju Samuel)

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