CannTrust Warns of Cannabis Shortage after Grow Room Issues

eResearch | On July 8, 2019, CannTrust Holdings Inc. (NYSE: CTST; TSX: TRST; DB: C9S) received a compliance report from Health Canada, notifying them that several grow rooms in their Pelhim, Ontario greenhouse facility are in non-compliance. Health Canada disclosed that the Company’s employees grew cannabis in five unlicensed grow rooms (the facility has 12 rooms in total) and inaccurately provided information to regulators.

The Company received their production license for the five grow rooms in April 2019 but have been operating the grow rooms before receiving their license from October 2018 to March 2019. Health Canada has since taken custody of 5,200kg of dried cannabis that was harvested from the facility within this time. CannTrust voluntarily disclosed an additional 7,500kg of Pelhim-produced cannabis that was stored in a manufacturing facility in Vaughn, Ontario, and took actions to hold these products until receiving approval from Health Canada.

In Q1/2019, CannTrust harvested approximately 9,500 kg of cannabis, but sold only 3,000 kg of dried cannabis and dried cannabis equivalent at an average price of $5.47 per gram for record quarterly revenues of C$16.9 million, a 115% increase year-over-year.

Issues with licensing of facilities and approval of products is not uncommon within the cannabis industry. Just before recreational cannabis legalization in Canada, Canopy Growth Corp. (NYSE: CGC; TSX: WEED; LSE: 0UO9; DB:11L1) had to destroy a number of crops, as processing licenses were delayed by infrastructure and regulatory approvals. In February 2019, Health Canada suspended all sales from Bonify Medical Cannabis, a federally licensed producer with a 320,000 square foot facility in Manitoba, Canada, due to regulators exposing the possession, distribution, and selling of illegal products that were not in compliance with the Cannabis Act.

Peter Aceto, CEO of CannTrust commented “We have made many changes to make this right with Health Canada. We made errors in judgement, but the lessons we have learned here will serve us well moving forward”.

Both the production facility in Pelhim and the manufacturing facility in Vaughn are still fully licensed and operating, while Health Canada analyzes product samples from the Pelhim site over the next 10-12 business days. The Company expects inventory shortages in the near future due to their products on hold.

Since Health Canada’s notice, CannTrust’s stock has dropped more than 20% to C$5.05 per share this morning. The Company is down 60% since their high of C$13.45 in March 2019, and is currently the worst-performing cannabis stock in the S&P/TSX Composite Index.

CannTrust Holdings Inc. (NYSE: CTST; TSX: TRST; DB: C9S)

Headquartered in Ontario, Canada, CannTrust is a federally regulated medical and recreational cannabis producer. CannTrust was started by pharmaceutical professionals with 40 years of experience and serves more than 72,000 medical patients. The Company currently trades at C$5.05 per share with a market capitalization of C$715 million.

Canopy Growth Corp. (NYSE: CGC; TSX: WEED; LSE: 0UO9; DB:11L1)

Headquartered in Ontario, Canada, Canopy Growth Corp. is the world’s largest cannabis company, based on market capitalization. Canopy was the first to export cannabis to Germany, the first to make a partnership with a global beverage company, and the first to have an agreement to acquire a U.S. based cannabis company. Canopy is currently trading at C$51.23 per share with a C$17.72 billion market capitalization.

Aurora Cannabis Inc. (NYSE: ACB, TSX: ACB; LSE: 0UJG; DB:21P)

Headquartered in Edmonton, Canada, Aurora is the second largest cannabis company in the world, based on market capitalization. Aurora is currently trading at C$9.73 per share with a C$9.89 billion market capitalization.