CannTrust shares dive on report that CEO, chair knew of unlicensed pot growing

CannTrust Holdings Corp. shares have plummeted further after a media report alleging that the cannabis company’s chief executive and chairman of the board were aware of pot cultivation in rooms without government approval months before Health Canada discovered the illicit activity.

Shares of the Vaughan-based licensed producer were down as much as 20 per cent in midday trading on the Toronto Stock Exchange to $2.75 from its previous close of $3.43.

A report published in the Globe and Mail late Tuesday cites internal emails that suggest CannTrust chairman Eric Paul and its chief executive Peter Aceto were informed in November that the firm was growing pot in unlicensed rooms at its Ontario greenhouse.

CannTrust is being investigated by Health Canada, which says it discovered during an unannounced inspection in June that the pot firm was growing cannabis in several rooms before it got the appropriate licences to do so.

CannTrust disclosed Health Canada’s findings on July 8, and nearly 13,000 kilograms of cannabis products linked to the five unlicensed rooms have been put on hold by both the regulator and voluntarily by CannTrust as samples undergo testing at government laboratories.

CannTrust voluntarily halted all shipments and sales of its products as Health Canada conducts its investigation and an independent special committee of its board of directors examines what transpired.

Robert Marcovitch, the special committee’s chair, said it is in the “final stages of a thorough investigation of these matters as part of our due diligence requirements.”

“We expect to conclude this investigation within days and will take all appropriate actions immediately thereafter,” he said in an emailed statement.

Prior to the share price drop today, CannTrust’s stock had already lost roughly 47 per cent of its value from $6.46 on July 5 before the company disclosed Health Canada’s findings.

Ryan Tomkins, an analyst with Jefferies, said following a week of negative news since CannTrust’s disclosure of Health Canada’s non-compliance report, there is a “strong likelihood” that regulators will levy a fine for a breach of the Cannabis Act.