CannTrust Falls As Health Canada Issues Non-Compliance Report

Shares of CannTrust Holdings Inc. (NYSE:CTST) fell more than 6% after the company announced that its greenhouse facility in Pelham, Ontario was found non-compliant under certain regulations by Health Canada. The facility was declared so for producing cannabis in five unlicensed rooms for a period of six months (October 2018 to March 2019).

Its applications were under review by the regulatory body. Licenses for each of these five rooms were issued in April this year. There were 12 rooms at the Pelham facility. Moreover, the company’s employees provided inaccurate information to the regulator.

The company has accepted the non-compliance findings by the regulatory agency and even ensured to take proper action for maintaining the current and future compliance.

So far this year, shares of CannTrust have lost 25.4% against the industry’s increase of 8.6%.

Following the inspection, Health Canada placed a hold on approximately 5,200 kg of dried cannabis that was harvested in the unlicensed rooms in Pelham. Moreover, CannTrust voluntarily held around 7,500kg of dried cannabis grown at its Vaughan manufacturing plant, which was also produced in unlicensed rooms.

The news comes as a major setback for investors as CannTrust can no longer supply the seized cannabis until it is deemed safe by the regulators. Consequently, patients might experience a temporary shortage of products due to the restraint placed by the regulatory body. An update from Health Canada on the quality of product samples impounded at Pelham, is expected in the next 10 to 12 business days.

Notably, operations at both the Pelham and Vaughan sites are fully licensed at this point of time and the company continues to grow and sell cannabis reaped from the licensed rooms at these hubs. CannTrust is not sure whether the current situation will affect its finance standing.

We remind investors that the marijuana industry has strong potential especially after its legalization for recreational and medicinal use. Moreover, the industry is enjoying benefits of expansion into other spaces like food, beverage, tobacco and cosmetics.

Apart from CannTrust, companies, namely GW Pharmaceuticals plc (NASDAQ:GWPH) , Cronos Group Inc. (NASDAQ:CRON) and Canopy Growth Corp. (NYSE:CGC) are all discovering, developing and manufacturing drugs from cannabis for various recreational and medicinal purpose.

Zacks Rank

CannTrust currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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