What was speculation yesterday afternoon became reality before the day was done, as Canadian cannabis grower CannTrust Holdings (NYSE:CTST), (TSX:TRST) fired its CEO for cause and forced the resignation of its board chairman.
In a statement released Thursday evening, the Ontario-based marijuana company, which has been embroiled in an expanding scandal involving thousands of plants being grown in unlicensed sections of a greenhouse facility in Pelham, Ont., said it fired CEO Peter Aceto “with cause” and demanded the resignation of board chairman Eric Paul.
New Information
The moves were a result of what was referred to as “new information” uncovered by an investigation the company launched into the breaches of Health Canada regulations, according to the statement. The company did not elaborate on what that information involved.
Earlier this week, reports in the Globe and Mail, Canada’s national newspaper, outlined how it had obtained access to emails that both Aceto and Paul had knowledge that CannTrust had put unlicensed areas into production as early as November 2018, seven months before Health Canada became aware of the breaches in June 2019.
The statement issued Thursday says based on the new information uncovered, the company has made voluntary disclosures to Health Canada, and “will fully cooperate with the regulator in an open and transparent manner to resolve these matters fully and expeditiously.”
Not The End Of Scandal
CannTrust named Robert Marcovitch as interim CEO. Marcovitch had, up until yesterday, been the chairman of the special internal committee tasked with investigating the regulatory breaches.
This does not mark the end of the scandal for CannTrust, however. The next steps – which investors will be watching closely – could dictate the fate of one of Canada’s biggest marijuana companies.
Health Canada Response Key
The first next step will be how Health Canada will respond to the situation. This could involve fines and/or a suspension of certain CannTrust production licences. The federal regulator could also revoke CannTrusts’ permits completely. In addition, the more than 12,500 tonnes of cannabis grown in the unlicensed rooms between October 2018 and March of this year could be ordered destroyed. Some of it, which has been exported, has already been placed under quarantine.
The company might also face a number of repercussions on both sides of the Canada-U.S. border that could seriously affect its future.
It could be named in lawsuits from investors. CannTrust might be delisted from the New York Stock Exchange for breach of terms. Or, it could be delisted if it fails to meet the minimum standards, including maintaining a minimum share price of $1 for 30 days. This morning, CannTrust opened at US$1.95. On July 7, one day before the scandal became public, the share price was trading at US$4.94. The drop represents a more-than-60% drop in value.
CannTrust could also face sanctions by stock exchange regulators for having raised capital during the period in which management was aware of unlicensed activities.
Then there is the issue of the fallout for exporting unlicensed product. Medical cannabis which was shipped to Denmark was placed in quarantine on July 11.
CannTrust still has a long way to fall, but the stock is rebounding this morning. It is up more than 18% in the U.S. and over 17% in Canada.