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CannTrust Holdings Inc. tumbled another 13 per cent Friday after the Canadian pot company halted all sales and shipments of its products, raising the spectre that it could lose its license entirely.
CannTrust shares have lost 46 per cent since the beginning of the week, when it disclosed that Canadian regulators gave a non-compliant rating to its greenhouse in Pelham, Ontario. In an unannounced inspection, regulators found the company grew pot in unlicensed rooms, provided “false and misleading information” to inspectors and had inadequate record keeping, according to Health Canada spokeswoman Tammy Jarbeau.
The stock fell to $3.52 at 1:55 p.m. in Toronto, and has dropped for seven straight sessions. The fallout also hit the cannabis sector as a whole, with the Horizons Marijuana Life Sciences Index ETF down 5 per cent to the lowest intraday since Jan. 10. Canopy Growth Corp. lost 8 per cent, while Cronos Group Inc. fell 6.8 per cent and Hexo Corp. slid 6.1 per cent.
CannTrust said Thursday night that it’s put a voluntary hold on the sale and shipment of all its medical and recreational products while Health Canada reviews its other facility in Vaughan, Ontario. It’s also appointed a special committee of the board, comprised of independent directors, to investigate the breach. CannTrust didn’t immediately respond to a request for comment.
“I think that a license suspension is possible,” said Charles Taerk, chief executive officer of Faircourt Asset Management, which runs the cannabis-focused Ninepoint Alternative Health Fund. Taerk reduced his holdings of CannTrust to less than 1 per cent of his portfolio after the company’s last quarterly earnings report, and sold the remainder of his position on Tuesday.
“We had removed CannTrust from our top 10 two months ago, not because of this issue but because of other operational issues we were concerned about,” Taerk said in a phone interview, citing the company’s weak results and the lack of answers from management. “Where there’s smoke there’s fire sometimes, and people didn’t pay attention to that.”
CannTrust’s voluntary hold on sales and shipments is likely to last into late July “at a minimum,” said Eight Capital analyst Graeme Kreindler, who downgraded the stock to sell from neutral and cut his price target to $4 from $6.
“The possibility of a license suspension remains real; however, it is highly uncertain at this time,” Kreindler wrote in a note. “In the event of a suspension, we believe that TRST’s cash position could sustain the company for a period of approximately 12 months considering last quarter’s operating burn was $19 million.”
Canadian law gives Health Canada a number of ways to respond to non-compliance, including “suspension or cancellation of a federal license” or the issuance of a fine up to $1 million, Jarbeau said in an email.