Health Canada announced on Monday it had found CannTrust non-compliant for growing in five unlicensed rooms between October 2018 and March. CannTrust is the ninth largest Canadian LP by market cap.
The Leaf, MJ Biz Daily, Marijuana Index
The combined 12,700 kilograms is more than the 9,400 kilograms it harvested last quarter, and more than four times as much product as the 3,000 kilograms CannTrust sold. Samples grown in the illicit rooms will be tested by Health Canada in coming weeks.
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A former CannTrust greenhouse employee who tipped off Health Canada on June 14 after quitting the company reported the greenhouse operations manager called for the installation of fake walls to hide "several thousand" plants as they took photos for Health Canada to meet licensing requirements.
Globe and Mail
Market-research firm Harvest Moon claimed CannTrust's employees were disgruntled after CannTrust's HR department leaked all employee payroll details, and ths motivated the tip-off to Health Canada.
Smart Money Gains
The Ontario Cannabis Store pulled CannTrust products, but did not specify which ones. The Alberta Gaming and Liquor Corporation followed suit, placing some products on hold pending the results of Health Canada's investigation. Bloomberg, National Post
The Globe's Mark Rendell noted that in a sector with some questionable players, CannTrust was understood as a professional operation, helmed by Aceto, who helped transform the cannabis sector when he joined CannTrust from his former position at Tangerine Bank.
Globe and Mail
Analysts said the scandal will affect CannTrust for some time, beginning with the likely loss of sales from the 12,700 kilos of illicit cannabis. Bank of America Merrill Lynch analyst Christopher Carey said, "Due to uncertainty on go-forward financials, exacerbated by likely diminishing investor confidence, we see shares remaining weak."
Founder and chairman Eric Paul said he wouldn't call for CannTrust's senior management to resign, though he couldn't explain why management was unaware that thousands of kilos of cannabis was grown in unlicensed rooms over six months. Paul said, "It was quite a shock when I found out about it."
Deepak Anand highlighted the role of regulatory delay in the CannTrust scandal. The average turnaround for additional grow-room applications by companies that already have Health Canada licenses is at least 10 to 12 weeks, but respondants to Anand said they'd experienced delays of "About 58 days," six to eight weeks on average, and "30 days just to get a confirmation of an inspection date and then 3-6 months to schedule the inspection."
Bloomberg's Jon Erlichman wondered, "Did we get too greedy with these cannabis stocks? Are investors partly at fault for expecting so much from such a young industry?"
According to Statistics Canada, the price of illegal cannabis is going down attracting more buyers, aswhile the price of legal product is going up.
Deloitte analyst Rishi Malkani noted, "The fact of the matter is everyone is just using vapeable oils right now and those are only available through the illegal market. After December when you’ve got people filling the gap in products available in the illegal and legal markets, you’re going to see another big push to the legal channel like you did when dried flower first became legal."
Alberta Gaming, Liquor and Cannabis licensed another 20 REC stores this week, bringing their total to 176. At this rate they will hit 200 before the end of the month. Ontario may have as many as 75 starting three months from now.
Globe and Mail
Doctors, patients, and researchers need cannabis research. The Conservatives are calling for cannabis research. The Liberal government has millions in funding to offer for cannabis research. What's the catch? The process of applying for Health Canada approval is so difficult that it dissuades research, according to academics.
Toronto police raided one of the holdout locations of Toronto dispensary chain CAFE. The Ford government recently closed a legal loophole preventing dispensary raids on locations in which people lived, and police evicted one angry man who tried to push his way through police, who claimed he had nothing to do with the dispensary but was just a tenant getting cheap rent.
CityNews, CBC Toronto
Saskatchewan's Conservative justice minister Don Morgan called on the federal government "to take some steps" to intervene and shut down dispensaries in Muscowpetung First Nation and Pheasant Rump Nakota Nation, each of which have introduced their own cannabis regulations independent of the province and federal government.
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