July 25, 2019 / 10:39 PM / 4 months ago

CannTrust fires CEO after Health Canada finds unlicensed pot production

(Reuters) - CannTrust Holding Inc said on Thursday it fired Chief Executive Officer Peter Aceto, more than two weeks after Health Canada found the marijuana producer grew cannabis in unlicensed rooms.

CannTrust also said that Chairman Eric Paul would step down after the board demanded his resignation.

“The investigation into the company’s non-compliance with Health Canada regulations ... resulted in a determination by the board to terminate with cause CannTrust CEO Peter Aceto,” the company said in a statement.  

Robert Marcovitch, who is chairing a special committee looking into CannTrust’s non-compliance with Health Canada regulations, has been appointed interim CEO.

The company’s U.S.-listed shares, which have fallen more than 60% since the Health Canada disclosure, gained over 7% in extended trade.

The management shake-up followed a report tgam.ca/2K3yBtV this week by the Globe and Mail that Paul and Aceto were aware that cannabis was being cultivated in rooms at a growing facility in Southern Ontario that had yet to be licensed by the federal regulator.

Aceto and Paul did not immediately respond to requests for comment.

“The special committee did the right thing by getting rid of the existing management and putting a new team in place. ... It helps to start repairing the image of the company,” said Mike Archibald, associate portfolio manager at AGF Investments, which previously held shares in CannTrust.

CannTrust disclosed earlier this month that Health Canada found the company was growing cannabis in five unlicensed rooms between October 2018 and March 2019 and inaccurate information was provided to the agency by CannTrust’s employees.

The regulator then placed a hold on about 5,200 kg (11,500 pounds) of dried cannabis harvested in the rooms, while CannTrust also put a voluntary hold on 7,500 kg of cannabis inventory that was produced in the rooms.

CannTrust suspended the sale and shipment of all its cannabis products on July 11 while Health Canada visits and reviews its Vaughan, Ontario, manufacturing facility.

“The problem is that investors don’t know the scope of the problem. ... So, at this point in time, it is pretty hard to come to a conclusive position on whether the action taken is sufficient or what’s going to happen next,” said Elliot Johnson, chief investment officer at Evolve Funds.

Johnson said his fund “got rid of Canntrust a few weeks ago after the first bit of news came out and the price dropped sharply and we no longer could trust what we were hearing from the company.”

CannTrust also said on Thursday it was preparing to make additional operational changes in the weeks ahead, adding the financial impact of the Health Canada disclosure was still unknown.

Marcovitch, most recently CEO of winter sports equipment maker K2 Sports, will step down as a member of the special committee.

Reporting by Arathy S Nair and Shanti S Nair in Bengaluru; Editing by Bernard Orr and Peter Cooney

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