CannTrust Management Shakeup Likely, Jefferies Analyst Says

(Bloomberg) -- A Wall Street bank analyst is calling for a management shakeup at CannTrust Holdings Inc. after a report executives were aware the company violated pot rules before regulators unearthed the breach.

The company’s shares plunged 22% to C$2.68 in Toronto on the Globe and Mail report which cited internal emails showing Chairman Eric Paul and Chief Executive Officer Peter Aceto were informed the company was growing pot in unlicensed rooms about seven months before Health Canada raised the issue.

CannTrust didn’t respond to repeated requests for comment.

“We see wholesale executive changes necessary,” if Health Canada is to uphold CannTrust’s license after its suspension, said Ryan Tomkins, an analyst at Jefferies International Ltd. a unit of New York-based Jefferies Financial Group Inc. With management having no prior cannabis, consumer or health-care experience and arguably “less suited for the industry,” changes are “both likely and necessary,” he said in a note to clients.

CannTrust shares have tumbled 59% since the company said July 8 that the federal regulator gave a non-compliant rating to its greenhouse in Pelham, Ontario, forcing it to halt sales of nearly 30,000 pounds of pot. The company was found to have grown the crop in five unlicensed rooms between October and March, and employees found to have provided inaccurate information to the regulator.

Internal Investigation

The company has launched an investigation into the breach and told the Globe and Mail that it expects to complete it withing days.

CannTrust filed a response to Health Canada on July 17, the company said earlier this week, and is awaiting the regulator’s response. Aceto, who joined CannTrust from the banking world in October, said regulators were also inspecting the company’s Vaughan facility in addition to its Pelham greenhouse.

Tomkins said that in previous cases of non-compliance with Health Canada rules, management have been moved on quickly, “given responsibility stands with them.”

Investors are weighing the risk of CannTrust losing its growing license, with sales and shipments of its products on hold.

To contact the reporter on this story: Michael Bellusci in Toronto at mbellusci2@bloomberg.net

To contact the editors responsible for this story: Jacqueline Thorpe at jthorpe23@bloomberg.net, ;Brad Olesen at bolesen3@bloomberg.net, Carlos Caminada

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