(Reuters) – CannTrust Holdings Inc’s shares plunged 22% to a more than one-and-half-year low on Monday, after Health Canada found that the weed producer grew cannabis in unlicensed rooms and restricted the company from clearing its inventory.
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 placed a hold on about 5,200 kilograms of dried cannabis that were harvested in the rooms, while CannTrust also put voluntary hold on 7,500 kg of cannabis equivalents inventory that was produced in those rooms.
Health Canada did not respond to a request for comment whether it would look to tighten regulations or increase inspections following the CannTrust violations.
“It (the non-compliance) adds a meaningful overhang to the story over the next several quarters, at least,” RBC Capital Markets analyst Douglas Miehm said, citing risks to revenue growth.
The company did not disclose the financial impact from the non-compliance, while Miehm said he believes volumes from the held inventory represent the majority of CannTrust’s products.
Ontario-based CannTrust said it accepted Health Canada’s findings, adding it had taken actions to ensure current and future compliance.
According to Seaport Global analyst Brett Hundley, the CannTrust inventory on hold currently represents about 2% of Canadian cannabis industry sales.
“It’s meaningful enough – when considered against current market supply constraints – to lead to a potential bump in industry pricing over the near term,” Hundley said.
He added that customers could look to shift orders to other producers which could lead to a domino effect on prices.
Canada became the first developed country to legalize the use of recreational cannabis last year, creating a multi-billion dollar industry that has been plagued by supply constraints and prices that are higher than those on the black market.
CannTrust’s Toronto-listed shares were down about 21% at C$5.11 after touching a session low of C$5.03.
Shares of other cannabis producers also fell, with Canopy Growth Corp, Cronos Group Inc and Aphria Inc down between 2% and 3%.
Article was first seen on: Reuters