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Pot producer CannTrust hit by new Health Canada violations

(Reuters) — Health Canada has found fault with cannabis production at a second CannTrust Holdings Inc. facility, a month after the regulator froze sales of several tons of marijuana grown at another one of its Ontario operations.

U.S.-listed shares of the Canadian grower — down 36% in the past month after it suspended sales, fired its chief executive officer, disclosed a formal investigation by local regulators and said its results would have to be restated — fell another 26% in early trading to $2.30.

CannTrust said it had accepted the latest findings from the health regulator into the Vaughan facility in Ontario, which received a noncompliant rating, and expects to propose a remediation plan to Health Canada.

“We are continuing to work hard to regain the trust of Health Canada, our patients, shareholders and partners,” interim Chief Executive Officer Robert Marcovitch said, adding that the company “will take whatever remedial steps necessary” as quickly as possible.

Health Canada’s rating for the Vaughan plant was based on an inspection between July 10 and July 16, and noted that five rooms, converted from operational areas, were used for storage since June 2018 without prior approval by the regulator.

The regulator also said two new areas were constructed without prior approval and that security as well as quality assurance investigations were inadequate at the facility, while operating procedures did not to meet requirements.

The company said the regulator also had found documents and information were also not retained in a manner to enable Health Canada to complete its audit in a timely manner.

Last month, CannTrust said Health Canada had placed on hold about 5,200 kilograms of dried cannabis harvested in five unlicensed rooms in Pelham. The company separately put a voluntary hold on 7,500 kg of inventory of dried cannabis equivalent at its Vaughan manufacturing facility that was produced in the rooms.

Earlier this month, CannTrust valued the affected inventory and biological assets to be about C$51 million ($38.6 million) as of June 30, but cautioned that there was significant uncertainty related to potential impact of pending regulatory decisions.

Since Health Canada found the unlicensed pot cultivation, CannTrust fired Peter Aceto as chief executive officer, while Eric Paul resigned as chairman.

The company, which is being investigated by the Ontario Securities Commission, is also exploring options including a sale.

CannTrust has delayed its second-quarter and six-month results and said it may be forced to restate some of its historical financial statements.