CannTrust

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CannTrust continues its fight to remain in the industry following a set of violations that nearly sank the company, according to BNN Bloomberg.

Initially, CannTrust’s situation seemed untenable. But when Bonify – a company known for allowing massive amounts of illegal cannabis into its supply – regained its license, CannTrust’s case actually has a fighting chance.

After months of investigation and internal changes, CannTrust submitted a remediation plan to Health Canada, aiming to meet all compliance requirements in the coming months.

 

Aiming for First Quarter 2020

 

CannTrust’s license was suspended in September. But rather than make gradual progress to improve operations, Health Canada discovered additional violations as time went on.

But after months of treading water, CannTrust has regrouped and intends to push forward. BNN Bloomberg explains:

 

“CannTrust Holdings Inc. has submitted a remediation plan to Health Canada as part of its efforts to regain the regulator’s trust and return to compliance. The embattled cannabis producer says it’s aiming to complete all of the activities detailed within the plan by the end of the first quarter of next year, according to a release late Thursday.”

 

CannTrust has a lot of work ahead of them in the coming months. With issues like illegal grow rooms, poor labour practices, black market seeds, security flaws and deliberate attempts to withhold information from Health Canada, the company has built up quite a rap sheet since July.

 

No Specific Details

 

CannTrust’s specific steps have not been publicly announced. However, they do give a general idea as to what the plan entails.

The company says their plan includes:

 

“…an expanded internal training program, a strengthened governance and operations framework, infrastructure enhancements, and prescribed accountabilities and timelines for a variety of specified tasks.”

 

From what we can glean, the plan is highly focused on efficiency, compliance, facility enhancements and training – all of which were lacking prior to CannTrust’s suspension.

Although we are kept guessing about whether CannTrust will succeed, interim CEO Robert Marcovitch is optimistic, saying:

 

“CannTrust is confident that its remediation plan addresses all the compliance issues identified by Health Canada.”

However, not everyone shares Marcovitch’s optimism. Derek Dlay, an analyst at Canaccord Genuity believes CannTrust is on the right track, but also adds:

 

“Having said that, there is still significant uncertainty whether CannTrust will eventually achieve full compliance in the near term.”

 

Realistically, only CannTrust knows how much legwork is ahead of them. Those of us on the outside can only speculate.

 

Massive Layoffs

 

Unfortunately – albeit unsurprisingly – CannTrust was forced to scale back its workforce. In September, the company laid off 180 workers. Now, another 140 are joining them in order to save money in the interim.

CannTrust says these layoffs will save them $400,000 per month in labour costs. However, they need to rehire these employees within 35 weeks, or the total severance will be $880,000.

Marcovitch is not happy with the situation, but admits that it is necessary in order to reflect the company’s current sustainability. He explains:

 

“This was a difficult decision, but it is imperative that our workforce reflects the current requirements of our business. Reducing [CannTrust’s] current operating expenses supports our financial sustainability, and places us in the best position to fully resume production upon the reinstatement of our [licences]. We look forward to rehiring at that time.”

 

 

WeedAdvisor’s Compliance Solutions

 

Out of all the errors producers, distributors or retailers can make, non-compliance is arguably one of the most egregious. Whether accidental or intentional, the consequences may amount to millions in fines, lost productivity and severe loss of public trust.

WeedAdvisor understands the critical balance required to ensure compliance, which is why one of our many business solutions include key functions like inventory tracking, real-time data, safety monitoring, reporting and more.

We help our clients remain compliant in a seamless, automated fashion, so they can focus on providing the best products possible.

 

 

 

 

 

 

 

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The first year of legalization saw its share of scandals. But while CannTrust stole the spotlight in the summer of 2019, Winnipeg-based licensed producer Bonify was arguably worse.

As we covered in our article from early 2019, Bonify’s most egregious offense was when it sourced and sold illegal cannabis into the open market. This was during a volatile time, where pressure to provide inventory was massive as a huge shortage bottlenecked the nascent cannabis industry.

However, BNN Bloomberg now reports that Bonify, despite the seriousness of their violations, had its licensed reinstated after a massive overhaul.

 

“A Landmark Moment”

 

When it comes to dealing with punitive measures from the government, there was no precedent for whether or not working to improve would even yield results. But Bonify proved that, while Health Canada does not hold back when it comes to non-compliance, it is possible to bounce back.

When Bonify’s licensed was suspended, they brought in RavenQuest Biomed to get them back in the right direction. Now, RavenQuest CEO George Robinson says:

 

“Having guided Bonify through corrective action vis-a-vis operational procedures, proper record-keeping, training, and all other standard operating procedures within the Bonify facility, we now have the roadmap to license reinstatement for non-compliant operators. This is a landmark moment in an industry that has faced several high-profile compliance challenges.”

 

Essentially, Bonify went from a complete regulatory disaster to total redemption – although it took about eight months to accomplish. More importantly, it provides a living guide for companies like CannTrust, who are still fighting to once again become compliant.

BNN Bloomberg explains:

 

“Bonify’s ability to sell cannabis legally again also offers a clear pathway for other suspended producers to return to compliance with Health Canada if they can demonstrate that they can abide by the regulator’s various measures aimed at ensuring public safety and compliance with the law.”

 

A Learning Experience

 

The Bonify debacle has taught us some very valuable lessons. First of all, Health Canada is not to be trifled with. It is likely that offending licensed producers underestimated the government’s resolve to enforce compliance.

But we are in a time where image is critical. Any health issues from contaminated or substandard cannabis can drastically affect consumer confidence – something we desperately need in order to fight the black market. Consequently, regulators will scrutinize LPs very closely.

Second, it is clear that actions have consequences. Bonify’s offences were severe and the punishment more than fit the crime.

However, the third major lesson here is that there is always the opportunity to be better, whether it is due to Health Canada’s orders or voluntary, proactive measures to improve best practices.

In the words of George Robinson:

 

“The lessons from Bonify are clear: Follow the rules, train your staff and run a clean, well-designed facility capable of producing high-quality cannabis without cutting corners.”

 

WeedAdvisor’s Compliance Solutions

 

WeedAdvisor understands the severity of non-compliance and its effects on both the industry and consumers. It is also important to understand that it is possible to unintentionally fall short of Health Canada’s highly intense standards.

Keeping track of every critical area is no easy task. But thanks to our business solutions, we make compliance automatic, easy and inexpensive.

Inventory tracking, real-time data gathering, reports, safety and quality compliance are just a few areas that our solutions effectively cover. In turn, this brings valuable protection against fines or suspensions, while ensuring continued public confidence.

 

 

 

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Medical and recreational marijuana producer CannTrust is about to lose $77 million worth of inventory as it fights to stay afloat, according to Markets Insider.

A classic example of what happens when you attempt to dupe Health Canada, CannTrust needs little introduction. The ironically-named company made headlines in September when its license was suspended after a lengthy investigation.

Health officials uncovered massive company negligence, incompetence, corruption and overall misconduct. This led to a huge corporate shake-up, starting in July with the resignation or dismissal of key upper management members, most notably ousting the company’s CEO, Peter Aceto.

But a lot has happened since July, when the first infractions began to unveil. After months in damage control mode, the company is making huge steps – and sacrifices – to one day again be open for business.

 

“Remediation Plan”

 

CannTrust’s board of directors is working to make its way into Health Canada’s good graces, but the goal requires some very difficult steps. The most glaring, of course, being the massive inventory loss:

 

“The cannabis producer CannTrust Holdings said it planned to destroy $65 million worth of weed inventory and roughly $12 million worth of ‘biological assets’ like plants in an attempt to gain regulatory approval in Canada.”

 

But this is just the beginning. According to an October 14th press release CannTrust has several key steps planned. This “remediation plan” is to demonstrate CannTrust’s intention to be cooperative and transparent with Health Canada, while working to become compliant:

 

“Measures to ensure that cannabis will be produced and distributed only as authorized, including measures to control the movement of cannabis in and out of CannTrust’s site;

Measures to recover cannabis that was not authorized by CannTrust’s license;

Measures to improve key personnel’s knowledge of, and compliance with the provisions of the Act and the Regulations that apply to CannTrust; and,

Measures for improving the manner in which records are kept, including a plan to improve the inventory tracking, and any interim measures to ensure that information provided to Health Canada can be reconciled.”

 

The press release also notes that, while the value of the inventory is significant, it is unsellable – returned by various patients, distributors and retail stores.

However, this is just the beginning. CannTrust is set to provide a more detailed plan by October 21st.

 

Making Room

 

Perhaps the simplest way to describe CannTrust’s purge is the desire to create a clean slate. CannTrust says that, once the non-compliant products are destroyed, it will leave room for cannabis that has been grown, processed, packaged, stored and monitored as per Health Canada’s regulations.

 

Immediate Impact

 

The news of CannTrust’s commitment garnered some positive attention from the stock market. Following the announcement, CannTrust’s stock value increased by 25%.

Granted, the value plunged by nearly 78% during the course of their ordeal, worth $1.06 per share as of October 14th.

 

WeedAdvisor’s Compliance Solutions

 

Out of all the errors producers, distributors or retailers can make, non-compliance is arguable one of the most egregious. Whether accidental or intentional, the consequences may amount to millions in fines, lost productivity and severe loss of public trust.

WeedAdvisor understands the critical balance required to ensure compliance, which is why one of our many business solutions include key functions like inventory tracking, real-time data, safety monitoring, reporting and more.

We help our clients remain compliant in a seamless, automated fashion, so they can focus on providing the best products possible.

 

 

 

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Health Canada officially suspended CannTrust’s license, according to Bloomberg. Its ordeal began in July, when unlicensed grow rooms were discovered in its Pelham, Ontario greenhouse.

Later, its Vaughan location was also found to be non-compliant. The facility had used rooms for storage without prior approval. Health Canada also noted that the company had failed to meet minimum requirements for quality control, while security was inadequate.

They were also caught attempting to withhold key documentation, which consequently impeded Health Canada’s audit.

But the final straw came when, according to a September 6th article in BNN Bloomberg, senior staff brought in black market cannabis seeds. Employees attempted to cover it up by renaming up to 20 strains.

 

Suspended Indefinitely

 

Frankly, CannTrust should consider the suspension a blessing. Despite the violations how they were covered up, Health Canada still did not revoke CannTrust’s ability to operate.

In fact, the company can still operate as normal in a limited capacity. Bloomberg explains:

 

“The company won’t be able to sell or produce cannabis, other than cultivating and harvesting existing plants, CannTrust said in a statement Tuesday.”

 

This at least ensures that months of cultivation and product do not go to waste. But CannTrust has a long way to go.

However, this really does not affect the company much, since they already suspended sales and distribution when Health Canada started its investigation months ago.

 

An Opportunity for Correction

 

The good news for CannTrust is that a suspension means they will have the opportunity to address and correct their mistakes. This of course will be no easy feat, but it is the company’s only chance.

According to Bloomberg:

 

“Health Canada, the government agency responsible for cannabis regulations, told CannTrust that it could potentially address the suspension by taking measures to ensure pot will be produced and distributed only as authorized and to recover cannabis that wasn’t authorized by the license. It would also need to improve key personnel’s knowledge of and compliance with regulations; and to improve record keeping and inventory tracking.”

 

But these are not the only issues the company has to address. In a previous article, we addressed some of CannTrust’s employee reviews. They revealed a specific pattern that demonstrated serious issues with management and corporate culture.

If CannTrust does not address its work environment, no amount of compliance will keep it running smoothly.

 

A Well-Earned Suspension

 

CannTrust’s violations are bad on their own. But the way senior staff and employees tried to cover them up – especially with their procurement and distribution of illegal marijuana – makes them seem very corrupt and dishonest.

At this point, the chances of CannTrust regaining public confidence are probably next to nil. The jaw-dropping premeditation of these activities is an insult to the industry and the clients who faithfully purchased the company’s products.

This entire time, medical and recreational clients were consuming poorly-inspected, potentially illegal products.

Admittedly, regulations are tight and often stifling. But if licensed producers want to operate in this industry, they have to abide by those laws.

 

WeedAdvisor’s Solutions

 

CannTrust is an extreme example of what can happen when companies fail to meet compliance standards. We understand that most producers would never intentionally break regulations, but accidental non-compliance is just as bad in Health Canada’s eyes.

WeedAdvisor’s diverse array of business solutions include critical functions like inventory tracking, compliance, record keeping, safety and more. With our help, government, licensed producers and retailers can all avoid the costly complications associated with non-compliance and ensure a safe, efficient work environment.

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CannTrust’s woes with Health Canada are far from over, according to the Financial Post. The company’s facility in Pelham, Ontario was hit with a non-compliance rating by Health Canada following several violations, most notably unlicensed grow rooms. Now, a second location is under the microscope/

As company shares dropped and profits reached a grinding halt, CannTrust began working to rebuild public trust and possibly sell to another organization.

But now, Health Canada found more compliance issues, this time at the company’s second location. Not only is the Vaughan facility now in Health Canada’s crosshairs, but it revealed a whole new list of violations.

 

Violations

 

One of CannTrust’s original violations back in their Pelham facility was the presence of grow rooms that had been in operation for months before being licensed. Their excuse was that the process was taking too long.

It appears that CannTrust once again tried to jump the line, albeit in a different area. However, these violations date back months before recreational legalization. As the Financial Post explains:

 

“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.”

 

Again, CannTrust made decisions in defiance of Health Canada. But it does not end there. Not only were there more changes made without approval, but CannTrust also failed to take proper precautions:

 

“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.”

 

This is interesting, as our last article on CannTrust mentioned several reviews from current and former employees, complaining about management’s lack of adherence to procedures and labour laws.

The third issue was CannTrust’s apparent attempt to keep documentation out of Health Canada’s hands in an attempt by CannTrust to cover its tracks:

 

“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.”

 

This all comes at a time when a second authority – the Ontario Securities Commission – is currently looking into CannTrust.

 

Financial Impact

 

CannTrust’s conduct continues to erode its financial standing, biting into its stock value and, according to the Financial Post, keeping its remaining inventory in an unsellable limbo. This inventory forms a sizeable chunk of CannTrusts $51 million worth of “…inventory and biological assets.”

According to the Financial Post:

 

“U.S.-listed shares of the Canadian grower, down 36 per cent 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 per cent in early trading to $2.30.”

 

Despite assurances from CannTrust’s new CEO, Robert Marcovitch, a second major violation significantly lowers the company’s chances of receiving a fresh start from Health Canada.

 

WeedAdvisor’s Emphasis on Compliance

 

CannTrust is an extreme example, but still a perfect illustration about what happens when compliance severely fails.

As the Financial Post points out above, one issue was poor execution of security measures and quality assurance evaluations. These are just a fraction of the issues our business solutions prevent.

Even companies acting in good faith can run afoul of Health Canada over some unintentional oversight, yet still suffer the same penalties and loss of reputation as CannTrust. Consequently, this inevitably leads to a sharp drop in sales and value.

However, our compliance solutions form just one of many services available that help maintain consistent, accurate records; track employee compliance, collect data in real-time and compile reports automatically so that they are ready to present to regulatory bodies

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CannTrust’s cover-up of their unlicensed grow rooms ultimately led to the CEO being fired and its chairman resigning. Now, it is up to Interim CEO Robert Marcovitch to steer CannTrust in the right direction – assuming Health Canada wants to give them the chance.

According to BNN Bloomberg, Markovitch was originally appointed to lead a special committee aimed at gathering information on the incident. It is still ongoing, but clearly uncovered enough to oust members of its top management.

With talk of selling the company still circulating the industry, CannTrust has their work cut out for them if they want to get back into Health Canada’s good graces.

Interestingly enough, investigators spent so much time looking internally that they seem to have missed something in plain sight. CannTrust’s employee reviews on the career website indeed.com – taken at face value – paint a very dysfunctional picture.

 

CEO Expresses Confidence in CannTrust’s Recovery

 

With recent events tanking their stock and generating horrible PR, CannTrust is buried in a mound of shame and controversy. But in an interview with BNN Bloomberg, Robert Marcovitch said he was “comfortable” that CannTrust could make the necessary changes to become compliant.

In his interview, Macovitch expresses his company’s desire to act in good faith:

 

“Certainly, we are very comfortable that we can separate ourselves from that which plagued us and brought us to where we are and [will] move forward with full compliance with Health Canada and give them the comfort that we are absolutely rehabilitated.”

 

The interim CEO goes on to explain that, while CannTrust still has “a lot going for [them],” their present evidence indicates these circumstances are the result of a few bad people – specifically former CEO Peter Aceto and former Chairman Eric Paul, who knew about the violations.

 

Investigation Still Ongoing

 

Although major heads did roll last week, Markovitch tells BNN Bloomberg that the investigation is far from over:

 

“We have not sat on our hands and we want to know the facts. As we continue to gather them, as we continue to have a level of confidence, we will act. We’ve been very busy dealing with the internal parts and pieces.”

 

Markovitch hopes that the scandalous information about CannTrust’s senior leadership will be the last his team uncovers. Still, he is perfectly aware that this could run much deeper.

We may not have all of the answers from Markovitch, but sometimes we can glean a lot of information about a company by talking to its employees.

 

Poor Employee Reviews

Out of curiosity, we decided to see what employees thought of the company, with indeed.com being an ideal source.

Given that the reviews are anonymous and we have no way of questioning them, it is important not to take these testimonials as irrefutable proof. However, there appears to be a pattern that points to some serious issues going on at the very bottom of the corporate ladder.

CannTrust has a rating of only 2.7 out of five stars on the site. One star reviews are the most common, with all of the key categories receiving mediocre grades.

On average, employees gave 2.6 (out of five) for work/life balance; 2.5 in salary and benefits; 2.6 with job security and advancement and 3.1 for culture. But most telling of all is that the “management” category received the lowest score, at 2.4.

One common gripe is the unprofessional – if not abusive – leadership. One grow tech from Fenwick, Ontario writes:

 

“Management is horrible as well as there [sic] leads and seniors. They constantly break labour laws that affect your physical and mental well being… Don’t dare question there [sic] integrity it puts a bullseye on your back…. The gossip between management and leads is unbelievable they share all personal confidential information right down to there [sic] basic grow techs, never mind the favoritism…”

 

This is not the only example. A currently employed harvest technician from Fenwick gives a similar story:

 

“The managers refuse to see that the whole operation is falling apart. They ignore labour laws and if anyone speaks up about anything they instantly get a target on their back and get write ups for literally nothing. No consideration for their employees whatsoever.”

 

A former patient benefits administrator from Vaughn plainly writes:

 

“Management is poor to say the least and really don’t show any respect to you.”

 

One final example comes from a former packaging technician from Vaughn:

 

“There’s [sic] a lot of instructions from different bosses. It brings confusion and [a] rambling effect to the work. Quite biased; favoritism gets to have a chance to have a better opportunity of excelling.”

 

In all fairness, there were some stellar reviews. But what seems odd is that the five star reviews are oddly specific.

For instance, some other recurring complains include poor pay and benefits and inability to advance due to favouritism. Yet the five star reviews seem to deny them with fervour. One responded with:

 

“Fair pay, good benefits. All you have to do is show up, work hard and you can move up the ladder swiftly. All these shady reviews you see are from people that were fired because they couldn’t hang with the hard workers that believe in putting out top quality product. “

 

The claim about critics being disgruntled ex-workers is false, as many of the negative reviews come from current employees.

Interestingly enough, one grow technician from Fenwick actually retorted:

 

“Someone a few days ago mentioned shady reviews on here. They all happened and reflects the truth, nothing is shady about them.”

 

Nothing Definitive

 

It is important to note that these reviews are merely the opinions and accounts of individual employees. While the convergence is compelling, we cannot say for certain whether the issues described are completely accurate.

However, it would be a good idea for the investigative committee to look into these matters. An organization cannot fix itself if it is rotting from the inside.

 

WeedAdvisor’s Support for CannTrust’s Compliance

 

As a business in the marijuana industry, WeedAdvisor does not want to see a fellow organization close down. The actions of a few should not have to affect the livelihoods of others – a reality that will happen should Health Canada pull CannTrust’s license.

Should CannTrust manage to meet Health Canada’s requirements, WeedAdvisor will be happy to offer a variety of business solutions to aid in regulatory compliance, which keeps a sharp eye on company activities, stopping issues before they become a problem.

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For the past few days, CannTrust’s troubles continued to snowball as more evidence of deliberate non-compliance gradually eroded their company.

With over 70,000 clients losing access to their medical marijuana, many (including the author of this article) were forced to jump ship.

Two days ago, we reported on recent revelations that high-level executives – including Aceto – knew about the rooms, in addition to several other violations. Their response, according to leaked e-mails, was to cover these up. Clearly, they failed.

Now, the debacle has finally come full circle, reports the Financial Post. Just days after CannTrust CEO Peter Aceto’s pledge for “appropriate actions” to bring the company back into compliance, he and Chairman Eric Paul now find themselves out of a job.

 

Peter Aceto Fired “With Cause”

 

Following the independent investigation, CEO Peter Aceto was fired “with cause.” In a statement following the decision, CannTrust issued a public statement:

 

“The investigation into the company’s non-compliance with Health Canada regulations and ancillary matters uncovered new information that has resulted in a determination by the Board to terminate with cause CannTrust CEO Peter Aceto.”

 

CannTrust also demanded the resignation of Chairman Eric Paul, who voluntarily stepped down. Paul was the original founder of CannTrust in 2014, eventually giving his CEO position to Aceto.

Now, both of them are paying the price for their participation in a cover-up that spectacularly backfired.

 

“Let the Dust Settle”

 

As the investigation continued, Aceto remained confident that he would escape unscathed. One Instagram user, accused Aceto of not being transparent with clients and investors. Aceto replied by relying on his record as a “trusted banker of the people” for over two decades.

But, as in most cases, responding defensively on social media rarely helps. In a reply that can only be described as “arrogant,” Aceto said:

 

“[A trusted banker of the people for 21 years], then 9 months later a thief/fraud? Ah, doesn’t make sense. Let the dust settle.”

 

Aceto did not seem to understand that a clean history does not mean someone cannot take a wrong turn at any moment. But more importantly, he was certain that the entire scenario would pass. Obviously, the dust did not settle; it was swept away, with him in tow.

 

Could Health Canada be Partly to Blame?

 

Although we cannot absolve CannTrust of its guilt, it is possible that a flaw in the system pushed the company into such murky waters.

One of the e-mails published in The Globe and Mail came from Eric Paul, stating:

 

“We need to clearly point out that we have been diligent in submitting the applications for each new area and they have been slow in responding. We are supporting the legislation and we need their cooperation. Politely as always.”

 

In Paul’s mind, Health Canada’s slow licensing process was enough justification for CannTrust to “jump the gun” and set up the grow rooms without approval.

Does this justify CannTrust’s actions? Of course not. But it might represent a serious problem with Health Canada’s efficiency that could lead to future problems.

 

A Silver Lining

 

Not all of the news around CannTrust is bad. Although shares dropped by 60% during the investigation, Aceto’s firing and Paul’s resignation gave the company a slight financial boost.

According to the Financial Post:

 

“CannTrust share jumped 16 per cent to US$2.27 in New York trading after the bell on Friday.”

 

This overhaul could mean the beginning of a slow recovery. But it is unlikely that CannTrust will reach its former glory anytime soon.

 

WeedAdvisor Support for the Regulatory Process

 

Although the system may need some adjustment, WeedAdvisor very much supports the governing bodies responsible for maintaining compliance.

CannTrust’s activities are a disservice to the company’s investors, clients and ultimately, the taxpayers as well.

WeedAdvisor looks forward to working with our government to provide practical business solutions that will help make its job simple and efficient.

 

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It has been less than a month since CannTrust effectively ground to a halt after the July 8th announcement of its non-compliance. Now, new information emerged that only made the licensed producer look worse.

In a revelation that should frankly surprise no one, Bloomberg reports these violations were known to upper management, further outlined by The Globe and Mail. The news only adds another nail into CannTrust’s coffin as its future looks bleaker with every new report.

Meanwhile, the company’s shares continue to drop significantly as it is unable to sell or ship product ever since its voluntary hold, which they announced in an e-mail to clients on July 11th.

But now we know that, not only did the company put patients into a bind, but also betrayed their trust.

 

Deliberate Deception of Health Canada

 

Recent revelations by both Bloomberg and The Globe and Mail show a deliberate attempt by CannTrust executives to keep the grow rooms – and other breaches – a secret. This makes the company’s pledge to take “appropriate actions” seem disingenuous at best.

CannTrust chairman Eric Paul and CEO Peter Aceto knew about the unlicensed grow rooms seven months before they were exposed.

The Globe and Mail explains:

 

“In an e-mail dated Nov. 16, 2018, Graham Lee, CannTrust’s director of quality and compliance, informed Mr. Aceto and other top executives about a Health Canada inspection that had just been completed. It had revealed several compliance breaches but missed the plants growing in unlicensed rooms.”

 

Specifically, Lee said:

 

“‘We dodged some bullets…[Health Canada] did not ask about RG8E/W, which are unlicensed rooms currently full of plants.”

 

Even more damning is the revelation of lost cannabis – also withheld during inspection. In an e-mail, Lee asked about how best to keep these errors a secret from Health Canada:

 

“We have a large number of lost bottles we have not reported. I suspect due to bad counting rather than diversion [into the black market]. I will continue working to eliminate our exposure on all these items, but they remain a liability. Please advise of any actions you would like me to take.”

 

Lee is literally colluding with other members of management on how to hide the error. Needless to say, the lack of accountability or professionalism is astounding.

However, CannTrust is now financially reaping what it has sown.

 

Drop in Value

 

It does not take a business expert to see why CannTrust’s stock value continues to drop. Bloomberg reveals that the LP’s stock value dropped a total of 55% since the scandal was exposed. But The Globe and Mail’s piece really hit the company hard.

According to Bloomberg:

“The company’s shares dropped as much as 20% at the open in Toronto on the Globe and Mail report which cited internal emails showing CannTrust Chairman Eric Paul and Chief Executive Officer Peter Aceto were informed about the breach about seven months before Health Canada raised the issue.”

 

This leaves investors in a difficult position, as they face serious losses if CannTrust loses its license – a possibility that is now closer than ever.

 

WeedAdvisor’s Role in Compliance

 

Although we have covered stories of non-compliance before, CannTrust’s is by far the most in-depth. We now see firsthand how regulatory violations occur and are subsequently covered up.

It is great that Health Canada was still able to catch these activities, but the discoveries come at a cost. As The Globe and Mail says, this situation puts Canada’s marijuana industry into an “unfavourable light” during a time when companies want to expand south of the border.

Given these high stakes, WeedAdvisor wants the CannTrust situation to be the last of its kind. We designed a set of business solutions aimed at enforcing compliance. Through real-time data-tracking, inventory management (which would have detected CannTrust’s lost product), detailed compliance reports (to prove a good faith effort in compliance measures) and more, WeedAdvisor’s programs will save millions in potential fines and lost sales.

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The CannTrust saga continues as Health Canada pushes its investigation forward. So far, their findings remain undisclosed. But one thing is certain – public trust took a huge hit since the non-compliance announcement mid-July.

With all sales on hold, potential loss of license and a progressively shrinking group of customers, CannTrust’s days are numbered. A buyout was seen as the best solution, but that poses a few challenges.

However, if CannTrust does make it through unscathed enough to start fresh, they promise that they will do everything necessary to atone for their actions, says BNN Bloomberg.

 

“Appropriate Actions”

 

Upon being discovered, CannTrust officials made a public pledge, according to Bloomberg:

 

“In a release Monday, CannTrust said it filed a report to the regulator July 17, that its special committee’s investigations and deliberations are ongoing, and the company will take ‘appropriate actions’ to address its compliance culture and restore trust.”

 

Recovering public confidence is arguably CannTrust’s biggest concern. While its business remains in limbo and stock drops, the company is bleeding money.

Its success in this regard depends on factors both outside and inside their control.

 

Future Still Uncertain

 

CannTrust’s internal investigation and Health Canada’s own probe are both in their infancy. This might be why developments and possible regulatory measures against the company remain unknown.

Bloomberg’s David George-Cosh says:

 

“…so the investigation continues, from both Health Canada’s side to determine what kind of enforceable action that the regulators are going to be taking on CannTrust…We’re kind of in a waiting game right now…”

 

As the public knows, Health Canada is not afraid to punish deliberate regulatory violations, as shown by its recent actions against B.C. producer, Agrima. What CannTrust did was definitely deliberate and quite severe. It is possible that, despite the company’s cooperation, Health Canada could resort the “nuclear option,” so to speak.

 

Internal Investigation

 

CannTrust has been doing everything in its power to help with the investigation. One notable move was to assign an independent committee to determine how the unlicensed grow rooms came to be and who was responsible.

Cosh elaborates:

 

“CannTrust itself is doing its own investigation and four members of its board of directors have formed an independent committee to investigate this non-compliance with Health Canada’s inspection.”

 

According to Cosh, this committee’s job will be to gather information, recommend corrective measures to the board of directors (discipline, improving practices/policies, etc.) and estimate the financial damage, which will undoubtedly be substantial.

 

WeedAdvisor’s Compliance Expertise

 

Breaking Health Canada’s strict rules will lead to serious consequences. Although CannTrust’s infractions were intentional, having some system in place to detect non-compliance could have stopped the unlicensed grow rooms.

But non-compliance can be accentual as well. In cases like these, a licensed producer or retailer needs evidence that the business followed all procedures in good faith.

WeedAdvisor’s compliance solutions provide protection on all fronts. They offer the ability to detect anything out of the ordinary, effectively preventing deliberate violations. At the same time, we offer services to monitor employee compliance and inventory-tracking to easily intercept and discontinue any defective batches.

Real-time data tracking helps businesses catch problems as they happen, while streamlining the documentation process, which makes it easier to report to regulatory bodies.

 

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Things continue to look bleak for CannTrust, the embattled licensed producer who made headlines over its five unlicensed, hidden grow rooms.

The company certainly carved its name in the industry, winning or being nominated for multiple product awards. However, no amount of recognition will save them from an ever-worsening situation, as they face the very real possibility of losing their license entirely.

This spells bad news for the company’s employees, along with its shareholders, who have seen the stock take a nosedive. At this point, CannTrust cannot save itself, but according to BNN Bloomberg, hope comes from the outside.

In their opinion, an outside buyer could conceivably save the company from being shut down. But given the situation, whoever purchases CannTrust would be doing something heroic – a “white knight” willing to get the LP back on track.

 

“Take Them Out of Their Misery”

 

On the surface, it appears CannTrust wants to go it alone to get themselves back on track. In fact, they have been rather dodgy about whether they intend to consider selling to another organization. Bloomberg explains:

 

“When CannTrust CEO Peter Aceto was asked by BNN Bloomberg earlier this week to comment on whether he had any current offers on the table to sell the pot producer, he stated his focus remained on getting the firm back to compliance with the federal regulator.”

 

However, Norman Levine, a managing director at Portfolio Management Corp., disagrees – rather bluntly – with Aceto’s approach, saying, “I think it’s in everybody’s interest for someone to take them out of their misery.”

 

Levine’s comments, according to Bloomberg, appeared after rumours of two LPs being approached by bankers regarding a possible sale of CannTrust. But based on a recent revelation, those rumours are likely based in truth. Bloomberg reveals:

 

“…one cannabis producer has reached out to Health Canada to inquire if the federal regulator would be amenable to another company taking control of CannTrust to ensure the company becomes fully compliant with growing and processing legal pot.”

 

Although the baggage of the current situation makes CannTrust less palatable to potential buyers, Levine does add that the company still has many assets, facilities and resources that give it some appeal.

He is correct, of course. Aside from the physical equipment, CannTrust also owns three different recreational brands with plenty of products to choose from (assuming they start selling again).

 

Who is to Blame?

 

The inevitable result of disasters like these involves a substantial amount of finger-pointing. Someone obviously ordered these then-unlicensed grow rooms at CannTrust’s facility. Norman Levine is under no illusions (nor are we) – the process had to have involved management.

Levine says that he cannot imagine CannTrust’s upper executives not knowing what was going on. These are not the actions of employees cutting corners. This was deliberate. He says:

 

“It just seems too blatant to have happened. I think ultimately senior management would have to go, no matter who owns the company or if it remains independent. You need to start getting these acts cleaned up. Not everybody is going to survive.”

 

The expert warns that companies like CannTrust and Canopy Growth (who recently ousted its CEO), need to be able to impress major shareholders. Obviously, changes are necessary before that happens.

 

WeedAdvisor’s Emphasis on Compliance

 

WeedAdvisor has made it perfectly clear on multiple occasions that we favour the legal industry and adherence to its requirements. Man of our services are dedicated to policy compliance.

The real victims here are the over 70,000 clients who need to find new licensed producers, in addition to the employees whose positions could be in danger, buyout or not.

Ultimately, we wish CannTrust and any of its future partnerships the best of luck and only hope that they do not make the same mistake twice.

For those interested in following the rules, however, WeedAdvisor provides a variety of business solutions aimed at following regulations, documenting procedures for audits and real-time data tracking to catch potential violations before they become an issue.