CannTrust Forms Special Committee After Licensing Debacle; Reporter Says 'A Lot' Occurring Behind The Scenes

Medical and recreational cannabis producer CannTrust Holdings Inc CTST said Monday that it's forming a special committee to "restore trust" after its facility was found to be non-compliant with Canadian government regulations.

What Happened

Health Canada is actively exploring what kind of enforceable action is appropriate for CannTrust, which was producing thousands of kilograms of cannabis in unlicensed rooms, BNN Bloomberg's David George-Cosh said Monday.

CannTrust set up a committee to conduct an internal investigation and make recommendations to the board and better understand any potential financial impact, according to the company. 

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Why It's Important

Analysts don't have any faith left in CannTrust, George-Cosh said, adding that one research firm suspended its coverage of CannTrust.

The cannabis industry as a whole has multiple headwinds aside from CannTrust's production violations, he said.

Most notable are the dismissal of Bruce Linton from Canopy Growth Corp CGC and The Flowr Corporation FLWPF's suspension of a CA$125-million ($95.3 million) capital raise, George-Cosh said. These could be considered "bearish drivers" in the cannabis market, he said. 

"At the current state of affairs, it looks like the cannabis industry needs to kind of get its act together before it reaches a maturity level." 

What's Next

Sources close to the company are saying there is "a lot of activity happening behind the scenes," including a potential for CannTrust to sell itself, George-Cosh said. But it is unclear if anyone is "comfortable" in acquiring a company that accepted Health Canada's non-compliant findings.

"These discussions, again, are preliminary and they haven't advanced according to my sources to a state where a deal would be reached," he said. "But it is interesting to note that these discussions are indeed happening at this point," he said.

CannTrust shares were down 3.07% at $2.68 at the time of publication Monday. 

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