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CannTrust Tumbles 22% as Canadian Regulators Seize Illegal Cannabis

11 July 2019

Shares plummeted 19.8% at C$5.18 in Toronto and fell 19.8% at US$3.96 in NY. Licences were issued for each of the five rooms in April 2019. There are 12 rooms in total at the facility.

It said Health Canada seized roughly 5,200 kilograms of cannabis from the unlicensed rooms and CannTrust voluntarily put an additional 7,500 kilograms on hold from its Vaughan, Ont. facility, but confirmed that some product had been sold.

CannTrust said it has accepted Health Canada's non-compliance finding and has taken actions to ensure current and future compliance. CEO Peter Aceto said that the company made a number of errors in judgement "but the lessons we have learned here will serve us well moving forward".

The stock for the company declined over 20 percent in value after the opening bell both in NY and Toronto.

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"(The rooms) were constructed in a very compliant way with Health Canada.

In February, Health Canada suspended the licence of Winnipeg licensed producer Bonify after the company was found to be selling product it had obtained from the illicit market and failed to comply with good production practices. In addition, CannTrust said it has instituted a voluntary hold of approximately 7,500kg of dried cannabis equivalent at its Vaughan manufacturing facility that was produced in the previously unlicensed rooms.

One employee who worked at the Niagara-area facility has been terminated, but Aceto would not say what role that person held. Additionally, CannTrust announced it will face a shortage of product due to the holds on product grown.

Investor John Mastromattei, who keeps a close eye on the cannabis sector but doesn't now own any CannTrust shares, says the move is a major hit to the company's reputation. When considering these forward-looking information and statements, readers should keep in mind the risk factors and other cautionary statements in CannTrust's Annual Information Form dated March 28, 2019 (the "AIF") and filed with the applicable Canadian securities regulatory authorities on SEDAR at www.sedar.com and filed as an exhibit CannTrust's Form 40-F annual report under the United States Securities Exchange Act of 1934, as amended, with the United States Securities and Exchange Commission on EDGAR at www.sec.gov.

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Health Canada says it made an unannounced inspection of the facility that resulted in an overall non-compliant rating.

Harvest Moon Research wrote in a note that this seizure was reflecting of CannTrust's "overall disregard for Health Canada regulations and its licensing systems." .

At the time of this writing, the company had an average analyst price target of US$7 in NY and C$12.50 in Toronto, according to TipRanks.

The company also said some of the product from these previously unlicensed rooms was distributed for sale.

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This isn't the first time CannTrust's Pelham facility has been in the spotlight for investors.

CannTrust Tumbles 22% as Canadian Regulators Seize Illegal Cannabis