CannTrust hires adviser to explore sale amid unlicensed pot growing probe

Health Canada discovered during an unannounced inspection in late June that the pot firm was growing cannabis in several rooms before receiving the appropriate government licences to do so and seized several thousand kilograms of cannabis from those rooms. (Pixabay photo)

CannTrust Holdings Inc. has hired a financial adviser to help the cannabis company explore a potential sale and other strategic alternatives as regulators continue to investigate allegations of illicit pot growing at its Ontario greenhouse.

The Vaughan, Ont.-based licensed pot producer said these alternatives could include, among other things, a sale of the company or a portion of it, a merger, a strategic investment, or changes to its operations or strategy.

It added that Greenhill & Co. Canada will serve as its financial adviser and notes that it has not set a timeframe for completion of its strategic review.

“The nature, timing and outcome of the strategic review process will be influenced by, among other things, the resolution of the Company’s regulatory compliance issues with Heath Canada,” CannTrust said in a statement on Wednesday.

The announcement comes about a week after the Vaughan, Ont.-based company terminated its chief executive Peter Aceto with cause and demanded the resignation of board chair Eric Paul after a board committee’s investigation into unlicensed growing at its Pelham, Ont.-facility unearthed new information.

Health Canada discovered during an unannounced inspection in late June that the pot firm was growing cannabis in several rooms before receiving the appropriate government licences to do so and seized several thousand kilograms of cannabis from those rooms.

CannTrust disclosed the regulator’s findings in early July and has since voluntarily halted all sales and shipments as the federal health regulator continues its probe, the outcomes of which could include suspension or termination of its cannabis licences and fines up to $1 million. It has also said the pot growing in five unlicensed rooms took place between October 2018 and March 2019, before it received licences for those rooms in April 2019.

The company submitted its official response to Health Canada’s finding of non-compliance on July 17, and the regulator has said it “will thoroughly review the information submitted and will take it into account in its decision making process.”

Tamy Chen, an analyst with BMO Capital Markets, said it is unclear whether CannTrust’s review of strategic options will result in a sale of the company given the ongoing potential legal liabilities, which also includes several class action lawsuits.

“We believe the Niagara greenhouse would provide value to LPs that are relatively behind on their production ramps,” she said in a note to clients.

“The Vaughan facility would provide processing capacity that includes extraction and packaging. However, if Health Canada ultimately revokes the licences at these facilities, the sale of these assets would likely be expedited at a deep discount.”

Shares of CannTrust on the Toronto Stock Exchange jumped as much as 6.7 per cent to $3.03. Still, even with the uptick, the company’s stock has shed more than 50 per cent of its value since CannTrust disclosed Health Canada’s findings on July 8.