In the midst of revelations that CannTrust Holdings Inc. illegally grew the pot in unlicensed rooms, the company fired CEO Peter Aceto and forced President Eric Paul to resign, the company announced late Thursday.
U.S. Reacted CannTrust
stocks shot up nearly 1
has fallen about 10% and the S&P 500 index
has gained 3.1% during that time.
Illegal growing rooms, hidden behind false walls and mentioned in a promotional video available on YouTube until Thursday were responsible for cultivating at least five tons of pots, some of which were exported to Denmark for medical use. Media reports indicated that CannTrust's senior management was aware of the illegal bunk rooms already in November and ordered employees to continue with the illegal business.
CannTrust volunteered back 7.5 tonnes of weed and stopped all medical and leisure cannabis sales in the wake of a health Canada breakdown.
On Thursday, CannTrust said it had appointed the Special Committee to investigate the illegal growers, Robert Marcovitch, as interim CEO. Aceto was fired with cause, the company said.
"Our first priority is to complete the remaining elements of our investigation and bring the company's business to full compliance," Marcovitch said in a statement late Thursday. "Implementing necessary changes is crucial to the interests of our medical patients, customers, shareholders and employees. CannTrust has a number of strengths it can draw on to reset and rebuild, including industry-leading research, innovation, and intellectual property. "
The statement said the company is also planning to make further changes over the coming weeks.  "CannTrust makes the necessary changes in the management team exactly what the Canadian cannabis industry needs to come constructively forward," said Corey Herscu, managing director of the cannabis PR agency RNMKR, Thursday afternoon. "I only hope the affected patients are now getting a clear path to access medicines that have been held back during the turmoil."
Business as ordinary
The company's problems with Health Canada date back to at least November 2017, when the government agency warned CannTrust that it had changed its production process for oils without first having received approval and quoting a number of questions after the annual inspection.
But it wasn't until October 2018, the same month that Aceto took charge of the company, that CannTrust illegally began to grow the pot in the unlicensed rooms. One month later, the company announced that it was planning to list shares on the New York Stock Exchange.
Two days after that announcement, Aceto and CFO Ian Abramowitz were informed in an e-mail that an inspection from Health Canada could not detect illegal growth, among other potential violations, according to Globe and Mail. The email, from the Director of Quality and Compliance Graham Lee, was also forwarded to Paul, and the leaders took no action to stop the growth, the report said.
The next week, Lee said in a production meeting that Aceto had instructed him to plant crops in one of the unlicensed rooms of about 50,000 square meters. Protocols from another meeting seven days later indicated planting would continue, although the room remained unlicensed.
CannTrust's listed shares began trading on 25 February. Two days after stocks began to change hands in the US, the company posted to YouTube a promotional video of Aceto appearing in front of one of the illegal growers, the Financial Post reported. And in March, CannTrust sent in its annual audited accounts, which probably reflected the illegal production.
Right after the annual report, CannTrust released a press release saying that the greenhouses in Pelham, Ontario, plants – where illegal grows were located – were fully licensed. The "fully licensed" plants completed a harvest of 9.4 tonnes from the plant, a 96% increase in production from the previous year, the company said in April.
After leaders signed up for another set of financial statements since the illegal growers began operating, CannTrust announced at the beginning of May that it closed $ 195.5 million in equity financing.
The scheme began to fall apart on June 14, when whistleblowers and former CannTrust employee Nick Lalonde sent e-mails to Health Canada to inform them of the illegal growers and company plans to use false walls to hide thousands of plants from inspections. About three weeks later, CannTrust revealed that Health Canada sent the company a non-compliance report on July 8. CannTrust announced the formation of a special committee for the board to investigate the case in response, which led to Thursday's executive changes.