CannTrust stock is having one of the worst trading days this year as shares of CannTrust Holdings (TSX:TRST) (NYSE:CTST) slipped below the $4 mark after Health Canada found that the company was in violation of a set of regulations.
The cannabis industry might be relatively new, but it goes without saying that companies in the growing industry have to abide by a set regulatory framework in order to continue to do business.
In a new development, CannTrust Holdings has had a setback today as it emerged that an audit by Health Canada on its Pelham facility in Ontario found that the company was in violation of a set of regulations.
CannTrust got its license to produce cannabis in April this year, but it has emerged that the company had been cultivating the product in five rooms without a license. It went on for the period between October 2018 through to March 2019, and in addition, it has also been revealed that CannTrust employees had also given inaccurate information to Health Canada.
The cannabis produced during that period stands at 5,200 kilos, and the entire product has been seized by Health Canada. It will be determined whether the cannabis meets the regulatory standards before it is allowed into the market. Additionally, CannTrust Holdings has already kept aside 7,500 kilos of cannabis harvested at its Vaughan facility and is prepared to wait before it passes the regulatory standards.
It goes without saying that the market did not react kindly to such an update and CannTrust stock fell by as much as 20% to $3.96 after hitting a new 52-week low of $3.86. On the Canadian stock, TRST stock is down 20% at $5.17.
Implications After Today’s News
It should, however, be noted that both those facilities are currently licensed, and future production at the sites is not in jeopardy.
That being said, CannTrust has stated that with so much of its cannabis supply being held up right now (12,700 kilos to be precise), it will be difficult to get any product to vendors. At the point of time, the company was unable to state what sort of effect this is going to have on its finances.
Peter Aceto, the Chief Executive Officer of the company, spoke about the regulatory issue as well and stated that it was an error in judgment.
Last week, an analyst at Citigroup started coverage on CTST stock and set a price target of $7 USD.
CannTrust stock has lost about 25% so far this year, and 60% from its recent peak price of $11.
Featured image: Canva