Zenabis Stock Drops After Facility Fails EU Quality Inspection

Zenabis stock

Zenabis stock is trading down following reports that a facility operated by Zenabis Global (TSX:ZENA) (OTCPK:ZBISF) did not comply with the EU's GMP requirements during an inspection last year.

European Union regulators in Malta published a "statement of non-compliance with GMP [good manufacturing practice]" against Zenabis on November 27 after determining that an inspection conducted on December 16 of last year at the company's facility in Delta, British Columbia did not meet the EU's requirements. The GMP certification is widely regarded as the benchmark process for a company to be able to sell cannabis products within the EU. Zenabis stock is down over 2.5% following the report.

In the report, the regulator said its inspection found one critical deficiency relating to the absence of a "correctly implemented pharmaceutical quality system," as well as 29 other findings, nine of which were major. Zenabis Global provided a "corrective and preventive action" plan following the inspection but failed to implement this action. As a result of the non-compliance, Zenabis will be unable to sell any cannabis produced at the facility in Europe, which will likely halt the company's planned expansion into the continent. Zenabis shares are currently trading for $0.18.

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"The company failed to follow-up on this plan and to meet the commitments made,” according to a report published on EudraGMDP. “The company changed its plans and no longer actively rectified the deficiencies to come in line with EU-GMP according to the mutually agreed reasonable time-frame." Zenabis Global reportedly had big ambitions for European expansion after signing a non-binding letter of intent with a local chain of 15 pharmacies in Malta, with the regulatory infringement likely to weigh on Zenabis stock after a nightmare year.

Zenabis Chief Executive Officer Andrew Grieve was quick to play down the long-term consequences of the failed inspection, telling BNN Bloomberg that the facility was likely to only yield 100 kilograms of dried cannabis and that achieving EU-GMP certification there “would not have had any material impact on revenue." However, since the beginning of the year, Zenabis stock has fallen 96%, which was further exacerbated by declining revenue in its most recent quarterly results.

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