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CannTrust Shares Tumble On Health Canada Compliance Issue

Shares of CannTrust Holdings Inc. fell more than 22 percent in Monday's trading on the New York Stock Exchange after Health Canada found the Canadian cannabis company to be non-compliant for growing cannabis in unlicensed greenhouse rooms and also for providing inaccurate information to the regulator.

In a statement, CannTrust said Health Canada notified the company that its greenhouse facility in Pelham, Ontario is non-compliant with certain regulations. The company has accepted Health Canada's non-compliance finding and taken actions to ensure current and future compliance.

The regulator found that CannTrust grew cannabis in five unlicensed rooms at the facility from October 2018 to March 2019, while it had pending applications for these rooms with Health Canada.

The licenses for these rooms were eventually issued in April 2019. There are twelve rooms in total at the facility.

Until CannTrust is found to be compliant with regulations, Health Canada has placed a hold on about 5,200 kilograms of dried cannabis that was harvested in these previously unlicensed rooms in Pelham.

In addition, CannTrust has instituted a "voluntary hold" of about 7,500 kilograms of dried cannabis equivalent at its Vaughan manufacturing facility that was produced in these rooms.

Health Canada is currently conducting quality checks of product samples on hold at Pelham, with results expected in ten to twelve business days.

However, CannTrust noted that all product sold from the impacted rooms passed quality control testing at Health Canada certified labs as well as CannTrust's own quality control processes.

According to the company, while some of its customers and patients will experience product shortages due to the product hold, it is exploring options to mitigate these shortages.

CannTrust has implemented corrective actions, including further comprehensive employee training and retaining external advisors to review compliance processes. It has also voluntarily advised Health Canada of issues that may impact compliance at its Vaughan facility regarding product storage.

CannTrust said that the impact of these matters on its financial results is unknown until Health Canada completes its quality testing of the product from Pelham which is currently on hold.

"We have made many changes to make this right with Health Canada. We made errors in judgement, but the lessons we have learned here will serve us well moving forward," said Peter Aceto, Chief Executive Officer of CannTrust.

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