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CannTrust Holdings Stock Surges on Plan to Restore Cannabis Licenses

By Joe Tenebruso - Oct 15, 2019 at 2:15PM

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The beleaguered marijuana grower is destroying tens of millions of dollars' worth of weed in hopes of satisfying regulators.

CannTrust Holdings (CNTTQ 0.00%) is taking aggressive action to get back into regulators' good graces.

The Canadian cannabis company will destroy approximately $65 million worth of inventory and $12 million of biological assets that were illegally produced. CannTrust hopes that the move could help to bring it back into regulatory compliance as it seeks to reinstate its licenses.

Cannabis burning

CannTrust Holdings is destroying millions of dollars' worth of cannabis. Image source: Getty Images.

In July, CannTrust received a noncompliance report from Health Canada after the regulator discovered that the company was growing cannabis in unlicensed rooms. Health Canada placed a hold on more than 5,000 kilograms of dried cannabis that CannTrust harvested in those rooms. CannTrust placed a voluntary hold on an additional 7,500 kilos of its cannabis inventory, and the company later suspended the sale and shipment of all of its cannabis products.

The situation worsened later in July when news broke that several members of CannTrust's senior leadership team knew about the company's regulation violations and failed to take action to rectify them. Instead, management reportedly took steps to cover up the compliance violations. The scandal eventually led CannTrust to fire CEO Peter Aceto and force Chairman Eric Paul to resign.

CannTrust's leadership failures also likely contributed to Health Canada's decision to suspend the company's licenses to produce and sell cannabis in September. The regulator allowed CannTrust to cultivate and harvest its existing cannabis plants, but it barred the company from creating new batches or processing the plants. Health Canada also suspended CannTrust's licenses for medical sales, cannabis drugs, and cannabis research.

A stamp labeled suspended

Image source: Getty Images.

CannTrust says it will provide a detailed proposal to Health Canada by Oct. 21 that attempts to fulfill all of the regulator's requirements for the reinstatement of its licenses. The company said its compliance remediation strategy also includes steps to better control the movement of cannabis in and out of its facilities, additional employee compliance training, and improved inventory tracking.

"CannTrust is confident that its detailed remediation plan will not only address all of the compliance issues identified by Health Canada, but it will also build a best-in-class compliance environment for the future," interim CEO Robert Marcovitch said in a press release. "We have already made significant progress in these efforts. Our goal is to meet and exceed Health Canada's regulatory standard, and to rebuild the trust and confidence of our primary regulator, investors, patients, and customers."

Investors appear to be optimistic that CannTrust's remediation plan could convince Health Canada to allow the company to reinitiate its cannabis production operations in the months ahead. CannTrust Holdings' shares are up 30% at 2:35 p.m. EDT following the company's announcement.

Joe Tenebruso has no position in any of the stocks mentioned. The Motley Fool recommends CannTrust Holdings Inc. The Motley Fool has a disclosure policy.

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