CannTrust Statement Regarding Health Canada Audit

Daniel Fowler
July 9, 2019

Shares in CannTrust Holdings Inc. plunged as much as 20 per cent after the cannabis producer said Health Canada flagged the company's greenhouse facility in Pelham, Ont., for not being in compliance with certain regulations and warned of temporary product shortages as a result. Although Health Canada could clear some or all of its stock for sale if it passes quality tests, the majority of CannTrust's inventory is now on hold.

CannTrust shares closed down $1.46 or roughly 22.6 per cent at $5 in Monday trading on the Toronto Stock Exchange. "We made errors in judgement, but the lessons we have learned here will serve us well moving forward", said CEO Peter Aceto.

"The critical observations were for conducting unauthorized activities, namely producing cannabis in unlicensed rooms before obtaining approval from Health Canada, providing false and misleading information to inspectors during the course of the inspection, and inadequate record keeping", spokesman Geoffroy Legault-Thivierge wrote in an email.

CannTrust says the regulator has placed an inventory hold on about 5,200 kilograms of dried cannabis harvested from the rooms. "This is a high priority for us to correct these mistakes, particularly with Health Canada", Aceto said.

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"We believe it is highly likely the company will be forced to destroy the product that was produced within the non-compliant grow rooms", he said in a note to clients. Additionally, CannTrust announced it will face a shortage of product due to the holds on product grown. We have made many changes to make this right with Health Canada.

This press release contains "forward-looking information" within the meaning of Canadian Securities laws and "forward-looking statements" within the meaning of the United States Private Securities Litigation Reform Act of 1995 and other applicable United States safe harbor laws, and such statements are based upon CannTrust's current internal expectations, estimates, projections, assumptions and beliefs and views of future events. The company also said the impact on financial results from these incidents are unknown. "CannTrust shares may also trade at a wider discount to the peer group given the outstanding questions about the company's internal quality controls and/or governance", he said in a note to clients.

CannTrust shares were down 19.53% at $3.98 at the time of publication Monday.

The TSX and NYSE do not accept responsibility for the adequacy or accuracy of this release.

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