CannTrust Announces Anticipated Late Filing of Financial Statements and Proposed Management Cease Trade Order

CannTrust Holdings Inc. (“CannTrust” or the “Company”, TSX: TRST, NYSE: CTST) today announced that it will likely miss its filing deadline (the “Filing Deadline”) of August 14, 2019 to file an interim financial report for the three and six month periods ended June 30, 2019, an interim management’s discussion and analysis for the corresponding period and certifications of interim filings (“Q2 Filings”).

Management is of the view that there is significant uncertainty with respect to the potential impact of pending Health Canada decisions on the valuation of the Company’s inventory and biological assets and revenue recognition.  As previously disclosed, the Company received a compliance report from Health Canada notifying it that its Niagara Facility in Pelham, Ontario is non-compliant with certain regulations based on observations made by Health Canada regarding the growing of cannabis in five unlicensed rooms from October 2018 to March 2019 and inaccurate information provided to Health Canada by employees.  Health Canada placed a hold on inventory which includes approximately 5,200 kg of dried cannabis that was impacted by the previously unlicensed rooms at the Company’s Niagara Facility. The Company instituted a voluntary hold of approximately 7,500 kg of dried cannabis equivalent at its extraction, manufacturing and packaging facility in Vaughan, Ontario that was impacted by the previously unlicensed rooms.  The Company estimates the value of the impacted inventory and biological assets is approximately $51 million as at June 30, 2019.

The uncertainty with respect to the nature, timing and potential financial impact of pending Health Canada decisions on the valuation of the Company’s inventory and biological assets and revenue recognition relates to the fact that Health Canada has broad discretion to exercise a wide range of regulatory powers.

Until Health Canada has made determinations with respect to the exercise of its regulatory powers, the potential impact on the Company’s operations and financial condition remains unknown.  In addition to impacting the Company’s financial disclosure in the Q2 Filings, the effects of the pending Health Canada decisions may also require restatement of certain of the Company’s historical financial statements and related management’s discussion and analysis for the periods ended December 31, 2018 and March 31, 2019 (“Restated Financials”).

The Company anticipates and expects to file the Q2 Filings and, if required, the Restated Financials, and any other periodic disclosure required to be filed under applicable securities laws as soon as practicable once information relevant to related matters is available.

The Company has informed staff of the Ontario Securities Commission (the “OSC”) about its anticipated delay of the Q2 Filings and potential need for Restated Financials and has applied to the OSC pursuant to Part 4 of National Policy 12-203 – Management Cease Trade Orders (“NP 12-203”) for a Management Cease Trade Order (“MCTO”) pending the filing of the Q2 Filings and any Restated Financials if required. If a MCTO is issued, the Company intends to satisfy the provisions of the “alternative information guidelines” as set out in NP 12-203, including the requirement to file bi-weekly status reports in the form of news releases containing prescribed updating information, until the Q2 Filings and required Restated Financials, if any, are made. A MCTO would not generally affect the ability of persons who are not directors, officers or insiders of the Company to trade in securities of the Company. There can be no assurance that a MCTO will be issued.

The Company has established a blackout on trading by directors, officers and other insiders of the Company, and intends to continue the blackout until the Q2 Filings and any Restated Financials, if required, have been filed. The Company will consider various remediation options and take appropriate actions in consultation with Health Canada and the OSC where appropriate.

The Company is not currently subject to any insolvency proceedings. If the Company provides any information to any of its creditors during the period in which it is in default of filing the Q2 Filings or any Restated Financials, if required, the Company confirms that it will also file material change reports on SEDAR containing such information as is required.

As announced yesterday, the Company’s Special Committee of independent directors has commenced a review of strategic alternatives and retained Greenhill & Co. Canada Ltd. as its financial advisor. That review is in its early stages and is ongoing. Today, staff of the OSC advised the Special Committee’s legal counsel that an investigation has been opened into matters and parties related to CannTrust and the investigation has been assigned to the Joint Serious Offences Team of the Enforcement Branch of the OSC.

SOURCE CannTrust Holdings Inc.