Embattled pot producer CannTrust granted creditor protection

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Embattled Canadian cannabis producer CannTrust Holdings (TRST.TO)(CTST) has been granted creditor protection by an Ontario court. It’s the latest sign the company may not recover from the illegal pot growing scandal that shocked the sector last year.

Shares of the Vaughan, Ont.-based company were temporarily halted on Tuesday morning before the announcement.

CannTrust said it was granted protection under the Companies' Creditors Arrangement Act (CCAA), giving it a 10-day stay of proceedings from creditors and plaintiffs. 

The company has “significant contingent liabilities in both the U.S. and Canada, including for potential civil damages and potential criminal, quasi-criminal or administrative penalties and fines, which cannot be reasonably quantified,” the company said in a March 26 release.

CannTrust has been at the centre of the biggest scandal to hit Canada’s legal cannabis sector. In June 2019, a whistleblower revealed the company was growing cannabis in unlicensed rooms, and allegedly erected false walls to deceive Health Canada inspectors. The agency suspended the company’s licence to produce cannabis in September, and has seized thousands of kilograms of dried cannabis.

“There can be no assurance that Health Canada will reinstate CannTrust's licenses or that the company's litigation will be resolved in the near term, or on a basis that will leave the company with sufficient financial resources to resume operations,” the company said in a release on Tuesday.

“If Health Canada elects to reinstate CannTrust's cannabis licenses, it would take several months for the company to begin earning revenue, and the company would require significant working capital to restore its operations and return to profitability.” 

The company said as a result of its CCAA protection filing that it expects to be delisted from the Toronto Stock Exchange and New York Stock Exchange.

CannTrust also remains in default of disclosure obligations under securities legislation, has no meaningful revenue, and has terminated or laid-off a large portion of its workforce, according to the company.

CannTrust said it does not intend to refile financial statements that remain outstanding.

Under the initial order, a stay of proceedings has been granted allowing CannTrust to complete a remediation plan for its Vaughan facility and submit evidence to Health Canada, work on compliance issues, explore a plan of compromise or arrangement to address multiple putative class actions, and explore a potential sale or other strategic alternatives.