Following the non-licensed sales scandal that crippled Bonify earlier this year, another Canadian cannabis producer has been hit with a non-compliant rating from Health Canada. 

This time around an audit discovered that CannTrust Holdings Inc. (TSX: TRST; NYSE: CTST) produced cannabis in five unlicensed rooms, and that company employees provided purposefully inaccurate information to a Health Canada regulator. 

The unlicensed production took place in five rooms situated at the company’s Pelham grow facility. Those rooms were going through the licensing process but hadn’t been approved yet. 

Licensing was eventually granted to each of those five rooms back in April, but unlicensed growing had already taken place for six months from October 2018 to March of 2019.

After the news broke, CannTrust’s shares dropped 21% as of Monday afternoon to a price of $3.88. 

In addition to the non-compliant rating complaint, Health Canada has placed a hold on 5,200 kg of CannTrust’s dried flower product produced at the Pelham facility. The company is further voluntarily holding another 7,200 kg of product currently residing in a Vaughan facility after being produced in the non-compliant grow rooms. 

Chief Executive Officer Peter Aceto issued this statement about the situation: 

Our team has focused on building a culture of transparency, trust and excellence in every aspect of our business, including our interactions with the regulator. We have made many changes to make this right with Health Canada. We made errors in judgment, but the lessons we have learned here will serve us well moving forward.

In an interview with the Financial Post this morning, Aceto confirmed that some of the product grown illegally in unlicensed rooms has already been shipped out to customers. While what specific actions will be taken regarding those shipments is unclear, the company is now in contact with all provincial distributors to track down where they were sent. 

He further stated the unlicensed products meet all safety and Good Manufacturing Process standards, and had gone through all the same normal quality testing as any other cannabis produced by CannTrust 

While further action from Health Canada and legal challenges are expected to arrive in the coming weeks, for now the company is retaining a set of external advisors for an independent review of compliance processes.