Canadian pot firm under regulatory scrutiny faces D&O suits

Two U.S. directors and officers liability lawsuits have been filed against a Canadian cannabis producer and distributor that has temporarily placed a voluntary hold its products’ sale and shipment during a review by regulatory authorities.

Vaughan, Ontario-based CannTrust Holdings Inc. disclosed on July 8 that its greenhouse facility in Pelham, Ontario, was noncompliant with certain regulations of Health Canada, which placed a hold on 5,200 kilograms, or 5.7 tons, of dried cannabis harvested from unlicensed rooms.

The company said also it has placed a voluntary hold on about 7,500 kilograms, or 8.3 tons, of dried cannabis at its Vaughan manufacturing facility that was produced in the previously unlicensed rooms.

Canada legalized marijuana in 2018.

 CannTrust said Thursday it has implemented a voluntary hold on sale and shipment of all cannabis products as a precaution while Health Canada “visits and reviews” its Vaughan manufacturing facility.

The company also said it had placed a hold on medical sales through its customers service line and online on Wednesday.

CannTrust said it is working closely with the regulator through the review process and will reveal more details as they become available.

The company said it has established a special board of directors committee “to investigate this matter in its entirety.” The U.S. Securities and Exchange Commission repeated this information in its own press release Thursday.

Meanwhile at least two putative class action D&O lawsuits have been filed against the company and its officers in U.S. District Court in New York: Chun Huang et al. v. CannTrust Holdings Inc. et al., was filed Wednesday, and Gustavo Alvarado et al. v. CannTrust Holdings Inc. et al. was filed Thursday.

The lawsuits are similar. The litigation filed by Mr. Huang states the company’s stock price fell by more than 22% to close at $3.38 per share on July 8 on unusually heavy trading volume.

It charges defendants “made materially false and/or misleading statements, as well as failed to disclose material adverse facts about the Company’s business, operations, and prospects.” The litigation charges violations of the Securities and Exchange Act.

A company spokesman could not immediately be reached for comment on the litigation.