OSC blocks CannTrust insiders from selling stock

Management cease-trade order affects 9

TORONTO • Canada’s largest securities regulator has issued a management ceasetrade order prohibiting nine insiders at medical cannabis company CannTrust

Holdings Inc. from buying or trading the company’s shares.

The Ontario Securities Commission said investors other than the nine people named in the order can continue to trade the company’s shares. Those subject to the management cease-trade order are directors, officers or other insiders of the company who had or may have had access to “material information… that has not been generally disclosed,” according to the order, which notes the company has not filed interim financial statements for the six months ended June 30, or management’s discussion and analysis related to those financial statements.

On Aug. 1, CannTrust said it was likely to miss the Aug. 14 deadline to file its interim financial statements for the second quarter after Health Canada began a probe into unlicensed growing at the firm’s Pelham, Ont., facility in July.

“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,” CannTrust said at the time.

“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.”

The company said it had applied to the OSC for a management cease-trade order and, if one was granted, the company would satisfy “alternative information guidelines” including filing bi-weekly status reports in the form of news releases. CannTrust had already established a blackout on trading by directors, officers and other insiders of the company.

The management ceasetrade order issued by the OSC Thursday — it applies to Gregory Guyatt, Robert Marcovitch, Ian Abramowitz, Stanley Abramowitz, Mark Litwin, Mark Dawber, John Kaden, Shawna Page and Mitchell Sanders — is to remain in place until two full business days after the company makes all required filings, or following a further order from the OSC.

“This action maintains liquidity for Canadian investors, who can continue to trade the company’s securities at this time,” said Kristen Rose, manager of public affairs at the OSC.

The scandal at CannTrust has already led to the dismissal of the firm’s chief executive Peter Aceto, who was let go last month. At the same time, the board of directors demanded and received chairman and cofounder Eric Paul’s resignation.

As the Financial Post reported this month, the OSC has opened an investigation into CannTrust and is pursuing the case as a quasi-criminal matter, which carries potential penalties including jail time.

The initial focus is understood to be whether there is any evidence of fraud, insider trading or misleading disclosure related to the unlicensed growing and any capital raising or investor communication that took place while the company was potentially deriving revenue from cannabis grown in unlicensed spaces. No allegations have been made but the investigation is ongoing.

On Thursday, CannTrust said the sale of over half of its stock of marijuana and around a quarter of its plants had been suspended following the discovery of the unlicensed cultivation at its facilities.

CannTrust on Thursday confirmed its earlier forecast that the value of the impacted inventory and assets was around $51 million.

It warned that if Health Canada ordered the destruction of affected product, its second-quarter results would be materially impacted.

The company said on Thursday that it had been preparing a remediation plan for Health Canada to consider but so far had had no “substantive discussions” with the regulator.

Ontario-based CannTrust also said that the New York Stock Exchange was monitoring the company’s late filing of its second quarter financials.

For now, its shares continue to trade on the NYSE but the stock exchange could begin delisting procedures at any time if it chose, CannTrust said.

CannTrust shares jumped more than 5 per cent in Toronto to $2.78 by mid-afternoon.