CannTrust chaos continues with ousting of CEO, chairman resignation

Ontario, Canada-based licensed producer CannTrust fired its chief executive, Peter Aceto, “with cause” Thursday amid an ongoing scandal involving unlicensed cannabis cultivation that has enveloped the marijuana industry in Canada for weeks.

The company also demanded, and received, the resignation of its longtime chairman, Eric Paul.

“The investigation into the company’s noncompliance with Health Canada regulations and ancillary matters uncovered new information that has resulted in a determination by the board to terminate with cause CannTrust CEO Peter Aceto,” CannTrust said in a statement.

Earlier this month, CannTrust’s greenhouse facility in Pelham, Ontario, received a “noncompliant” rating after a whistleblower alerted Canada’s cannabis regulator to five unlicensed cultivation rooms the company had been operating since late 2018.

That forced the company to halt some, then, eventually, all sales, pending further investigation.

CannTrust was also found to have shipped some of the unlicensed cannabis to Denmark and Australia, which could cause broader problems for Canada’s producers if countries end up curbing imports from Canada.

‘Long overdue’

The company did not say what new information it uncovered, but The Globe and Mail reported that Aceto and Paul had been aware of the unlicensed cannabis cultivation as early as November, citing internal company communications.

Industry sources said the executive shake-up is long overdue.

“CannTrust is finally taking the steps of being accountable for its actions. Long overdue, but it’s happening,” Corey Herscu, CEO of cannabis-focused public relations agency firm Rnmkr in Toronto, told Marijuana Business Daily.

“It’s been a very tough few weeks for the Canadian cannabis industry as a whole, but we can finally move forward, positively, and strive to be better.”

CannTrust’s stock tumbled over 50% since the controversy erupted, wiping out more than 350 million Canadian dollars ($260 million) in shareholder value.

‘CannTrust effect’

Dave Scholz, vice president at Montreal-based market research firm Leger and a reputation expert, said the CannTrust effect is being felt across the entire industry.

“It’s not so much as to how the issue affects CannTrust but how this issue affects the industry as a whole,” he said. “This is a fledgling industry with not a lot of general awareness by the public, so there is a lack of differentiation between companies.

“What the public sees is an issue with one company, the question that is asked: Could that be the case with all companies? So, all cannabis companies should be ‘upping their game’ when it comes to establishing their reputation.”

Earlier this year, Leger conducted the largest study to date on the reputations of cannabis producers in Canada. There were few standouts from a reputation standpoint, with almost all the cannabis companies grouped together.

Scholz said firing its CEO should be a sign to stakeholders that CannTrust is serious about cleaning up its mess.

“My only concern for CannTrust is that they have not built up a lot of reputational good will to date. No cannabis company has – they are too young,” he said.

“For this reason, they will have to work extra hard to regain our trust through effective, transparent communications. If they don’t get it right, there are lots of companies to replace them.”

Uncertain future

CannTrust formally responded to Health Canada’s noncompliant inspection report, and the agency is now determining the appropriate compliance and enforcement action.

Aceto joined CannTrust from Tangerine bank, a subsidiary of Scotiabank, last October in what was perceived at the time as somewhat of a coup.

While other cannabis companies were mostly sticking with their founding executive teams, CannTrust was hailed for bringing in an experienced Bay Street executive to steer the company’s rapid growth weeks ahead of federal legalization.

Now the company – until recently, one of the largest in Canada – faces an uncertain future.

“Our first priority is to complete the remaining items of our investigation and bring the company’s operations into full regulatory compliance,” interim CEO Robert Marcovitch said in the statement. “Implementing the necessary changes is essential to the interests of our medical patients, customers, shareholders and employees.”

CannTrust trades as CTST on the New York Stock Exchange and as TRST on the Toronto Stock Exchange.

Matt Lamers can be reached at [email protected]

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