CannTrust Hires Greenhill to Explore Sale After Pot Breach

(Bloomberg) -- CannTrust Holdings Inc. hired Greenhill & Co. to explore a sale after a regulatory breach led the Canadian pot company to fire its chief executive officer and erased about C$500 million ($380 million) in market value.

Greenhill will advise a special committee of CannTrust's board, which will review potential alternatives including a sale, a strategic investment or a business combination, CannTrust said in a statement Wednesday. The special committee was appointed to investigate after regulators from Health Canada found the company grew cannabis in unlicensed parts of its greenhouse in Pelham, Ontario.

CannTrust fired CEO Peter Aceto and asked chairman Eric Paul to step down last week after a report that executives were aware of the unlicensed growing several months before Canadian regulators unearthed the breach. The stock has plunged by more than half since the revelations, cutting the market value to about C$407 million.

CannTrust rose 5.6% to C$3 at 10:25 a.m. in Toronto.

The sixth-largest pot producer in Canada by revenue has also halted all sales and shipments of its cannabis products to medical and recreational markets while Canadian regulators assess the situation.

Interim CEO Robert Marcovitch told BNN Bloomberg TV that he'd prefer CannTrust remains independent.

“I feel quite confident that we have the wherewithal to recover and rehabilitate from this,” Marcovitch said. “We really didn't get into this business to be acquired or to be sold off.”

The company is working “transparently” with Health Canada and the Ontario Securities Commission, he added.

“We have not sat on our hands and we want to know the facts,” said Marcovitch, who has been a director since 2017. “As we continue to gather them, as we continue to have a level of confidence, we will act.”

It may not be easy to find a buyer for the company, as it faces potential suspension or cancellation of its cannabis license as a penalty for violating federal growing rules. Several law firms are also seeking to launch class-action lawsuits on behalf of investors.

“Given the ongoing potential legal liabilities, it is unclear if the strategic review will result in a sale of the company,” BMO analyst Tamy Chen wrote in a note Wednesday. “If Health Canada ultimately revokes the licenses at these facilities, the sale of these assets would likely be expedited at a deep discount.”

CannTrust filed a response July 17 to Health Canada's non-compliant inspection report, and the government agency “will thoroughly review the information submitted,” according to Health Canada spokesman Eric Morrissette. Health Canada continues to test samples of CannTrust product that were produced at the Pelham greenhouse.

The Vaughn, Ontario-based company said that the special committee's review may not result in any transaction. It hasn't set a timeline for the conclusion of its review.

To contact the reporters on this story: Kristine Owram in Toronto at kowram@bloomberg.net;Natalie Wong in Toronto at nwong133@bloomberg.net

To contact the editors responsible for this story: Debarati Roy at droy5@bloomberg.net, David Scanlan, Jacqueline Thorpe

©2019 Bloomberg L.P.