Report: CannTrust purchased cannabis seeds off Black Market

If you think all the bad news about CannTrust (TSX: TRST) (NYSE: CTST) is out in the open, guess again. Not only that, each new bit of news makes TRST management’s efforts to “…remain fully committed to building the organization we need for future success and rebuilding the trust of all of our stakeholders.” sound inane.

As management seems to be trying to convince Health Canada and the investment public that things at TRST can be fixed, more news bubbles to the surface to indicate how deep illegal activities ran at the company.

BNN Bloomberg has run a story by David George-Cosh that basically says TRST purchased cannabis seeds from the Black Market, cultivated them at the Pelham, Ontario facility and sold some of the output into the legal market. The report is based on corporate documents and information from four sources and all of it is illegal if true.

Apparently the names of the illegal seeds were changed to as many as 20 strains TRST was actually licensed to sell. It is alleged that cannabis strains from at least two black market strains were grown in production rooms and packaged and sold into the recreational market. There were a total of over 1,000 cannabis plants that originated from illegally acquired seeds but it is not known how many of the plants were processed for sale or destroyed. It is suggested that this would have allowed TRST to boost production when it was overcommitted to supply provinces and other licensed cannabis producers.

Here are some additional points of interest:

• TRST spokesperson Jane Shapiro told BNN Bloomberg in an emailed statement that “…to the best of our knowledge, no product using seeds from unauthorized external sources was introduced into the market.” What is of interest in this statement is it doesn’t say TRST didn’t purchase seeds illegally from the black market.

• The BNN Bloomberg report says the illegal activity ramped up right after previous president Brad Rogers and former head of production Michael Ravensdale left TRST in October. I have often wondered if Rogers and Ravensdale left because they found out about the illegal activity or their leaving paved the way for the illegal activity.

• Sources told BNN Bloomberg that Brady Green, vice-president of cultivation, who recently left TRST assigned people to handle the unauthorized cannabis. These people became known internally as the ‘Brady Bunch.’ I wonder if members of the “Independent Committee” knew Brady was involved in cultivating illegal seeds and allowed him to leave his job and illegal activities behind. I am suspicious because apparently Green’s biography was removed from the TRST website right after the BNN Bloomberg report was published. I have not trusted the independence of the Independent Committee since it was formed.

• To cover off BNN Bloomberg’s liability - none of the claims made by their sources have been tested or proven by a regulator or law enforcement.

Conclusion: The longer this goes on, the worse it looks for Health Canada. Their inspectors missed a hastily built wall that hid growing marijuana plants. Apparently, no one from Health Canada, “had a clue about the seeds.” Not only that, the case is being taken out of Health Canada’s hands. If you add up everything we apparently know about the CannTrust file and Health Canada doesn’t revoke their licenses, then no else need worry about losing their licenses.

But there is some good news in all of this. Perhaps you noticed the cannabis stocks didn’t react negatively to this news. Stocks dropped sharply every other time TRST was hit with bad news. So perhaps the market is tired of TRST and all their negative news. That would fall in line with the expectation that the market is ready to move up.