After trading hours on Thursday (July 25), CannTrust Holdings (NYSE:CTST,TSX:TRST) announced that it has fired CEO Peter Aceto “with cause” and forced Chairman Eric Paul to resign in the wake of an expanding scandal surrounding growing cannabis in unlicensed rooms.

“The investigation into the company’s non-compliance 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,” the company’s statement reads.

The move to relieve Aceto and Paul of their roles came after an investigation by the Globe and Mail found that the pair, along with other high-level executives, were aware that cannabis plants were being grown in rooms that had yet to be licensed by Health Canada.

It was also revealed that employees were told to hang false walls to hide the rooms during routine Health Canada inspections. The Financial Post reported on Wednesday (July 24) that former employees alleged promotional videos featuring Aceto were filmed in front of one of the unlicensed rooms.

CannTrust’s share price has dropped almost 50 percent since July 8, when the company announced that Health Canada had given its Pelham, Ontario facility a non-compliant rating for growing cannabis in the unlicensed rooms from October 2018 to March of this year. CannTrust shares were at C$5 on July 8 and closed at C$2.58 on Thursday; they rose slightly on Friday (July 26), opening at C$2.90.

As a result of the non-compliant rating, thousands of kilograms of CannTrust’s cannabis were put on hold by both Health Canada and the company.

Robert Marcovitch, who was appointed by CannTrust’s board to lead an investigation into the non-compliance issues, will replace Aceto as interim CEO. He has said that the committee will complete the investigation and bring CannTrust into full regulatory compliance.

The company also said it will “fully cooperate with the regulator in an open and transparent manner to resolve these matters fully and expeditiously.” The statement explains that there will be additional operational changes made in the coming days and weeks.

It isn’t yet known what consequences CannTrust may face from the regulatory body, but there is a chance of recall letters, destruction of product and license suspension, former Health Canada inspector Sherry Boordam said in an interview with BNN Bloomberg.

Earlier this month, Health Canada revoked the cannabis license of BC-based cannabis producer Agrima Botanicals after finding the company had engaged in “unauthorized activities” with cannabis. It was the first time the government agency had revoked a cannabis license since it began issuing licenses to companies to produce medical cannabis in 2013.

A CannTrust spokesperson told the Investing News Network that there will be “additional announcements” from the company in the coming weeks.

Don’t forget to follow us @INN_Cannabis for real-time news updates!

Securities Disclosure: I, Danielle Edwards, hold no direct investment interest in any company mentioned in this article.

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