By Ciara Linnane, MarketWatch
Canadian cannabis company CannTrust Holdings Inc. said Friday its auditor KPMG is withdrawing its audits of the company’s financial statements for 2018 and the recent March quarter, saying they can no longer be relied on.
KPMG made the decision after a special committee shared newly uncovered information from an investigation that led to senior leadership changes announced on July 25. That was the day that Chief Executive Peter Aceto was fired for cause and President Eric Paul was forced to resign.
The special committee was formed to investigate the actions that led Health Canada to seize five metric tons of the company’s cannabis in July after discovering it was being grown in unlicensed rooms. The scandal quickly worsened after a whistleblower told Canadian newspaper the Globe and Mail that employees were instructed to construct false walls to conceal the illegal grow rooms.
The paper later uncovered emails that showed senior executives were aware of the illegal grow.Danish partner Stenocare A/S said a small batch of the illegal cannabis had been exported, a breach of Canadian drug laws that carries fines and a possible jail term.
CannTrust voluntarily held back an additional 7.5 metric tons of weed and halted all medical and recreational cannabis sales in the wake of the Health Canada crackdown.
For a full timeline of this story, see: CannTrust fires CEO, president resigns as pot company deals with illegal-grow scandal
“KPMG was not aware of the information recently shared by the Company when it issued the KPMG Reports and had relied upon representations made by individuals who are no longer at the Company,” CannTrust /zigman2/quotes/201332942/composite CTST +4.32% /zigman2/quotes/206800806/delayed CA:TRST +1.40% said in a statement.
The company said there is still “significant uncertainty” about the potential impact of Health Canada’s decisions on the valuation of its inventory and biological assets, and revenue recognition.
Investors should not rely on its 2018 financial report or on its March quarter report, it said.
“We will continue cooperating with our auditor and regulators, and take whatever steps are necessary to restore full trust in the Company’s regulatory compliance. Our medical patients, customers, shareholders and employees deserve nothing less”, said Robert Marcovitch, the company’s new CEO.
The news sent the stock down 2.2%. The stock has fallen 61% in three months, while the ETFMG Alternative Harvest ETF /zigman2/quotes/204332491/composite MJ +3.72% has fallen 16% and the S&P 500 /zigman2/quotes/210599714/realtime SPX +0.18% has gained 2.4%.