On Monday, CannTrust Holdings Inc announced that Health Canada was putting a hold on 5,200 kilograms (11,464 pounds) of CannTrust cannabis produced in non-compliant facilities.
The online retailer of cannabis run by Ontario, Canada's most populous province, said on Wednesday it had pulled several CannTrust products from its offerings, after the federal health regulator found the company sold cannabis produced in unlicensed facilities.
CannTrust says that cannabis was grown in those facilities from October 2018 to March 2019 while it had pending applications for their licensing with Health Canada.
The non-compliant rating is based on observations by the regulator regarding the growing of cannabis in five unlicensed rooms and inaccurate information provided to the regulator by CannTrust employees.
The Danish company, which caters to medical cannabis patients, said it has worked with CannTrust to investigate the origins of all products it has received from the licensed producer and only one "very small" batch has been linked to the five unlicensed rooms. "The Company is exploring options to mitigate these shortages".
The retailer, Ontario Cannabis Store (OCS), said in an email it had "voluntarily removed all affected products from distribution pending the outcome of an investigation". TRST stock fell sharply, around 16%, down $1.06, at $5.40 on the Toronto Stock Exchange after falling as low at $5.03 just after the market opened.
"As a result, we believe there is meaningful risk to revenue growth over the coming months", he said in a note to clients.
Jefferies analyst Ryan Tomkins said he believes there will "undoubtedly be a financial impact".
"At this time, the impact of these matters on CannTrust's financial results are unknown until Health Canada completes its quality testing of product from Pelham which is now on hold". These changes include hiring external advisors to ensure compliance and voluntarily advising Health Canada of possible issues at its Vaughan facility, according to the company.