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Cannabis CannTrust shares swing wildly after auditor pulls endorsement of 2018 numbers

Cannabis producer CannTrust Holdings Inc said on Friday its auditor KPMG LLP has withdrawn its report on the company’s financial statements.

Tara Walton/The Globe and Mail

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Shares in CannTrust Holdings Inc. experienced a wild ride Friday, roaring back from early morning losses to close up more than 40 per cent.

The beleaguered pot producer’s stock started the day lower after it announced an independent outside auditor had withdrawn its endorsement of the company’s 2018 financial statements, the latest fallout from recent revelations about illicit grow rooms at the Ontario-based cannabis producer.

Shares ended the day up $1.22, 40.8 per cent, at $4.21. It was not immediately clear what prompted the surge. CannTrust did not immediately respond to e-mails seeking comment Friday.

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Friday’s stock movements were notable, even for the notoriously volatile marijuana sector.

Earlier, CannTrust announced that accounting firm KPMG LLP had withdrawn its March 27 report on 2018 financial results and an interim report for the three months ended Mar. 31, 2019 and declared that the audited results can’t be relied upon as accurate, the marijuana grower said Friday in a statement from Vaughan, Ont.

The move is the latest in a string of woes for the Toronto-area company after it revealed a Health Canada probe found the company had grown cannabis in several rooms at its Pelham, Ont., facility in Niagara Region without government approval, and that employees had provided inaccurate information to regulators.

The Ontario Securities Commission said last week it has launched a joint investigation with the RCMP to examine unlicensed growing at CannTrust’s greenhouse.

That followed an announcement from the company’s board of directors that it had fired its chief executive and asked its chairman to resign after the board discovered new information during an internal investigation.

The board appointed the special committee’s chair Robert Marcovitch as interim CEO in the wake of the departures.

CannTrust said Friday that the auditor’s decision to revoke its reports was prompted by the company’s caution against relying on financial statements for those time frames, as well as the recent sharing with KPMG “of newly uncovered information from the special committee’s investigation, including information that led to senior leadership changes.”

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CannTrust added that KPMG was not aware of the information recently shared by the company when the auditor issued its reports, and that it had relied upon representations made by individuals no longer at the company.

The company said it will co-operate with KPMG, which remains CannTrust’s outside auditor, as well as authorities investigating the matter.

“We will continue co-operating 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,” Mr. Marcovitch said in a statement Friday.

The company has warned that it would likely miss its filing deadline for an interim financial report because of the significant uncertainty on the impact of the pending Health Canada decisions.

Health Canada’s probe could result in the suspension or termination of CannTrust’s cannabis licences and fines up to $1-million.

The Vaughan, Ont.-based company, which has halted all sales and shipments as Health Canada continues its probe, said previously that it had hired a financial adviser to help it explore a potential sale and other strategic alternatives.

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CannTrust has disclosed that the production in five unlicensed rooms took place between October, 2018, and March, 2019, before it received licences for those rooms in April, 2019.

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