The cannabis company that was caught by Health Canada for growing the drug in unlicensed greenhouses has fired its CEO and the chair of the board in a major corporate shakeup.
Late Thursday, Vaughan, Ont.-based CannTrust Holdings Inc. terminated with cause its CEO Peter Aceto, and demanded the resignation of board chair Eric Paul, who complied.
The moves come after Health Canada announced earlier this month that it was investigating the company after it was found to have been growing cannabis in unlicensed rooms at one of its facilities in the Niagara Region.
The facility, near Pelham, Ont., has 12 greenhouses. The health body received information that between October last year and April this year, the company was growing cannabis in all of them, despite at the time not having a licence to do so in five of them.
The Health Canada probe resulted in more than 13,000 kilos of the company's cannabis being shelved pending an investigation.
Aceto — president of Scotiabank-owned online-based bank Tangerine for nearly a decade before making the leap into the cannabis business — was named CEO in October last year, the month the company's troubles began.
The board named Robert Marcovitch as head of a special committee to investigate the matter, but has now named him interim CEO.
"Our first priority is to complete the remaining items of our investigation and bring the company's operations into full regulatory compliance," Marcovitch said.
The executive shakeup comes after a report in the Globe & Mail alleged the pair were aware of the illegal growing, months before the government found out about it.
"Based on new information uncovered by the investigation, the company made a voluntary disclosure to Health Canada," CannTrust said in a release Thursday evening. "The company will fully co-operate with the regulator in an open and transparent manner to resolve these matters fully and expeditiously."
CannTrust shares have lost 60 per cent of their value since the illegal growing story first came to light.
But when word of the firings came out, CannTrust shares bounced up as much as 20 per cent, possibly a sign that investors think the move is a step in the right direction.
"The special committee did the right thing by getting rid of the existing management and putting a new team in place," said Mike Archibald, associate portfolio manager at AGF Investments, which previously held shares in CannTrust. "It helps to start repairing the image of the company."
Elliot Johnson, chief investment officer at Evolve Funds, also had a stake in the company, but sold it off once news of the unlicensed growing came out a few weeks ago.
"The problem is that investors don't know the scope of the problem," he said. "So, at this point in time, it is pretty hard to come to a conclusive position on whether the action taken is sufficient or what's going to happen next."