A press release sent today by Toronto-based law firms Thornton Grout Finnigan and Rochon Genova caught our attention:
Thornton Grout Finnigan LLP and Rochon Genova LLP have together commenced a class action in Ontario on behalf of shareholders of CannTrust Holdings Inc. who acquired their CannTrust common shares between October 1, 2018 up to and including July 8, 2019. The class action seeks damages from CannTrust, certain of its officers and directors, and its auditors KPMG, arising out of alleged misrepresentations in CannTrust’s required public disclosure, including its 2018 audited annual financial statements.
Adrienne mentioned in Footnotes last Friday that KPMG had withdrawn its report on CannTrust Holdings’ financial statements for 2018 and its interim report for the three-month period ended March 31.
Reuters reported that KPMG’s decision was prompted after CannTrust cautioned against relying on its financial statements and as new information from an investigation by a special committee was shared with the audit firm.
The committee was formed to investigate the actions that led Health Canada, the government agency that regulates the cannabis industry, to seize five metric tons of the company’s cannabis after discovering it was being grown in unlicensed rooms, according to a MarketWatch report.
“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 said in a statement.
On July 25, the company fired CEO Peter Aceto and forced President Eric Paul to resign. CannTrust also halted all sales and shipments of its products.
A second breach of Canadian drug laws was revealed on Aug. 12 after Health Canada informed CannTrust that its manufacturing facility in Vaughan, Ontario broke several regulations, according to Bloomberg, including: converting five rooms from operational areas to storage without prior approval; constructing two new areas without Health Canada approval, one of which was used to store cannabis since November; having insufficient security controls; and following standard operating procedures that didn’t meet regulatory requirements.
As a result, CannTrust Holdings stock dropped as much as 31% on Monday.
We’re trying to track down a copy of the class action that was filed this week. A spokesperson for KPMG Canada told Going Concern late this afternoon that the firm doesn’t comment on client issues.