Shares of CannTrust surged 15 percent on Friday after the Canadian cannabis company announced it terminated CEO Peter Aceto in the midst of regulatory drama that has plundered the company's stock value.
"The investigation into the Company's non-compliance with Health Canada regulations and ancillary matters uncovered new information that has resulted in a determination by the Board to terminate with cause CannTrust CEO Peter Aceto," CannTrust wrote in a statement.
The board also "demanded" the resignation of chair Eric Paul. Special Committee Chair Robert Marcovitch, who joined the company from K2 Sports, has stepped in as interim CEO.
"Our first priority is to complete the remaining items of our investigation and bring the Company's operations into full regulatory compliance. Implementing the necessary changes is essential to the interests of our medical patients, customers, shareholders and employees," Marcovitch wrote in a statement.
The company said it is preparing to make additional operational changes in the coming weeks.
CannTrust revealed on July 8 that Health Canada was auditing the company for growing cannabis in unlicensed rooms in one of its facilities. Some of cannabis grown in those rooms, unlicensed between the months of October and March, made its way as far as Denmark. Health Canada placed a hold on tens of thousands of pounds of the company's cannabis inventory, before CannTrust placed a voluntary hold on all sales.
Since the disclosure, things have gotten demonstrably worse for the Vaughan, Canada-based company. A whistleblower alleged the company went to extremes to hide its unlawful behavior, and a Globe and Mail report revealed Paul and Aceto had knowledge of the illicit grow as early as November. Health Canada's investigation could result in penalties up to and including CannTrust's de-listing from the New York Stock Exchange, or having its federal license revoked.
Jefferies' analyst Ryan Tomkins predicted the management shuffle in a Wednesday note, which called management's positions "untenable."
"In CannTrust's case, where it is now becoming apparent that management were aware of non-compliance and chose not to correct it, we see wholesale executive changes necessary at the very least if HC are to uphold their license following suspension. With management arguably less suited for the industry (no prior cannabis/consumer/healthcare experience) we see changes as both likely and necessary," he wrote.
CannTrust's stock has tumbled more than 50 percent since it disclosed Health Canada's investigation on July 8.