Cannabis producer Agrima Botanicals Corp. saw its licences revoked by Health Canada on July 12, making it the first pot company to lose its authority to grow and sell weed in the country.
Health Canada’s decision comes months after the federal cannabis regulator suspended Agrima’s license late last year for “unauthorized activities.” Reports speculated the Vancouver-based company was allegedly selling pot to the black market.
The company is the only licensed producer with the “revoked” status next to its name on Health Canada’s website.
Agrima’s parent company, Ascent Industries Corp. (CSE:ASNT), said in November the activities in question occurred while Agrima was performing as a wholly independent company.
Ascent appealed the suspension at the time and formed a committee of independent directors to review the issues raised by Health Canada, while also appointing a new chief executive for Agrima.
As a result of the suspension, Ascent faced liquidity issues and was ultimately granted credit protection. In the end, the company sold its business in Canada and has shifted focus to the U.S. and Denmark markets instead.
Could the same happen to CannTrust?
The news of Agrima losing its licences comes a week after Health Canada issued a non-compliance order to Ontario-based CannTrust Holdings Inc. (TSX:TRST)(NYSE:CTST) for growing cannabis in unlicensed rooms.
While Health Canada has taken a tough stance on a small producer, the entire industry is waiting to see if it will take the same approach with CannTrust, the fourth leading cannabis supplier in the country.
Greg McLeish, an analyst at Mackie Research Capital Corp. told BNN Bloomberg that “Health Canada must make an example of CannTrust” and if the federal regulator “does not come down hard on the company it will set a bad precedent for other ‘law abiding’ industry participants.”
With the Ascent-Agrima case, Health Canada demonstrated it offers little to no recourse for non-compliance issues. Even when Ascent tried to sell or transfer its subsidiary’s suspended licences, it received no response from the federal regulator. And when Ascent said it was being fully cooperative and it hired an independent committee to look into the matter, it didn’t seem to sway Health Canada’s decision.
Whichever route Health Canada takes the CannTrust regulatory fallout has and continues to send ripples through the entire cannabis industry.
Allison Kopf, chief executive of Artemis, a cannabis compliance management firm, said pot companies will now be zeroing in on self-governance to ensure they are maintaining compliance.
“This a massive issue that’s actually really easy to fix,” she said. “Link up your data, trace it through the supply chain and make sure you’re following regulations. It’s not that difficult of a problem solve, you just have to commit to doing it and invest in doing it.”
Whether or not CanntTrust does in fact get its licences revoked, every pot company in Canada is more than likely looking at tightening its compliance protocols already.
CannTrust chief executive officer Peter Aceto said the Ontario pot producer, which has run into compliance issues in the past, has created an independent committee to look into the regulatory foul-up and has hired a third-party firm to conduct a “root cause analysis.”
He added the independent report will give the company a “clear view” of what went wrong and should take around 30 days to finish.
The big question is whether the company is given the opportunity to fix the issues or if the regulator believes it’s run out of chances.
The repercussions for the industry could be significant. If a company like CannTrust can lose half of its value in such a short period of time, then the same could happen to other stocks as well. And the danger for investors is the news of compliance breaches can come without warning.