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CannTrust scandal 'hasn't really come up' in U.S. federal legalization push: Cowen

CannTrust has halted all shipments as it awaits a response from regulators that could see the company’s license suspended or revoked. (Getty)

The deepening scandal at CannTrust Holdings Inc. (TRST.TO)(CTST) that has put a black eye on Canada’s cannabis sector is not disrupting efforts to legalize the drug federally in the United States, according to analysts at Cowen.

The Vaughan, Ont.-based licensed producer is reeling after Health Canada determined the company engaged in illegal cultivation. Shares have tumbled, millions of dollars worth of cannabis has been put on hold, and key distributors have halted sales of the company’s products amid allegations that include a fake wall to hide illegally grown pot from regulators.

CannTrust has halted all shipments as it awaits a response from regulators that could see the company’s license suspended or revoked.

Multiple U.S. investors have responded with class-action lawsuits against CannTrust. But news of the situation has yet to meaningfully impact U.S. lawmakers’ views on a federally legalized cannabis industry in that country, according to Cowen analysts.

“So far, it hasn’t really bled into the legislative push in the United States,” Jaret Seiberg, financial services policy analyst at Cowen’s Washington Research Group, said on a conference call on Monday.

Eleven U.S. states and Washington D.C. have legalized adult recreational cannabis use. A number of bills are on the table that would reform federal laws pertaining to the drug.

In Canada, the CannTrust situation has raised fears of other bad actors within the cannabis industry.

On Monday, Health Canada revoked B.C. cannabis producer Agrima Botanicals Corp.’s licences. Agrima’s parent company, Ascent Industries Corp. (ASNT.CN), said in November its licences were suspended for “unauthorized activities” involving cannabis.

Seiberg said Canada’s legal cannabis framework is widely looked to as a model to guide U.S. federal policy. He warns persistent problems in Canada could complicate legalization efforts in Washington.

Vivien Azer covers the cannabis sector at Cowen. Asked if Canadian cannabis woes are currently surfacing in the U.S. legalization debate, she said, “No. It hasn’t really come up.”

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