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August 12, 2019

KPMG withdraws CannTrust audit reports

In a statement to the Toronto and New York Stock Exchanges on 9 August 2019 CannTrust Holdings revealed that the company's independent auditor, KPMG had informed it that effective 8 August 2019, it was withdrawing its report dated 27 March 2019 on the CannTrust’s financial statements for the year ended 31 December 2018 and its interim report to the audit committee dated 13 May 2019 on the financial statements for Q1 2019.

The company, a federally regulated licensed producer of medical and recreational cannabis in Canada, said the KPMG reports should no longer be relied upon. However, KPMG remains CannTrust's independent auditor. Cooperation with KPMG is being directed by the Audit Committee and a special committee of the board of directors.

KPMG's decision was prompted by the company's caution against reliance on its financial statements for 2018 and for Q1 2019, as well as the recent sharing with KPMG of newly uncovered information from the special committee's investigation. KPMG was not aware of the information recently shared by the company when it issued its original reports and had relied upon representations made by individuals who are no longer at the company. In July Canntrust fired its CEO and asked its then-chairman to resign following the discovery of unlicensed growing by the cannabis producer.

"We will continue cooperating with our auditor and regulators, and take whatever steps are necessary to restore full trust in the company's regulatory compliance," said Robert Marcovitch, Canntrust’s new CEO. The company has also warned that there will be a delay in the publication of Q2 results, noting that there is significant uncertainty with respect to the potential impact of pending Health Canada decisions on the valuation of the company’s inventory and biological assets and revenue recognition. 

Canntrust’s Niagara Facility in Pelham, Ontario was non-compliant with regulations regarding the growing of cannabis in five unlicensed rooms from October 2018 to March 2019. Health Canada has placed a hold on Canntrust inventory which includes approximately 5,200 kg of dried cannabis that was impacted by the previously unlicensed rooms at the Company’s Niagara Facility. In addition the company instituted a voluntary hold of approximately 7,500 kg of dried cannabis equivalent. Until Health Canada decides what, if any, punitive measures to take the potential impact on the company’s operations and financial condition remain unknown. 

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