Beleaguered Canadian cannabis giant Aphria was given a noncompliance rating and issued a warning letter by Health Canada in June over “critical” findings discovered in a routine annual inspection.

During the inspection, Health Canada identified three critical items related to recordkeeping, good production practices and sanitation and maintenance of Aphria’s facility in Leamington, Ontario, the regulatory agency told Marijuana Business Daily.

After the inspection, Health Canada said Aphria undertook “a series of corrective measures and implemented additional controls” to bring the company’s activities into compliance.

Apria’s licenses were not suspended because of the findings.

“Once Aphria was notified of the observations, we performed a thorough and complete investigation. Health Canada confirmed no products were impacted and we have resolved all HC investigator concerns,” the spokesperson wrote in an email to MJBizDaily.

Results of Health Canada’s inspections from the 2018-19 fiscal year – which the Aphria warning falls under – have not been publicly released.

The regulator says it plans to publish inspection results for the 2017-18 fiscal year in the coming weeks.

A number of licensed producers received a “noncompliant” rating in the 2016-17 fiscal year, including Aurora Cannabis, Hydropothecary (now called Hexo) and Mettrum.

In that fiscal year, Health Canada said it issued “Significant Compliance Actions” to Aphria, Aurora Cannabis, CannTrust, Emerald Health Botanicals, Mettrum and RedeCan Pharm.

Quality requirements

Licensed producers in Canada are required to comply with Good Production Practices (GPP) – a quality control measure – in their facilities.

GPP standards require, among other things, cannabis companies to have a defined sanitary program and a dedicated quality-assurance person responsible for the approval and implementation of procedures related to cannabis:

Production

Distribution

Packaging

Labeling

Storage

Sampling

Testing

Health Canada conducts unannounced inspections to ensure licensed producers are complying with these standards.

If a cannabis company is found to be noncompliant, discrepancies are documented and the licensee must respond “with a corrective action plan” in writing.

Health Canada said its enforcement tools range from “compliance promotion and awareness, which are intended to educate and prevent noncompliance, up to measures intended to correct noncompliance or address a public health or safety risk, such as the issuance of a warning letter, suspension or cancellation of a federal license, the issuance of a ministerial order, or the issuance of administrative monetary penalties (up to 1 million Canadian dollars ($750,000)).”

Short attack

Aphria’s stock price has been under siege since Monday, when a report claimed the company overpaid for assets in the Caribbean and Latin America. The report alleged those assets were secretly controlled by “insiders” and are ultimately worthless.

It also cited an anonymous former employee who claimed Aphria had significant problems related to quality control at its Leamington facility.

No information was provided in the report, however, about when the ex-employee worked at the company, nor in what role, or when the infractions allegedly took place.

The report, which claimed Aphria is primarily a scheme to funnel funds from retail shareholders insiders, was presented at a short-selling conference in New York and cowritten by Gabriel Grego of Quintessential Capital Management and Nate Anderson of Hindenburg Research.

Aphria called the report “malicious” and noted that, “by their own admission, Hindenburg Research ‘… stands to realize significant gains in the event that the price of any stock covered herein declines.’”

Aphria trades under the ticker symbol APHA on both the New York Stock Exchange and Toronto Stock Exchange.

Matt Lamers can be reached at [email protected]

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