Charges laid in CannTrust scandal that rocked the Canadian cannabis industry
After nearly two years, charges have finally been filed in regards to the CannTrust cultivation misconduct that shocked the industry and broke patients’ hearts. The scandal seemed straight out of a TV show—hidden grow rooms, possible unlicensed shipping overseas, and 12,500 kg of illegally grown weed destroyed.
Three former directors and officers at CannTrust Holdings Inc. have been charged with offences under the Ontario Securities Act. The investigation is a joint effort by the Ontario Securities Commission (OSC) and Royal Canadian Mounted Police (RCMP), Integrated Market Enforcement Team (IMET).
The accused are former chief executive Peter Aceto, former vice-chairman Mark Litwin, and former chairman Eric Paul. Each of the accused are facing charges of fraud, making false or misleading statements to the OCS and the market. Litwin and Paul are also facing insider trading charges, according to the OSC release.
“This matter demonstrates how the OSC’s quasi-criminal team, working closely with policing partners, is evolving to focus on more complex cases involving senior level market participants, in addition to fraudsters and repeat offenders,” said Jeff Kehoe, Director of Enforcement at the OSC. “In cases involving serious market misconduct, prosecution in provincial court allows us to seek a range of strong sanctions, including jail time.”
A short recap
For those who don’t remember, in July 2019 CannTrust abruptly announced, via a newsletter, that it would stop offering medical cannabis to patients. The announcement came nearly 24 hours after medical customers were locked out of the company’s online ordering portal.
At the time patients were told that the voluntary sales hold was temporary. But behind the scenes, officials had mounted an investigation that would soon see CannTrust stripped of all licenses. A whistleblower had alerted Health Canada, the agency that oversees the Cannabis Act, to misconduct at a number of the company’s cultivation sites.
The allegations are wild: Allegedly CannTrust used fake walls to hide unlicensed cannabis grows from Health Canada. According to reporters at the Globe and Mail, who broke the story in 2019, CannTrust employees were asked to stay late to set up fake walls to hide “several thousand” plants from view, in order to take photographs that had been ordered by Health Canada.
What about the Cannabis Act?
The Canadian cannabis industry was surprised to see the charges laid under the Ontario Security Act instead of the Cannabis Act, which is the governing legislation for cannabis in Canada from seed to sale.
“It is kind of interesting to see these charges be laid under the Securities Act,” says lawyer Trina Fraser, partner at Brazeau Seller Law. “I am curious as to how the OSC can come to the conclusion that they have sufficient evidence to lay these charges, which are all based upon violations of the Cannabis Act, but no charges or fines were ever imposed or laid under the Cannabis Act.”
In fact, Health Canada still has yet to issue any fines, to any company or individual, under the Cannabis Act since legalization took effect in Oct. 2018, according to a report by Marijuana Business Daily. Potential penalties for violating the Cannabis Act and its regulations include an administrative monetary penalty of up to $1,000,000 Canadian dollars.
The road ahead
The CannTrust case is the largest scandal in the history of Candian cannabis, shaking the confidence in the legal system for many patients and cultivators alike. It’s still unclear how much cannabis from the unlicensed grow rooms was dispensed to Canada’s registered medical patients, the recreational market, or even exported.
The current CannTrust leadership team is distancing itself as much as possible from its three former executives and their charges, noting that no charges have been laid against CannTrust, any of its subsidiaries or any of the company’s current directors, officers, or employees. The producer is once again licensed in both medical and recreational markets.
“Our license reinstatement is the result of an enormous amount of hard work by the CannTrust team,” said Greg Guyatt, Chief Executive Officer at CannTrust. “Today marks the beginning of the next chapter in CannTrust’s history. We have used the last 12 months to improve every aspect of our business, placing a determined focus on regulatory compliance as we remediated, restructured, and evolved.”
As for Aceto, Paul, and Litwin, the three accused are scheduled to appear at the Ontario Court of Justice in Toronto on July 26.