Article by Victor Ferreira, Financial Post
An investigation by the Ontario Securities Commission may be the latest ordeal facing CannTrust Holdings Inc., but it isn’t the only probe the embattled cannabis producer has to worry about.
Health Canada’s investigation into the company’s unlicensed cannabis growing remains ongoing, and has the potential to enter unprecedented legal territory, according to a number of Canadian cannabis law experts following the case.
“We’re in uncharted territory,” said Trina Fraser, a cannabis lawyer with Brazeau Seller Law, in reference to the Health Canada probe. “The potential for people to go to jail certainly exists. The potential for significant fines to be levied certainly exists.”
The government regulator has been investigating the Vaughan, Ont.-based company since an audit revealed it had been growing cannabis in five unlicensed rooms at a greenhouse in Pelham, Ont. and that it had provided the regulator with inaccurate information. The company has seen its stock dive by move than 50 per cent since the announcement and has put a complete freeze on sales.
Last week, the company announced that it had fired CEO Peter Aceto and forced the resignation of its chairman, Eric Paul, as a result of the scandal.
Under the Cannabis Act, Health Canada has a host of measures at its disposal to address non-compliance on the part of a licence holder. Those range from ordering the company to conduct an awareness campaign, to the suspension or revocation of a licence, to the issuance of monetary penalties of up to $1 million for each violation.
In a case such as CannTrust’s, the regulator could potentially levy fines for obstructing an inspector and for providing false or misleading statements, according to Toronto-based cannabis lawyer Harrison Jordan. It also has the power to strip the security clearance of directors and officers.
One licensed producer has already seen its license suspended and another, Agrima Botanicals, has had its license revoked entirely following reviews by the agency.
While Fraser says she believes CannTrust’s penalties are unlikely to exceed a large fine, the allegations involved at least raise the spectre of more serious charges under Division 1, the criminal portion of the Cannabis Act.
“Under the Cannabis Act, based on the allegations I’ve read, if those were proven by Health Canada to be true, they could potentially lead to a lot of different types of offences: Illegal cultivation, illegal possession, illegal sale,” Fraser said.
CannTrust has acknowledged having produced the cannabis in unlicensed rooms. It has also said it exported some of the illicit cannabis to Australia and Denmark.