Business
Former execs of Canadian cannabis producer CannTrust acquitted in ‘quasi-criminal’ case
Three former executives of Canadian cannabis producer CannTrust, including its ex-CEO, have been acquitted of all charges after the case collapsed this week.
The charges came from a nearly two-year joint investigation by the Ontario Securities Commission (OSC) and Royal Canadian Mounted Police (RCMP) after a whistleblower alerted Canada’s cannabis regulator in 2019 about five “unlicensed” cultivation rooms the company had been operating since 2018.
Peter Aceto, the company’s CEO at the time of the alleged incidents, had been charged with fraud and making false or misleading statements to the OSC and to the market, among other purported infractions.
Mark Litwin, formerly a director of the company, and Eric Paul, a former CannTrust chair, faced fraud and insider trading charges, among others.
The charges under the Securities Act (Ontario) had been described as “quasi-criminal” by the OSC.
The Financial Post newspaper reported that a key witness had testified a week earlier in the Ontario Court of Justice that he was mistaken about using the term “unlicensed” to describe “noncompliant” cannabis growing areas in the company’s Pelham greenhouse.
The key witness’ confusion over the terms “unlicensed” and “noncompliant” apparently caused the OSC to concede there was no reasonable prospect of conviction.
However, the company itself said in a 2019 news release that it grew cannabis “in unlicensed rooms,” and Canada’s federal cannabis regulator, Health Canada, also had said some of the rooms used in the company’s greenhouse were “unlicensed.”
A lawyer for one of the defendants presented as evidence a Nov. 9, 2018, license covering “the entire Pelham greenhouse,” the Financial Post reported, which was reportedly within documents seized by the OSC.
CannTrust’s federal licenses, including the one covering the Pelham greenhouse, were suspended for about nine months starting in September 2019.
‘Law seems to be against you’
CannTrust, now called Phoena Holdings, did not immediately respond to MJBizDaily queries for comment.
Justice Victor Giourgas said he was persuaded to acquit the three former executives based on the law and the arguments of the defense attorneys, the Financial Post reported.
The newspaper reported that the justice had rejected the OSC’s attempt to withdraw the charges.
“The law seems to be against you,” the justice reportedly told the OSC lawyers.
In a statement to MJBizDaily, the OSC said it’s considering the implications of the decision and assessing its options “in light of the significant investor losses following the issuance of CannTrust’s press release on July 8, 2019.”
In that news release, CannTrust stated that it received a “noncompliant” rating from Health Canada “based on observations by the regulator regarding the growing of cannabis in five unlicensed rooms and inaccurate information provided to the regulator by CannTrust employees.”
“Growing in unlicensed rooms took place from October 2018 to March 2019 during which time CannTrust had pending applications for these rooms with Health Canada,” the company said at the time.
‘No unlicensed growing’
Scott Fenton and Michelle Psutka, counsel to Litwin, said in a statement to MJBizDaily that their client conducted himself lawfully and ethically during his tenure as a member of CannTrust’s board.
“There was no credible evidence that he knew about unlicensed growing at CannTrust and the trial evidence conclusively proved that no unlicensed growing ever took place,” they said in a statement issued on behalf of Litwin.
“Mr. Litwin looks forward to vindicating his good reputation and erasing the stain caused by this ill-founded prosecution.”
In the statement, Litwin thanked the OSC for dismissing the changes as unprovable.
Gerald Chan, who, along with Paul Le Vay, has been representing Paul, said the former chair earned a reputation as a leader with integrity over a distinguished business career.
“That reputation was unfairly tarnished by a misguided prosecution,” the lawyers said in a statement to MJBizDaily.
“Mr. Paul maintained from the beginning that when the evidence was revealed, it would show that he had done nothing wrong. That evidence has now emerged, and Mr. Paul has been declared innocent.
“We are thrilled that he has been fully and finally vindicated.”
Legal representatives for Aceto, the company’s former CEO, did not immediately respond to MJBizDaily‘s request for comment.
Health Canada still says ‘unlicensed’
In an email to MJBizDaily late Thursday, Health Canada said it hit CannTrust with “critical observations” and a noncompliant rating after an unannounced inspection on June 17, 2019, at the Pelham facility.
“The critical observations were for conducting unauthorized activities, namely producing cannabis in unlicensed rooms before obtaining approval from Health Canada, providing false and misleading information to inspectors during the course of the inspection, and inadequate record keeping,” a Health Canada spokesperson wrote.
Health Canada said that producing cannabis in “unlicensed” rooms had been considered “noncompliant” with federal regulations governing the industry at that time, because federal license holders were required to receive federal approval before making changes to a production-site plan.
Health Canada used the word “unlicensed” to describe the rooms in question.
But in 2020, the federal regulator notified cannabis production licensees they were no longer required to submit such an amendment for review and approval by Health Canada.
Health Canada stated that ensuring the integrity of the legal cannabis production system is a priority for the Canadian government.
“That is why the federally regulated system contains multiple measures that are designed to protect the health and safety of Canadians and the integrity of the system,” the spokesperson wrote.
“These measures include stringent requirements for physical and personnel security, record keeping, inventory controls and reporting that are verified through Health Canada inspections and other regulatory oversight activities.”
Fenton, who has been representing Litwin, told MJBizDaily that the Health Canada statement regarding the “unlicensed” rooms “is factually and legally incorrect.”
New Mexico regulators fined a cannabis operator nearly $300,000 and revoked its license after the company allegedly created fake reports in the state’s traceability software.
The New Mexico Cannabis Control Division (CCD) accused marijuana manufacturer and retailer Golden Roots of 11 violations, according to Albuquerque Business First.
Golden Roots operates the The Cannabis Revolution Dispensary.
The majority of the violations are related to the Albuquerque company’s improper use of BioTrack, which has been New Mexico’s track-and-trace vendor since 2015.
The CCD alleges Golden Roots reported marijuana production only two months after it had received its vertically integrated license, according to Albuquerque Business First.
Because cannabis takes longer than two months to be cultivated, the CCD was suspicious of the report.
After inspecting the company’s premises, the CCD alleged Golden Roots reported cultivation, transportation and sales in BioTrack but wasn’t able to provide officers who inspected the site evidence that the operator was cultivating cannabis.
In April, the CCD revoked Golden Roots’ license and issued a $10,000 fine, according to the news outlet.
The company requested a hearing, which the regulator scheduled for Sept. 1.
At the hearing, the CCD testified that the company’s dried-cannabis weights in BioTrack were suspicious because they didn’t seem to accurately reflect how much weight marijuana loses as it dries.
Company employees also poorly accounted for why they were making adjustments in the system of up to 24 pounds of cannabis, making comments such as “bad” or “mistake” in the software, Albuquerque Business First reported.
Golden Roots was fined $298,972.05 – the amount regulators allege the company made selling products that weren’t properly accounted for in BioTrack.
The CCD has been cracking down on cannabis operators accused of selling products procured from out-of-state or not grown legally:
- Regulators alleged in August that Albuquerque dispensary Sawmill Sweet Leaf sold out-of-state products and didn’t have a license for extraction.
- Paradise Exotics Distro lost its license in July after regulators alleged the company sold products made in California.
Golden Roots was the first alleged rulebreaker in New Mexico to be asked to pay a large fine.
Source: https://mjbizdaily.com/new-mexico-cannabis-operator-fined-loses-license-for-alleged-biotrack-fraud/
Four marijuana companies, including a multistate operator, have filed a lawsuit against U.S. Attorney General Merrick Garland in which they allege the federal MJ prohibition under the Controlled Substances Act is no longer constitutional.
According to the complaint, filed Thursday in U.S. District Court in Massachusetts, retailer Canna Provisions, Treevit delivery service CEO Gyasi Sellers, cultivator Wiseacre Farm and MSO Verano Holdings Corp. are all harmed by “the federal government’s unconstitutional ban on cultivating, manufacturing, distributing, or possessing intrastate marijuana.”
Verano is headquartered in Chicago but has operations in Massachusetts; the other three operators are based in Massachusetts.
The lawsuit seeks a ruling that the “Controlled Substances Act is unconstitutional as applied to the intrastate cultivation, manufacture, possession, and distribution of marijuana pursuant to state law.”
The companies want the case to go before the U.S. Supreme Court.
They hired prominent law firm Boies Schiller Flexner to represent them.
The New York-based firm’s principal is David Boies, whose former clients include Microsoft, former presidential candidate Al Gore and Elizabeth Holmes’ disgraced startup Theranos.
Similar challenges to the federal Controlled Substances Act (CSA) have failed.
One such challenge led to a landmark Supreme Court decision in 2005.
In Gonzalez vs. Raich, the highest court in the United States ruled in a 6-3 decision that the commerce clause of the U.S. Constitution gave Congress the power to outlaw marijuana federally, even though state laws allow the cultivation and sale of cannabis.
In the 18 years since that ruling, 23 states and the District of Columbia have legalized adult-use marijuana and the federal government has allowed a multibillion-dollar cannabis industry to thrive.
Since both Congress and the U.S. Department of Justice, currently headed by Garland, have declined to intervene in state-licensed marijuana markets, the key facts that led to the Supreme Court’s 2005 ruling “no longer apply,” Boies said in a statement Thursday.
“The Supreme Court has since made clear that the federal government lacks the authority to regulate purely intrastate commerce,” Boies said.
“Moreover, the facts on which those precedents are based are no longer true.”
Verano President Darren Weiss said in a statement the company is “prepared to bring this case all the way to the Supreme Court in order to align federal law with how Congress has acted for years.”
While the Biden administration’s push to reschedule marijuana would help solve marijuana operators’ federal tax woes, neither rescheduling nor modest Congressional reforms such as the SAFER Banking Act “solve the fundamental issue,” Weiss added.
“The application of the CSA to lawful state-run cannabis business is an unconstitutional overreach on state sovereignty that has led to decades of harm, failed businesses, lost jobs, and unsafe working conditions.”
Alabama regulators are targeting Dec. 1 to award the first batch of medical cannabis business licenses after the agency’s first two attempts were scrapped because of scoring errors and litigation.
The first licenses will be awarded to individual cultivators, delivery providers, processors, dispensaries and state testing labs, according to the Alabama Medical Cannabis Commission (AMCC).
Then, on Dec. 12, the AMCC will award licenses for vertically integrated operations, a designation set primarily for multistate operators.
Licenses are expected to be handed out 28 days after they have been awarded, so MMJ production could begin in early January, according to the Alabama Daily News.
That means MMJ products could be available for patients around early March, an AMCC spokesperson told the media outlet.
Regulators initially awarded 21 business licenses in June, only to void them after applicants alleged inconsistencies with how the applications were scored.
Then, in August, the state awarded 24 different licenses – 19 went to June recipients – only to reverse themselves again and scratch those licenses after spurned applicants filed lawsuits.
A state judge dismissed a lawsuit filed by Chicago-based MSO Verano Holdings Corp., but another lawsuit is pending.
Source: https://mjbizdaily.com/alabama-plans-to-award-medical-cannabis-licenses-dec-1/
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