Health Canada probe of Canntrust could lead into uncharted legal territory
TORONTO 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.
Health Canada is not responsible for enforcing Division 1 of the Cannabis Act, which in the agency’s words is “primarily intended to address situations where possession, production, distribution, sale, and import/export of cannabis takes place outside the legal system (for example by unlicensed individuals or organizations).”
“It is law enforcement that has the authority to take action against illegal cannabis activity under Division 1 of the Act and against those who operate outside of the legal framework,” Health Canada told the Post in a statement.
On Tuesday, Canntrust’s interim chief executive, Robert Marcovitch, told the Financial Post that the RCMP had not contacted the company. An RCMP spokesperson earlier told the Post that there was no investigation underway into Canntrust.
(The OSC probe involves the Joint Serious Offences Team, or JSOT, which operates in partnership with the RCMP Financial Crime program and the Ontario Provincial Police anti-rackets branch, but is directed by the OSC.)
Since the Cannabis Act was passed in 2017, no licensed producer has been charged under it.
In a case in which Division 1 was brought into play, offences could apply to either an individual or an entire organization. With the exception of basic possession, each comes with a maximum sentence of 14 years in prison, while fines could be imposed at the court’s discretion on organizations that are found guilty.
Because there’s no precedent to serve as a guide, Toronto-based lawyer Jack Lloyd said it’s unclear whether the preference in such a case would be to lay charges against multiple individuals at an LP or the organization as a whole.
Though it is unlikely, Lloyd noted that in a case of illicit growing, the Act does allow for charges to be laid against all those who were involved, from a company’s leadership down to the individuals who helped grow unlicensed cannabis and even those who eventually sold it in stores.
“All of the workers could be charged with illegal cultivation under Section 12 (of Division 1 of the Cannabis Act),” Lloyd said, noting that not knowing something was illegal doesn’t cut it as a defence.
Like Fraser, however, Lloyd believes Canntrust’s penalties from any violation of the Cannabis Act are likely to involve fines and heavier oversight.
“I think they’ll probably get a big fine,” Lloyd said. “Health Canada will say, ‘You’ve got to hire new people, hire new security,’ and they’re going to be subject to spot checks. They’re going to be subject to intense scrutiny.”
I think they’ll probably get a big fine . ... They’re going to be subject to intense scrutiny.