One of the biggest news stories to rock the cannabis industry this summer is the CannTrust saga. It is a bittersweet feeling to be covering this story… It’s not a great look for investors in cannabis, Canadian consumers on both the recreational and medicinal side, and the Canadian cannabis industry as a whole. The show must go on as they say, and as a media organization, scandals do attract attention. Given that the story is continuing to unfold, we thought it prudent to do a recap of what’s been brought to light so far. If you’re just tuning in to the CannTrust news, it’s a great way to start. If you’ve been following along, hopefully it’s a concise way to summarize what you’ve read. As always, we welcome any feedback and or corrections from our readers. Enjoy.
May 10th, 2019 – Former employee turned whistleblower, Ryan Lalonde quits his job at CannTrust and writes an email to his former colleagues, calling out the company for operating illegally and citing that he has to do the right thing.
Four days later, May 14th – Former CEO, Peter Aceto and CFO, Greg Guyatt, sign-off on financial statements claiming their largest gain in fair value of their bio assets, despite the fact that they had not legally increased their growing facilities.
On May 28th – CannTrust’s legal counsel, Vlad Mihaescu, issues a cease and desist order to Mr. Lalonde for some suggestive social media posts.
On June 15th – Former CannTrust employee, whistleblower and responsible young man, Ryan Lalonde informs a local paper, The Voice of Pelham, and Health Canada that his former employer was operating in a non-compliant manner. He detailed the illicit activities which took place at the Pelham, Ontario grow operation including actively trying to deceive Health Canada.
Health Canada responds quickly with a surprise audit at the CannTrust greenhouse facility located in Pelham, Ontario on June 17th. Who says the government isn’t efficient?
On July 8th, 2019 Health Canada issues a non-compliance letter to CannTrust. In it they outline that CannTrust was found non-compliant for five grow rooms at their Pelham facility. Health Canada places a hold on 5,200kg of their dried cannabis inventory.
On the same day, CannTrust reveals they had received the letter from Health Canada and outlined that in addition to the 5,200kg found non-compliant by Health Canada, they were volunteering an additional 7,500kg. The 13,000kg (plus) hold created significant shortages and delays for many customers, including those relying on the plant for medicinal purposes.
July 9-11th, Danish partner StenoCare places CannTrust oil products under quarantine due to the news of compliance violation. In total, they placed five batches under quarantine, as reported by The Financial Post.
Enter stage, the man who blew the lid off, Mr. Ryan Lalonde. On July 11th, he went on record in an interview with The Financial Post. In the interview he recounts how he alerted Health Canada and claims they never would have found CannTrust’s transgressions without him. He alleges they were actively deceiving the regulating body, “if you look through the camera footage prior to the dates the pictures were taken and requested you will clearly see us hanging up white poly walls to cover up thousands of plants,” states Mr. Lalonde.
On the same day, CannTrust voluntarily halted all cannabis sales, furthering the delays for patients and customers alike. CannTrust’s board also announced the formation of an independent special committee to investigate the violations.
July 12th – Former CEO, Peter Aceto finally makes a comment, via Instagram. In response to criticism around transparency from another Instagram user he states, “21 years a trusted banker of the people & 9 years the CEO. Then 9 months later a thief/fraud? Ah, doesn’t make sense. Let the dust settle.” His account has since been made private.
July 17th – CannTrust’s Special Committee submits response to Health Canada questions regarding the confirmed illegal grow rooms.
A video news update on BNN Bloomberg revealed they had obtained leaked minutes from CannTrust, July 24th. The leak stated that the CannTrust executive team were informed of the illegal grow in November, 2018. Employees were told to continue their operations.
On the same day, The Financial Post unveil that former CEO, Mr. Aceto, filmed a promotional video in front of one of the illegal grow rooms while it was full of plants. The evidence piles on.
July 25th – Doomsday or welcome relief? CannTrust’s board fires then CEO, Peter Aceto with cause. Eric Paul, former CEO and Chairman of the board also resigns. In steps interim CEO, Robert Marcovitch to help right the ship’s direction. Mr. Marcovitch was an independent director of the board and on the Special Committee established by CannTrust.
July 30th – Interim CEO, Robert Marcovitch, eludes to a potential sale of the business in describing how they’re actively exploring all options on the table. In an interview with The Financial Post, Mr. Marcovitch stated “We are certainly investigating our options with financial advisors. But we are conscientious about our shareholders, and we are doing what you would expect a bona fide public company to do.” At the time of the statement, CannTrust stock had lost approximately 60% of its value.
BNN Bloomberg releases a story on August 2nd, calling the true “Independence” of Mr. Marcovitch into question. He was added to the board as an independent Director, while in truth he is the uncle of Mark Litwin’s wife, Beth. According to Richard Leblanc, a professor of governance, law, and ethics at York University, “If a family member or an affiliate of a director has any pre-existing relationship to another director or officer, that director is not properly regarded as independent from a best practice perspective.” As this case brings the ethical practices of a publicly traded corporation into the light, this seems worth noting.
August 9th – KPMG, CannTrust’s independent auditor, announced they are pulling their year-end 2018 report, previously published on March 27th, 2019, as a result of the Health Canada findings that date back to October of 2018.
August 12th – Woes continue, stock plunge also continues as Health Canada finds a second CannTrust facility to be non-compliant. In a statement released by CannTrust, they outline that upon further investigation, Health Canada has found non-compliant operations at their Vaughn, Ontario facility.
August 19th – Shareholders, presumably, have their heads in their hands as the Ontario Cannabis Store announces they are pulling $2.9 million (CAD) of product from their shelves. Although the products were pulled, it does not mean that any CannTrust product you’ve purchased is ‘bad’. Cannabis products still need to pass health and safety measures before they’re sold.
As of August 22nd, CannTrust’s stock price has dropped a whopping 84% since IPO.
September 4th, 2019 – The troubles occuring in the Canadian regulated market are flagged by european countries with distribution deals: “The Deutsche Börse [a German stock exchange, one of the world’s largest] has put the entire public Canadian and American cannabis sector under special watch,” reports Marguerite Arnold of the Cannabis Industry Journal. It seems the CannTrust scandal is reverberating around the globe. Not great for the cannabis industry at large.
September 5th, 2019 – CannTrust reaffirms their commitment to becoming compliant under Health Canada’s regulations and claim they are “developing a comprehensive go-forward business strategy,” trying all they can to restore market and investor confidence. On the same day, layoffs are announced due to financial and regulatory troubles.
The Financial Post reports on September 6th, “CannTrust has laid off 20 percent of its workforce — or 180 people — in an effort to “restructure” the company’s workforce given recent regulatory troubles that forced it to halt all cannabis sales.”
On September 10th, Investing.com reports that the Toronto Stock Exchange may de-list CannTrust. An announcement is expected to be released on Friday the 13th. Ominous, if you’re into that kind of thing.
September 17th – David George-Cosh at BNN Bloomberg writes, “CannTrust Holdings Inc.’s licences to produce and sell recreational and medical cannabis in Canada were suspended by federal regulators on Tuesday, the latest blow to the beleaguered pot firm after an inspection uncovered that it grew thousands of kilograms of marijuana in unlicensed rooms.” A statement from the company notes that Health Canada could reinstate its licences “if the reasons for the suspension no longer exist or if CannTrust demonstrates that the suspension was unfounded.”
As this tragically epic tale of what not to do in legal cannabis continues to unfold, we will bring you the headlines and update this synopsis of events. Thanks for reading. Don’t forget to share.