'It's a big deal': CannTrust whistleblower reacts to OSC charges against former executives

Nick Lalonde still remembers the moment he knew something was amiss at CannTrust Holdings Inc.

It was nearly 4 p.m., close to the end of the working day, when he was asked to stay late at CannTrust's Pelham, Ont. facility and hang some plastic wall tarps the company needed to put up for Health Canada.
 
"We're going to take some pictures for Health Canada. Just got to hang up some tarps, move some cameras around and take some pictures, that's all. I thought, 'OK, sure. Let's do it.' I didn't think too much of it at the time," he told BNN Bloomberg in an interview.
 
In the middle of the photoshoot, his manager told him to pick up a single fallen cannabis leaf off the ground that was showing up in some photos.
 
"I didn't think that was a big deal. There were 50,000 marijuana plants in the room," he said. "That was the point right there that I knew something was up. What are we actually doing here?"
 
That project — erecting plastic tarps and moving benches to help conceal hundreds of cannabis plants from federal inspectors — eventually led Lalonde to inform Health Canada that CannTrust may need to be investigated for growing cannabis in an unlicensed area.
 
It triggered a series of events that resulted in Health Canada suspending CannTrust's cannabis sales and production licences, the company filing for creditor protection and which earlier this week saw the Ontario Securities Commission lay over a dozen quasi-criminal charges on three former CannTrust officials for their involvement in the alleged scheme.
 
Lawyers representing each of the accused said they intend to defend themselves in court and deny any wrongdoing.
 

Lalonde, who now works in the construction industry in southern Ontario, said he thinks the people charged — Mark Litwin, Eric Paul, and former CEO Peter Aceto — should "go to jail for a very long time." The allegations have yet to be proven in court.
 
"It was a very big thing that they did," he said. "They didn't steal a chocolate bar, right? They lied to the government and they got caught doing it, so it's a big deal."
 
He also said he wonders why more people that were involved in the alleged plans to grow unlicensed cannabis weren't charged.
 
"There's other people that were involved in it and it seem to be that they're not really getting in trouble, but they just lost their jobs," Lalonde said.
 
In a statement, CannTrust said that it is aware of the charges against the three former executives and that neither the company, its subsidiaries nor any of its current directors, officers or employees have had charges laid against them. The company said it is focused on resolving its civil litigation claims and fully restoring its operations in the Canadian cannabis market.
 
Lalonde said he met with the Royal Canadian Mounted Police on two occasions to describe under oath what he saw and experienced while working at CannTrust from July 2017 to May 2019, when he was in charge of destroying unsaleable cannabis under the self-proclaimed job title “Master of Destruction.” He said he showed officers emails, text messages and videos that corroborated his account of the facts and that he would be happy to testify under oath if he's called to court.
 
"I told [CannTrust employees] that what they were doing was wrong and told them what they should do," he said. "If they come out on their own and explained what was going on instead of a former disgruntled employee, then maybe they would have been a little better off than they are now."
 
Still, Lalonde said he doesn't have too many regrets about blowing the whistle on CannTrust and many of the threats he faced in the past have now faded away. He also said he wouldn't be opposed to ever returning to the cannabis industry.
 
"I lost my dream job," Lalonde said. "I was on salary and was in charge of a lot of people and did what I wanted to do. To have it all taken away, … it sucked. But you had to do the right thing and [whistleblowing] was the right thing to do."
 
 

THIS WEEK'S TOP STORIES

OSC charges three former CannTrust execs following illegal growing scandal

The Ontario Securities Commission (OSC) and the Royal Canadian Mounted Police's Integrated Market Enforcement Team announced Tuesday they’ve charged three former senior directors at CannTrust Holdings, including the former CEO, with several offences following the company's efforts to conceal the growing of cannabis in unlicensed rooms between 2018 to 2019. Mark Litwin, Eric Paul and Peter Aceto were charged with various violations, including fraud under the Securities Act. None of the allegations have been proven in court. Lawyers from each of the accused individuals state they all intend to defend the charges and deny wrongdoing. The accused are scheduled to appear before a Toronto court on July 26.
 
 

Canadians buy $309M of cannabis products in April, hitting new monthly record: StatsCan

Canadians bought $309 million worth of cannabis in April, setting a new monthly record as retailers look to bounce back from a volatile period of pandemic-caused lockdowns. Cannabis sales were up about four per cent from March and 7.2 per cent on a per-day basis, according to Statistics Canada. Canada's cannabis industry now operates at a $3.71 billion annualized run rate. Most provinces and territories reported flat to little sales growth from March, but Ontario and British Columbia outperformed, rising about five per cent and 13 per cent, respectively. Eight Capital Analyst Graeme Kreindler said in a report that the sales figures show the industry continues to exhibit growth despite many licensed producers experiencing a decline in revenue amid increased competition. "We continue to maintain a constructive outlook for further growth in 2021 as lockdown restrictions ease into the summer alongside an expansion in the number of licensed retail locations," Kleindler said.
 

Canopy Growth offloads Danish production facility for $20M

Canopy Growth sold its cultivation and manufacturing facility in Denmark to Australia’s Little Green Pharma for $20 million. The facility, located in the European country’s Northern Odense region, has the capacity to produce in excess of 12 tonnes of dried flower a year, according to a report from The Canadian Press. A Canopy spokesperson said in March the company planned to close its Danish facility based on a plan to "serve global medical markets with existing Canadian production capacity.” Roughly 60 people worked at the facility; it's currently not known whether the entire staff will join Little Green Pharma. Separately, Canopy announced it closed its $435-million acquisition of Supreme Cannabis, which it first disclosed in April. The company said it expects to generate $30 million in savings over the next two years following the closing of the deal.
 
 

Truss Beverages launches marketing campaign to bolster infused drink sales

Truss Beverages, the cannabis drink joint venture between Molson Coors Beverage and Hexo, is ushering in a new marketing campaign aimed at getting more consumers interested in infused beverages. The campaign is repurposing some pot shops as "Local Cannabis Beverage Outlets," cheekily borrowing the acronym used by Ontario's licensed alcohol distributor. Cannabis beverages amounted to only $28 million of the $2.6 billion in total legal marijuana sales made last year, though about $24 million in drinks have been sold in the first five months of the 2021 according to Hifyre. A recent survey by Dalhousie University's Agri-food Analytics Lab found that just four per cent of cannabis consumers preferred infused beverages over all other edibles.
 

UN finds cannabis consumption on the increase globally, recommends global advertising ban

The United Nations said in its annual World Drug Report that cannabis usage worldwide continues to climb, with approximately four per cent of the world's population — approximately 200 million people — consuming the drug. Marijuana usage is up about 18 per cent over a 10-year period; people in North America lead the world, with about 14.5 per cent of the population there consuming cannabis. The UN also explored how the potency of some cannabis products quadrupled in strength in the U.S. over the past two decades, which some scientists believe is tied to the potential development of mental health disorders. It recommended that its member states enforce a comprehensive ban on advertising, promoting and sponsoring cannabis to mitigate the potential harm posed to people’s health, similar to provisions on tobacco usage.
 

Analyst Call of the Week - Outlook on U.S. Legalization Plans

While the global cannabis industry awaits an update on the U.S. broad cannabis reform plans, there are increasing signs that legislators are still trying to usher in laws aimed at improving the financial affairs of U.S. marijuana operators. With many expecting Senate Majority Leader Chuck Schumer to introduce his wide-ranging legalization bill in July, new language that borrows elements from the yet-to-be-passed SAFE Banking Act was inserted into the House Appropriations bill on Wednesday. The move is a sign to BTIG analysts that the legislative backdrop for cannabis reform is gaining rapid momentum. "This is the most amount of legislative progress the cannabis industry has seen, EVER, and we believe it points to an increasing probability of something passing sooner than later as the countdown clock till the midterms ticks louder with each passing day," writes BTIG Analysts Camilo Lyon and Mackenzie Boydston in a report on Friday.

Meanwhile, independent cannabis analysts The Cannalysts cautions investors who own shares in U.S. operators that retail operations could be significantly impacted once the country legalizes marijuana federally. "But even without federal or state intervention to directly limit verticality, the timing of the excise tax coupled with interstate commerce could spell the demise of MSO retail operations in states where their cultivation cannot compete with the likes of California, or at the very least minimal further retail expansion," The Cannalysts write.

CANNABIS SPOT PRICE:

$5.55 per gram
-- This week's price is up 0.4 per cent from the prior week, according to the Cannabis Benchmark’s Canada Cannabis Spot Index. This equates to US$2,055 per pound at current exchange rates.
 

WEEKLY BUZZ

200 million
-- The amount of people worldwide that the United Nations estimate currently consume cannabis, according to the organization's annual World Drug Report.