Former CEO of CannTrust charged with fraud over unlicensed cannabis cultivation

23rd June 2021

The former CEO of Canadian cannabis company CannaTrust is facing quasi-criminal charges for fraud alongside two directors following the discovery of unlicensed cannabis cultivation on company premises.

The former Chief Executive, Peter Aceto, and directors of CannaTrust Holdings Inc. are facing possible jail time up to a maximum of five years are the charges against them are proven. The case against them is being led by the Ontario Securities Commission (OCS).

The company’s co-founder and former board chair, Eric Paul, has also been caught up in the scandal alongside a former director, Mark Litwin. Both individuals have been charged with insider trading after an investigation by Canada’s largest capital markets regulator.

The OSC began their case against the individuals after revelations in 2019 after a Health Canada inspection uncovered unlicensed cannabis growing at the company facility in Pelham, Ontario.

According to the regulator, around 50% of the company’s total cannabis yield was unlicensed. In a statement, the OSC revealed that the charges “relate to efforts to conceal the illegal growing of cannabis at CannTrust over a 10-month period in 2018 and 2019.

The regulator went on to say that the three individuals “did not disclose to investors that approximately 50 per cent of the total growing space at CannTrust’s facility in Pelham, Ontario, was not licensed by Health Canada.”

It is also alleged that the three men were involve in the release of press releases, analyst calls and prospectuses that the company was “compliant with regulatory requirements, and they included all cannabis production in the company’s financial statements, without stating that half was grown without a license.”

Aceto, Paul, and Litwin face more than a dozen charges that, according to the Financial Post, include fraud, making false or misleading statements to the market and the OSC, making a false prospectus and preliminary prospectus, and authorizing, permitting or acquiescing in the commission of an offence.

Former CEO of CannTrust charged with fraud over unlicensed cannabis cultivation
Cannabis cultivation site

The discovery of unlicensed cultivation came at a time where CannaTrust Holdings Inc. was one of Canada’s most successful cannabis companies, following the legalisation of recreational cannabis back in 2018.

Peter Aceto, the former CEO of the company was terminated from the business in July 2019 at the same time as Eric Paul, former chair of the company board, was asked to resign. Mark Litwin also resigned from the board earlier this year.

Despite the allegations, lawyers and spokespeople for the trio have expressed disappointment in the charges. A statement issued by Aceto’s lawyer, Frank Addario, read: “I look forward, as does Peter and his family, to a public hearing where the evidence will show that he acted with integrity at all times.

“During his short tenure, CannTrust was subject to multiple regulatory inspections and a financial audit without any material issues being raised.

“He cooperated with CannTrust’s internal audit (the special committee investigation) and the OSC investigation.”

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