Chairman Eric Paul

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For the past few days, CannTrust’s troubles continued to snowball as more evidence of deliberate non-compliance gradually eroded their company.

With over 70,000 clients losing access to their medical marijuana, many (including the author of this article) were forced to jump ship.

Two days ago, we reported on recent revelations that high-level executives – including Aceto – knew about the rooms, in addition to several other violations. Their response, according to leaked e-mails, was to cover these up. Clearly, they failed.

Now, the debacle has finally come full circle, reports the Financial Post. Just days after CannTrust CEO Peter Aceto’s pledge for “appropriate actions” to bring the company back into compliance, he and Chairman Eric Paul now find themselves out of a job.

 

Peter Aceto Fired “With Cause”

 

Following the independent investigation, CEO Peter Aceto was fired “with cause.” In a statement following the decision, CannTrust issued a public statement:

 

“The investigation into the company’s non-compliance with Health Canada regulations and ancillary matters uncovered new information that has resulted in a determination by the Board to terminate with cause CannTrust CEO Peter Aceto.”

 

CannTrust also demanded the resignation of Chairman Eric Paul, who voluntarily stepped down. Paul was the original founder of CannTrust in 2014, eventually giving his CEO position to Aceto.

Now, both of them are paying the price for their participation in a cover-up that spectacularly backfired.

 

“Let the Dust Settle”

 

As the investigation continued, Aceto remained confident that he would escape unscathed. One Instagram user, accused Aceto of not being transparent with clients and investors. Aceto replied by relying on his record as a “trusted banker of the people” for over two decades.

But, as in most cases, responding defensively on social media rarely helps. In a reply that can only be described as “arrogant,” Aceto said:

 

“[A trusted banker of the people for 21 years], then 9 months later a thief/fraud? Ah, doesn’t make sense. Let the dust settle.”

 

Aceto did not seem to understand that a clean history does not mean someone cannot take a wrong turn at any moment. But more importantly, he was certain that the entire scenario would pass. Obviously, the dust did not settle; it was swept away, with him in tow.

 

Could Health Canada be Partly to Blame?

 

Although we cannot absolve CannTrust of its guilt, it is possible that a flaw in the system pushed the company into such murky waters.

One of the e-mails published in The Globe and Mail came from Eric Paul, stating:

 

“We need to clearly point out that we have been diligent in submitting the applications for each new area and they have been slow in responding. We are supporting the legislation and we need their cooperation. Politely as always.”

 

In Paul’s mind, Health Canada’s slow licensing process was enough justification for CannTrust to “jump the gun” and set up the grow rooms without approval.

Does this justify CannTrust’s actions? Of course not. But it might represent a serious problem with Health Canada’s efficiency that could lead to future problems.

 

A Silver Lining

 

Not all of the news around CannTrust is bad. Although shares dropped by 60% during the investigation, Aceto’s firing and Paul’s resignation gave the company a slight financial boost.

According to the Financial Post:

 

“CannTrust share jumped 16 per cent to US$2.27 in New York trading after the bell on Friday.”

 

This overhaul could mean the beginning of a slow recovery. But it is unlikely that CannTrust will reach its former glory anytime soon.

 

WeedAdvisor Support for the Regulatory Process

 

Although the system may need some adjustment, WeedAdvisor very much supports the governing bodies responsible for maintaining compliance.

CannTrust’s activities are a disservice to the company’s investors, clients and ultimately, the taxpayers as well.

WeedAdvisor looks forward to working with our government to provide practical business solutions that will help make its job simple and efficient.

 

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It has been less than a month since CannTrust effectively ground to a halt after the July 8th announcement of its non-compliance. Now, new information emerged that only made the licensed producer look worse.

In a revelation that should frankly surprise no one, Bloomberg reports these violations were known to upper management, further outlined by The Globe and Mail. The news only adds another nail into CannTrust’s coffin as its future looks bleaker with every new report.

Meanwhile, the company’s shares continue to drop significantly as it is unable to sell or ship product ever since its voluntary hold, which they announced in an e-mail to clients on July 11th.

But now we know that, not only did the company put patients into a bind, but also betrayed their trust.

 

Deliberate Deception of Health Canada

 

Recent revelations by both Bloomberg and The Globe and Mail show a deliberate attempt by CannTrust executives to keep the grow rooms – and other breaches – a secret. This makes the company’s pledge to take “appropriate actions” seem disingenuous at best.

CannTrust chairman Eric Paul and CEO Peter Aceto knew about the unlicensed grow rooms seven months before they were exposed.

The Globe and Mail explains:

 

“In an e-mail dated Nov. 16, 2018, Graham Lee, CannTrust’s director of quality and compliance, informed Mr. Aceto and other top executives about a Health Canada inspection that had just been completed. It had revealed several compliance breaches but missed the plants growing in unlicensed rooms.”

 

Specifically, Lee said:

 

“‘We dodged some bullets…[Health Canada] did not ask about RG8E/W, which are unlicensed rooms currently full of plants.”

 

Even more damning is the revelation of lost cannabis – also withheld during inspection. In an e-mail, Lee asked about how best to keep these errors a secret from Health Canada:

 

“We have a large number of lost bottles we have not reported. I suspect due to bad counting rather than diversion [into the black market]. I will continue working to eliminate our exposure on all these items, but they remain a liability. Please advise of any actions you would like me to take.”

 

Lee is literally colluding with other members of management on how to hide the error. Needless to say, the lack of accountability or professionalism is astounding.

However, CannTrust is now financially reaping what it has sown.

 

Drop in Value

 

It does not take a business expert to see why CannTrust’s stock value continues to drop. Bloomberg reveals that the LP’s stock value dropped a total of 55% since the scandal was exposed. But The Globe and Mail’s piece really hit the company hard.

According to Bloomberg:

“The company’s shares dropped as much as 20% at the open in Toronto on the Globe and Mail report which cited internal emails showing CannTrust Chairman Eric Paul and Chief Executive Officer Peter Aceto were informed about the breach about seven months before Health Canada raised the issue.”

 

This leaves investors in a difficult position, as they face serious losses if CannTrust loses its license – a possibility that is now closer than ever.

 

WeedAdvisor’s Role in Compliance

 

Although we have covered stories of non-compliance before, CannTrust’s is by far the most in-depth. We now see firsthand how regulatory violations occur and are subsequently covered up.

It is great that Health Canada was still able to catch these activities, but the discoveries come at a cost. As The Globe and Mail says, this situation puts Canada’s marijuana industry into an “unfavourable light” during a time when companies want to expand south of the border.

Given these high stakes, WeedAdvisor wants the CannTrust situation to be the last of its kind. We designed a set of business solutions aimed at enforcing compliance. Through real-time data-tracking, inventory management (which would have detected CannTrust’s lost product), detailed compliance reports (to prove a good faith effort in compliance measures) and more, WeedAdvisor’s programs will save millions in potential fines and lost sales.