Prosecutors with the Ontario Securities Commission (OSC) told a Canadian court on Wednesday that they had no reasonable expectation of gaining a conviction against three former executives of the cannabis firm CannTrust Holdings and asked to withdraw charges against the men. But defense lawyers for former CannTrust CEO Peter Aceto, former chairman Eric Paul and former vice-chairman Mark Litwin have asked the judge for a full acquittal in the case.
“After careful review of the evidence during the trial, we are of the view that as charged, there is no reasonable prospect of conviction,” OSC lawyer Dihim Emami told Victor Giourgas, the judge presiding over the case.
The case involved allegations that Aceto, Paul and Litwin had overseen the illegal cultivation of thousands of kilograms of cannabis for Canada’s regulated market. In July 2019, CannTrust revealed that Health Canada, the country’s national health department and chief federal regulator of the cannabis industry, had determined that the company’s cultivation facility in Pelham, Ontario was found to be non-compliant with some regulations. The company had accepted the finding, noting that five rooms being used to grow cannabis at the Ontario facility were not properly licensed for cultivation between October 2018 and March 2019. The rooms were not fully licensed to cultivate cannabis until April 2019.
“Our team has focused on building a culture of transparency, trust and excellence in every aspect of our business, including our interactions with the regulator,” Aceto said at the time in a statement from CannTrust. “We have made many changes to make this right with Health Canada. We made errors in judgment, but the lessons we have learned here will serve us well moving forward.”
The OSC alleged that the defendants claimed in corporate disclosures that CannTrust’s cannabis operations were fully compliant with regulations. Aceto, Litwin and Paul were charged by the OSC and the Royal Canadian Mounted Police with quasi-criminal offenses including fraud related to failing to disclose the unlicensed cultivation to investors. Litwin and Paul were also charged with insider trading for selling stock in CannTrust after learning about the allegations of unlicensed growing but before they were made public. Additionally, Litwin and Aceto were charged with making a false investment prospectus and a false preliminary prospectus.
Testimony Reveals Weakness Of Prosecutor’s Case
Last week, during the trial of the three former executives, Graham Lee, a former director of quality and compliance at CannTrust, testified that Health Canada staff had inspected the Ontario cultivation in November 2018 and April 2019, but did not take any action related to the unlicensed grow rooms. But at a subsequent visit, Health Canada inspectors inquired about the unlicensed rooms.
“They asked me if plants had been put into the unlicensed rooms, and they had been told other things earlier in the day…and so I clarified for them that, yes, they had been,” Lee testified.
As part of his testimony, Lee also said that CannTrust staff had once staged photographs taken as part of a regulatory submission to Health Canada in an attempt to obscure the purpose of the extra grow rooms. But he also noted that the employees had not been instructed by senior management to do so.
During cross-examination, defense attorneys presented evidence that the Ontario facility had been licensed to grow cannabis that did not contain any references to specific rooms. The revelation made it difficult for prosecutors to prove that unlicensed cultivation had occurred at the facility.
Scott Fenton, an attorney representing Litwin, presented Lee with an April 5 email he sent to others at CannTrust, in which he wrote, “Please find attached, we are now licensed for all of the remaining outstanding Niagara areas.”
“But you told everybody that you’re now licensed,” Fenton said to Lee.
“Yes,” Lee answered.
“And used the wrong terminology?” Fenton asked.
“Yes,” Lee admitted.
“Were you confused regarding the operation of the Cannabis Act and its regulations?” asked Fenton.
“At times,” Lee replied.
On Wednesday, prosecutors told the court that the revelations made during the trial made it impossible to secure a conviction in the case and asked the judge to drop the charges against the defendants. But their lawyers asked Giourgas to fully acquit the former CannTrust executives of the charges against them.
“I am respectfully against dragging this out,” Fenton said. “The prosecution has determined they can’t prove the case. It is time to end it, and it should end today.”
“I can’t tell you how much anxiety there is among the defendants about the end of this matter for the reasons that you can imagine,” added Frank Addario, Aceto’s lawyer.
Prosecutor Emami asked for more time, saying he had received the request for acquittal that day. The defendants were due back in court on Thursday for the judge’s decision on the motion to acquit.