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Former CannTrust leaders plead not guilty to securities offences

TORONTO — Three former CannTrust Holdings Inc. leaders have pleaded not guilty to quasi-criminal charges related to thousands of kilograms of cannabis found growing in unlicensed rooms operated by the company.
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A young cannabis plant is shown in Fenwick, Ont., Tuesday, June 26, 2018. THE CANADIAN PRESS/Tijana Martin

TORONTO — Three former CannTrust Holdings Inc. leaders have pleaded not guilty to quasi-criminal charges related to thousands of kilograms of cannabis found growing in unlicensed rooms operated by the company.

Peter Aceto, Eric Paul and Mark Litwin, the pot company's former chief executive, chairman and vice-chairman, entered their pleas Monday — the fourth anniversary of the legalization of recreational cannabis in Canada — at the Ontario Court of Justice's Old City Hall court in Toronto.

Aceto, Paul and Litwin are facing charges of fraud and authorizing, permitting or acquiescing in the commission of an offence.

Litwin and Paul have also been charged with insider trading charges, and Litwin and Aceto with making a false prospectus and false preliminary prospectus.

The charges came more than three years after CannTrust announced in July 2019 that Health Canada had discovered unlicensed cultivation at its Pelham, Ont. greenhouse between October 2018 and March 2019, before the five rooms received the appropriate licences in April 2019.

The charges against Aceto, Paul and Litwin were laid in June 2021, after a months-long investigation conducted by the Ontario Securities Commission and the Royal Canadian Mounted Police. The regulator and RCMP found the men allegedly did not disclose to investors that about 50 per cent of the growing space at the facility was not licensed by Health Canada. 

They allege the men used corporate disclosures to assert Vaughan, Ont.-based CannTrust was compliant with regulations.

They also allege Litwin and Aceto signed off on prospectuses used to raise money in the U.S., which stated CannTrust was fully licensed and compliant with regulatory requirements, and that Litwin and Paul traded shares of CannTrust while in possession of material, undisclosed information regarding the unlicensed growing.

Aceto was terminated with cause by CannTrust’s board in July 2019, around the same time Paul was ordered to step down. Litwin resigned in March 2021.

They maintain they have always complied with the law. None of the charges have been proven in court.

Aceto, Litwin and Paul have already seen some of the charges against them dropped in May, when the OSC withdrew charges linked to making false or misleading statements through press releases.

Quasi-criminal charges, like the ones they are still facing, could result in a jail term of up to five years less a day, a fine of up to $5 million for each conviction, or both.

CannTrust has since renamed itself Phoena Holdings Inc. Following the unlicensed growing room revelations, it was delisted from the Toronto Stock Exchange and filed for creditor protection.

It has since been working to stage a comeback and exited creditor protection in March, after receiving $17 million in financing from a subsidiary of Netherlands -based private equity investment firm Kenzoll B.V.

This report by The Canadian Press was first published Oct. 17, 2022.

Tara Deschamps, The Canadian Press