Health Canada is instructing anyone with concerns about CEN Biotech – the company seeking to become the country’s largest medical marijuana producer – to contact police or securities regulators.
The unusual request comes as allegations of misrepresentation, stock manipulation and falsified documents swirl around the company and its top executive.
Health Canada said it can’t comment on the status of CEN’s licence application, but a department official said the RCMP and other regulators should be notified of concerns, adding that “we work closely with the RCMP.”
CEN Biotech, the Canadian subsidiary of Michigan-based Creative Edge Nutrition, has applied to build a massive marijuana growing facility in Lakeshore, Ont., just east of Windsor. The company wants to sell 600,000 kilograms of the drug a year, making it by far the largest in the new sector.
But the company is now under a cloud of suspicion for allegedly issuing false news releases, suspect signatures on documents, and making misleading statements about partnerships and endorsements from Health Canada.
The brewing scandal has become an embarrassment for Health Canada, and for Health Minister Rona Ambrose, since the company has made it to the final stage of approvals with the department.
Multiple misrepresentations helped drive the market value of Creative Edge Nutrition, a penny stock traded on the loosely regulated U.S. over-the-counter market, to more than $350-million (U.S.) this year. But as chief executive officer Bill Chaaban was touting the stock to investors using false claims involving Health Canada, he was quietly selling 71-million shares and pocketing more than $4.6-million in proceeds.
Health Canada has asked those with evidence of impropriety to also contact securities regulators. Due to a loophole in Ontario securities regulations, Creative Edge is beyond the reach of the Ontario Securities Commission or any other Canadian body. It instead falls under the jurisdiction of the U.S. Securities and Exchange Commission.
A spokeswoman for the SEC in Washington said the agency won’t comment on whether or not it is investigating a company. However, two sources have told The Globe and Mail they have been in touch with investigators inside the SEC regarding the company.
Health Canada appears ill-equipped to deal with the problem on its own. Officials with the department have demonstrated a lack of understanding on the matter in conversations with The Globe, and Ms. Ambrose’s office has indicated little comprehension of the severity of the allegations against its biggest applicant.
Now, a new case of suspicious-looking documents produced by the company threatens to make the situation more problematic.
An anonymous poster on an Internet message board recently produced documents filed by the company to regulators bearing Mr. Chaaban’s signature. A document dated Dec. 29 contains a signature that is distinctly different than others filed by the CEO in 2014. The Globe and Mail subsequently obtained the documents, which are available through filings on Bloomberg and the appearance of the signatures raises questions about their validity. Calls and e-mails to Mr. Chaaban for comment have not been returned.
Health Canada says it performs “rigorous” background checks on people and companies seeking to become licenced. But there are questions as to how much diligence the government has done on its biggest applicant. A federal licence can be worth $70-million (Canadian), based on surges in market value seen in other publicly traded stocks once the permit is granted.
Health Canada’s checks on CEN Biotech appear to have missed a trail of concerning conduct and legal problems, including two people associated with the company who have been charged by the SEC for alleged fraud. One of them was fined, while the other is still before the courts in the U.S. Other misrepresentations by the company – through news releases and public statements – suggest questionable ethical standards at CEN Biotech have been mostly ignored by Health Canada.
After the Globe and Mail published an article in December detailing those problems, the investor relations firm representing CEN Biotech, New York-based 5WPR, severed ties with the company, saying it had not approved, nor was aware, of at least two news releases issued under its name.
Ms. Ambrose’s office is trying to distance itself from the brewing scandal. Her spokesman told the Globe and Mail the minister has no role in granting or refusing licences. However, Health Canada has rejected hundreds of licence applications so far. The Globe and Mail obtained 129 of these refusal letters through Access to Information. On at least 102 of the letters, the Health Minister is listed as the reason for rejecting the licence. “The minister must refuse to issue a licence for this application,” the letters state.
One letter deals directly with a company misrepresenting itself. “The Minister has reasonable grounds to believe that false or misleading information,” was issued by the applicant, says the March 19 letter to a B.C. company.
In July, Mr. Chaaban told investors he had a “partnership” with Health Canada, among other claims. Though such claims were invented, Health Canada did not step in. Ms. Ambrose, through her spokesman, has declined requests for comment.Report Typo/Error
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