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More CannTrust reporting

Editor’s note: This story was first available to Cannabis Professional subscribers. Sign up for a 14-day free trial here.

In February, federal government inspectors toured rooms at a CannTrust Holdings Inc. facility where cannabis plants were growing illegally, internal CannTrust correspondence shows.

Five weeks later, Health Canada granted a licence to cover these same rooms.

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Health Canada did not open an investigation into the illegal growing operation at the company until June, after a tip from a former CannTrust employee. The department is now investigating the company for growing thousands of kilograms of cannabis in unlicensed rooms in late 2018 and early 2019; the Ontario Securities Commission is also investigating the company.

The timeline of events raises questions about the thoroughness of the inspections Health Canada undertakes to make sure that marijuana growers are complying with the law amid a massive expansion of the legal pot industry.

During a targeted inspection in response to odour complaints on Feb. 26, 2019, two Health Canada inspectors toured CannTrust’s greenhouse in Pelham, Ont., according to an e-mail from a CannTrust quality-assurance official to then-chief executive Peter Aceto, then-chairman Eric Paul and other CannTrust officials.

“Inspectors went through all rooms, including the unlicensed ones, but did not comment on this,” the official said in the e-mail, which was seen by The Globe and Mail. “They toured the facility and reviewed odour neutralizing technology in every room. …

“The inspectors confirmed [odour] is not an issue they particularly want to be dealing with, but it’s about the optics of the program. HC needs to avoid bad press for the cannabis program, and people complaining about odour = bad press,” the e-mail said.

On April 5, Health Canada issued licences for the five rooms where unlicensed growing activity had occurred.

Neither CannTrust nor Mr. Aceto responded to request for comment about the Health Canada inspections. When reached by phone, Mr. Paul declined to comment citing continuing investigations.

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Health Canada did not address questions from The Globe about whether its inspectors had been in the unlicensed rooms during inspections, why the illegal activity was not flagged and whether it had done anything to improve the inspection process since it begin investigating CannTrust in June.

“Before the recent inspection at CannTrust’s Fenwick site, which resulted in a non-compliant rating, 2 inspections were conducted to assess the licence holder’s compliance with good production practices (e.g., product quality) and compliance with odour controls,” Health Canada spokesperson Eric Morrissette said in an e-mail.

“The federally regulated system contains multiple measures that are designed to protect the health and safety of Canadians and the integrity of the cannabis system. These measures include stringent requirements for physical and personnel security, record-keeping, inventory controls and reporting that are verified through Health Canada inspections and other regulatory oversight activities.”

At the time of the Health Canada inspection in late February, CannTrust was growing openly in five large unlicensed rooms, according to a document seen by The Globe, confirming the timeline that plants were in the unlicensed rooms.

Health Canada inspectors also visited the facility on Nov. 15, 2018. At that time, an unlicensed room known as RG8 contained plants.

The November inspection prompted an e-mail from CannTrust’s director of quality and compliance to Mr. Aceto, Mr. Paul and other executives, saying: “We dodged some bullets … [Health Canada] did not ask about RG8E/W.”

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According to Sherry Boodram, CEO of consulting company CannDelta Inc., it is unlikely Health Canada inspectors could tour a facility and not know what rooms are licensed and unlicensed.

“As an inspector, you’ll prepare, you’ll look at past inspection reports and see if there are any outstanding issues, or anything that you need to follow up with; you’ll look and see if there’s any amendments or notices or anything the licensed producer has applied for with Ottawa," said Ms. Boodram, who did cannabis inspections for Health Canada from 2015 to 2017.

“When you go to the facility, you also ask the licensed producer, ‘Okay, have you submitted any amendments, are you applying for any licences?’”

At the time of the November inspection, a licence application had been submitted for RG8. By the February inspection, licence applications had been submitted for all five rooms where unlicensed cannabis was being grown.

Karina Lahnakoski, the vice-president of quality and regulatory at consulting firm Cannabis Compliance Inc., echoed the idea that an inspector should know what rooms are licensed.

“Any inspector going in to inspect a licence holder will definitely have access to all the licensing information on that licence holder, and they will do their due diligence before they show up to the site to know what the licence entails, what conditions are on the licence," Ms. Lahnakoski said.

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Former CannTrust employee Nick Lalonde has alleged temporary walls were hung at least once for photographs of the unlicensed rooms that were sent to Health Canada as part of the licencing process. Most of the time, however, the plants were out in the open, said Mr. Lalonde, who left the company in May and sent a whistle-blowing e-mail to Health Canada in June.

“Other than the picture, they were wide open, right there, so anyone that was an investor in the facility, anyone else walking through the facility, should have realized absolutely that there’s plants in these rooms,” Mr. Lalonde said in an interview.

“To get to one half of the facility you have to walk past RG8, which is a big, clear wall, with big, clear windows and doors that you can see plants in there, people working.”

Health Canada’s inspection and licensing system has been under significant pressure over the past year due to the rapid expansion of the industry and regulatory changes last October, when the Cannabis Act came into force.

“They’ve been under a lot of pressure obviously, because the number of licensed-producer facilities have definitely increased dramatically. … And even though they’ve hired more staff, it will still take a while to be able to learn,” Ms. Boodram said.

“Licensed producers also feel pressure to produce, meet the customer demand, to be competitive. … It is unfortunate that the whole licensing process is pretty slow. But it’s not to say that it’s slower necessarily than other industries, it’s just that the cannabis industry is at a spot where there’s such a high demand and its kind of like its own beast,” Ms. Boodram said.

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Since July 8, when CannTrust revealed that it received a non-compliance order from Health Canada, the company has halted all sales, fired Mr. Aceto and forced Mr. Paul to resign.

On Thursday, the joint serious-offences team of the Ontario Securities Commission said it was opening an investigation “into matters and parties related to CannTrust.”

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