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As mounting problems swirl around CEN Biotech, which has applied to become Canada’s largest medical marijuana producer, Health Minister Rona Ambrose has refused to answer questions regarding the controversy.

Adrian Wyld/The Canadian Press

Health Minister Rona Ambrose is leaving the oversight of Canada's new medical marijuana sector in the hands of U.S. regulators while the federal government sits on the sidelines, opposition critics say.

As mounting problems swirl around CEN Biotech, which has applied to become Canada's largest medical marijuana producer, Ms. Ambrose has refused to answer questions regarding the controversy. Concerns about alleged misrepresentation, stock manipulation and falsified documents should be addressed to the U.S. Securities and Exchange Commission, a spokesman for the minister said this week.

However, deputy Liberal leader Ralph Goodale said that policy is tantamount to exporting the oversight of a Canadian industry to a regulator outside the country.

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"The problems with this one company certainly raise questions about the integrity of the government's process," Mr. Goodale said. "They want to do business in Canada, but appear to be taking advantage of a loophole that avoids Canadian scrutiny. That should set off another set of alarm bells with Health Canada."

CEN Biotech is the Canadian subsidiary of Michigan-based Creative Edge Nutrition, which is publicly traded on the loosely regulated U.S. over-the-counter (OTC) market, and is therefore outside the jurisdiction of the Ontario Securities Commission. Last year, Ontario opted out of a new rule that gave provinces the power to sanction OTC companies doing business in Canada, saying such changes weren't needed. Securities lawyers refer to this as the "Ontario loophole."

In the past year, CEN Biotech chief executive officer Bill Chaaban has used Health Canada's name to make statements that pushed up his shares, including claims of endorsements and pacts with the government during presentations with investors. At the same time, Mr. Chaaban was selling millions of shares that were obtained as an insider for next to nothing, and pocketing millions of dollars in proceeds.

The Globe and Mail detailed many of the problems in a Dec. 20 article. Among the list of misrepresentations by Mr. Chaaban is a claim that the company had been licensed by Health Canada to open the world's biggest marijuana operation, which was not true. Health Canada sent a letter of reprimand telling him to stop. But despite that slap on the wrist, similar inaccurate claims continued throughout 2014 and Health Canada did not follow up. Among those instances, the CEO told investors in July he had "essentially" been approved by Health Canada, and in August said he was on the verge of getting a licence. These statements misled investors, while the CEO sold large numbers of his own shares.

In November, Mr. Chaaban also sold a significant amount of stock in advance of a company announcement that would cause the shares to drop.

Health Canada said it is not equipped to deal with allegations of a financial nature. But several of the allegations against CEN Biotech involve general misrepresentation that should call the company's application for a medical marijuana licence into question, Mr. Goodale said.

The company has made false claims about nationally distributing health products at major Canadian retailers, and has issued press releases containing misrepresentations of its business, including a Dec. 21 press release issued after The Globe article. Since then, documents have emerged showing at least four distinctly different signatures from Mr. Chaaban on company filings, including submissions to the SEC.

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Mr. Chaaban brushed off those concerns this week, saying the way he signs his signature "depends on the mood I'm in." He said he has operated by the book, calling the allegations "an attack on his character." He also asked if Canada had become "communist" for questioning the profit he's made selling off shares.

The Globe sent Mr. Chaaban a list of 24 detailed questions in early December, asking about his claims, the company's conduct and the stock sales, to which CEN Biotech did not respond. The company later said it could not address those questions because it was in an SEC-mandated quiet period. However, that claim is also suspect, given that SEC quiet-period rules do not apply to the company, according to information from the regulator.

Opposition health critic Libby Davies said the matter is too important to be left to regulators outside Canada, who may not see the issue of Canada's new medical marijuana sector as a priority. Ms. Ambrose's treatment of the file is an abdication of responsibility by Health Canada, Ms. Davies said.

"This is a big business, we're talking about hundreds of millions of dollars over all in medical marijuana," Ms. Davies said. "Their approach of, 'It's not really our problem, let's leave it to other people to follow up' – this is a completely failed response. It's surprising, given this is the Conservative government that holds itself up to a high standard in terms of market practices."

Multiple requests for comment from Ms. Ambrose have been declined by her office.

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