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CEN Biotech, whose main facility is in Lakeshore, Ont., applied for a licence to grow 600,000 kilograms of medical marijuana.

Geoff Robins/The Globe and Mail

CEN Biotech's attempt to open the world's largest medical marijuana facility in Canada is being blocked by the federal government.

Amid serious questions about the company's conduct, including allegations of misrepresentation and false claims by the CEO, Health Canada informed CEN Biotech in a letter late Friday that the government intends to refuse its application for a licence.

"Based on a thorough assessment in line with the extensive requirements built into the Medical Marijuana Program, Health Canada has advised CEN Biotech of its intent to reject its application," Health Canada spokesman Stéphane Shank said in a statement to The Globe and Mail.

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The move comes after a Globe and Mail investigation detailed a series of misrepresentations by the company to investors and regulators. These included claims to investors that the company had been licensed, or was on the verge of being licensed, by Health Canada, when it was not. Those claims helped significantly drive up the stock price of CEN's parent company, Creative Edge Nutrition Inc. Meanwhile, the CEO was quietly selling large numbers of shares at a substantial profit.

Other problems have come to light in recent weeks, including revelations that the company invented an employee named Isak Weber to act as a spokesman to dispute the findings of The Globe's investigation. After it was revealed that Mr. Weber did not exist, the company's CEO Bill Chaaban said the name was a "nom de plume" for an employee named Roger Glasel.

Mr. Chaaban did not say why Mr. Glasel could not use his real name in a press release issued to the financial markets, and compared the matter to companies using mascots, such as Ronald McDonald and Mr. Clean.

The company then drew more attention in Ottawa when it emerged that CEN executives were claiming Mr. Glasel had ties to Health Minister Rona Ambrose. That forced Ms. Ambrose's office to take the unusual step of issuing a statement that said she did not know Mr. Glasel and "is disturbed by the allegation he is using her name without her permission or knowledge."

As well, the emergence of documents filed with regulators that show multiple different signatures attributed to Mr. Chaaban raised further questions about the company. In response, Mr. Chaaban said it did not matter how he signed his name and that he could sign with his feet if he wanted. But amid these mounting concerns, Health Canada decided on Jan. 30 to have the RCMP review the company's licence application.

"Health Canada has in place a rigorous screening process," Mr. Shank's statement said. "This helps ensure that the operations of Licenced Producers do not pose a safety or security risk to Canadians and to the local communities in which they are set up."

CEN Biotech has 20 days to respond to Health Canada's rejection letter. After that time, the rejection becomes final "unless the company successfully provides a response that causes Health Canada to change its intent," Mr. Shank said.

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Mr. Chaaban said in an e-mail on Friday night he was not aware of any communication from Health Canada. However, Mr. Shank said the company "was informed in writing" on Friday.

Given the issues surrounding CEN Biotech in recent months, the rejection letter appears to send a message to the nascent industry that Health Canada will not licence applicants that do not conduct themselves in a professional manner. The privatized medical marijuana sector was opened April 1, and is being set up under orders from the Supreme Court of Canada.

CEN Biotech applied to grow 600,000 kilograms of medical marijuana, making it the largest applicant under the federal program. So far, the government has licensed 15 companies. More than 1,200 have applied, and more than 500 have been rejected.

"The screening process has been designed with stringent criteria. It will continue to be scrupulously applied to all applicants," Mr. Shank said.

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