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OSC complaint, class-action lawsuits could add to CannTrust's woes

CannTrust marijuana plants at the Pelham Niagara Greenhouse Facility.
CannTrust marijuana plants at the Pelham Niagara Greenhouse Facility.

Questions whether CannTrust placed investors at risk of harm by not disclosing that it was breaching regulations by growing cannabis in unlicensed rooms

The enforcement team of the Ontario Securities Commission is reviewing a complaint filed against CannTrust Holdings Inc., the Financial Post has learned.

The complaint, filed last week in response to Health Canada’s finding that the company was growing cannabis in five unlicensed rooms, questions whether CannTrust placed investors at risk of harm by not disclosing that it was breaching regulations.

Speaking to the Post, the complainant, who asked to remain anonymous, said they decided to contact the OSC after reading a media report about a former CannTrust employee who told Health Canada that he was asked to put up fake walls at a greenhouse in Pelham, Ont., that covered thousands of cannabis plants to stage photos for the regulator.

“The question arose as to whether or not what was reported … was a criminal offence such as fraud,” said the complainant, who also expressed concern that the OSC might not proactively look into the matter.

The OSC’s lead inquiries officer responded to the complainant in an email that said the information they provided had been forwarded to the enforcement branch of the OSC for further review.

When asked if a complaint was filed or an investigation against CannTrust was underway, the OSC said it could not “confirm or comment on the existence, status or nature of any complaint, review or investigation.”

CannTrust is still reeling from Health Canada’s findings early last week, which resulted in a hold being placed on 5,200 kilograms of product. By the end of the week, the company’s stock price had dropped by nearly 50 per cent as it announced that it was halting all product sales and shipments.

The company’s troubles, however, don’t appear to be ending there.

Between Thursday and Friday, at least 14 law firms launched class-action lawsuits against CannTrust, alleging the company breached securities laws by releasing misleading statements while it was operating in unlicensed rooms.

CannTrust did not immediately reply to a request for comment on the OSC complaint or the class-action lawsuits.

Because CannTrust’s stock is dual listed on the Toronto Stock Exchange and the New York Stock Exchange, the company is being targeted by law firms in both the U.S. and Canada. Thirteen of the 14 lawsuits that the Post is aware of were made by law firms south of the border. The sole class action lawsuit in Canada was launched by Windsor, Ont.-based Strosberg Sasso Sutts LLP, seeking $250 million.

The lawsuit, which also names CEO Peter Aceto and each member of CannTrust’s board of directors as individual defendants, alleges CannTrust breached section 130 of the Ontario Securities Act which outlines liability for misrepresentation in offerings.

“The Securities Act requires material information to be disclosed to the public and it requires that information given to the public be accurate or truthful,” said David Wingfield, the lawyer co-leading the case for Strosberg Sasso Sutts. “In this case, it was not.”

According to the lawsuit, the plaintiff is a medical insurance professional from Mississauga, Ont. who bought CannTrust shares between Oct. 1 — around the time, according to Health Canada, that the company started growing cannabis in the unlicensed rooms — and July 5 — the last trading day before Health Canada’s findings were revealed.

Class action lawsuits only require one plaintiff to serve as the lead and represent the entire pool of investors who believe they were wronged by a company, Wingfield said. The firm, however, is still looking for additional investors to come forward.

The next steps involve building out the case, Wingfield said, by speaking to other investors and filing a formal statement of claim. A trial could only commence when a judge certifies a case and selects a firm to act on behalf of investors.

CannTrust’s stock closed Friday at $3.34. It was trading up almost 12 per cent at $3.73 Monday morning.

• Email: vferreira@nationalpost.com | Twitter:

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