That summer, a year after Project Claudia shut down a wide swath of illegal cannabis dispensaries around Toronto, the police, Health Canada, and the medical cannabis companies were working hard to get their houses in order before the federal government legalized recreational cannabis. Legal weed had never happened before in a G20 country and there was pressure from every level of government to get it right.
CannTrust was Lalonde’s first job with direct deposit and an HR department. He got the job through a family friend and found CannTrust to be like a family. The team, minus the executives, drank and smoked weed together after work. He was personally competitive, in terms of cannabis quality, with the other licensed producers and looked up to Brady Green, the CannTrust master grower, as a mentor and an idol. A CannTrust jack of all trades, he was proud of his work and dedicated to the company. “Master of Destruction” read his business card — his first ever. Lalonde, handy in construction and physically strong, took direction from Cameron Fletcher, senior manager of greenhouse operations. He earned $45,000. He was twenty-six years old.
“This is where I’d be for the rest of my life, part of something I believe in — which also happens to be the most exciting industry in the world,” he says. “I was inside.”
In 2018 CannTrust was led by chairman Eric Paul and CEO Peter Aceto, former chief executive officer of Tangerine, the online wing of Scotiabank. CannTrust differentiated itself from its peers by portraying itself as serious, business-minded, with a rare-in-the-industry grown-up approach to its dealings.
Aceto was a suit, and he had the industry’s most vaunted professional experience: banking. He was seen as the executive the industry needed. Bruce Linton was a promoter, Vic Neufeld at Aphria was seen as an accountant, and Aurora’s Terry Booth was portrayed as a cowboy, but none of them had ever led a company of the magnitude of the weed brands they founded. Very few Canadians have led billion-dollar companies, and even the ones with experience in the public markets have never led anything like the juggernaut start-ups these men were steering now. Meanwhile, many other cannabis companies had young CEOs or even connections to the black market. But CannTrust was different. At least it was supposed to be.
Even Walls Fall Down: A look inside the CannTrust facility, before the exposure by Nick Lalonde would lead to its billion-dollar demise.
Nick Lalonde, CannTrust’s new hire, showed up enthusiastically to work, even though it was grunt work. The kid was happy to be working amid weed and buzz. He helped break down the original greenhouse in Fenwick, Ontario, and schlep the waste material to the dump. He also carried the cannabis plants from the trucks to the grow rooms. Like in any big business, at a company like CannTrust, with a staff of 800, or even Aurora, with a staff of 1,700, only a very few people were executives. Most of the employees in marijuana worked like Nick did, as growing cannabis was labour intensive and there was equipment that needed to be hauled and things that needed to be fixed. When Lalonde started at CannTrust in 2017, the eight biggest cannabis companies were trying to recruit thousands of new people. These people, people like Nick, followed instructions, made minimum wage, believed in the cause, and, generally, smoked weed.
At the Fenwick CannTrust facility in the summer of 2017, there were twelve growing rooms, seven of them licensed by Health Canada to produce and sell medical marijuana. The five that weren’t licensed were fully operational and were in the Health Canada queue to be inspected. From fifteen to thirty people, Lalonde tells me, worked in these unlicensed rooms each day, growing pot, which roused his suspicions. Lalonde says he often worked late — though he was never paid overtime — and he remembered the night, at perhaps around 7:30 p.m., when his manager, Cam Fletcher, made an unusual request. His boss wanted him to hang a wall up around the unlicensed plants. “Nick,” he said, “we just need to take some pictures.”
Lalonde says he understood Fletcher’s choices. Fletcher is a weed guy — not a suit — who was taking instructions from his boss, and everyone wanted their company to win: grow the most pot, grow the best pot, have the highest stock price, get rich. There was not enough cannabis in the legal market to meet demand, and the weed in the unlicensed rooms was the same as the pot growing in the licensed facilities. It was all from the same seeds grown by the same people with the same equipment. The problem was that you couldn’t speed up the growth of a plant. And it was still illegal to sell cannabis to medical patients from unlicensed grow rooms. Until Health Canada inspected each room of a licensed facility and granted a licence, it was illegal to sell medical marijuana grown in unlicensed rooms. Nick, however, did what he was told to do. But he didn’t like how it felt.
“I’m not stupid,” he tells me. “I realized we’re hiding all these plants and moving cameras around and it’s just, ‘What the hell?’ Something’s wrong here,” he says.
That summer, Nick spent a few weeks requesting a word with his boss, but was routinely ignored. Finally, Nick and Cam sat down. Nick says he told his boss, “I don’t have a criminal record and I don’t want anything to do with going to jail. Fuck that, I like my freedom.”
George Robinson is a long-time cannabis insider who has worked with companies like Tilray and Aurora to ensure their greenhouses are up to Health Canada regulations. Burly and sporting a silver goatee, he’s a fan of Formula One racing and a long-time security analyst whose clients include Corrections Canada, the Bank of Canada, and the Canadian Security Intelligence Service. Robinson, basically, is a fixer. He helped Brendan Kennedy at Tilray receive its medical licence in 2013 and brought Aurora’s facility in Alberta up to code in 2015. Specializing in zoning bylaws and quality assurance — he can read the Health Canada playbook and give the agency back what it wants to see — Robinson helped design the huge early cannabis grow ops to create Health Canada–approved workflows and processes.
In 2018, he got a phone call. “I think we’re in trouble,” said an executive at Bonify, a Winnipeg-based privately held medical cannabis company. Four years earlier Robinson had helped start Bonify, transforming a meat-packaging plant into a state-of-the-art, Health Canada–approved licensed facility. Robinson had great affection for the company, and he caught a flight to Manitoba from his home in Vancouver.
Bonify was accused of repackaging cannabis purchased from the Hells Angels and selling it into the licensed medical cannabis system. At the behest of the company and in order to help it become Health Canada compliant, Robinson studied the company’s books. His research was enough to force the termination of the entire C-suite and ultimately bring down the company. Robinson, with deep connections in Ottawa and government contacts from his time with CSIS, believes the Hells Angels — and their marijuana — are rampant in legal cannabis, even today. Many insiders dispute this claim, but it lingers around the industry.
The criminal lawyer Alan Young, who has worked with Health Canada and defended illegal growers for forty years, thinks the biker gang is not involved in any large way. Weed is smelly. And bulky. It needs a lot of room to grow and doesn’t sell for much money. In other words, it’s not as good an illicit product as other illegal drugs. The police officers and detectives I’ve spoken with tend to agree with Young. There is crime in marijuana, but my source with Ontario’s Organized Crime Enforcement Bureau believes it’s not that the Hells Angels are actively involved, but rather that the illegal market consists of groups of loosely cobbled-together packs of unaffiliated individuals. Neither the grow ops nor the illegal dispensaries, my source believes, are the handiwork of organized national biker gangs.
Yet George Robinson wasn’t sure what was happening at Bonify, and he thought there were many bumps in the road in the transition from an illegal to a legal system in Canada. This wasn’t surprising. Pot had been against the law for more than one hundred years. It’s hard to shut down an illegal economy. Robinson, however, says that the Canadian industry has been plagued by illegal connections from the outset and points to Chuck Rifici being detained by the RCMP in 2014 at an airport hangar in Kelowna with his hockey bags of weed. Legalization has always been a grey zone.
At the time Rifici was detained, raw materials from licensed designated growers’ seeds could be grandfathered into the legal medical market. Still, hockey bags? Not a good look. Back then, Canopy’s pot was confiscated, but they didn’t lose their licence. The accusations against Bonify, which Robinson was now investigating, were that 441 pounds of unlicensed cannabis had been sold into the legal market from undocumented sources.
Canada didn’t have a cannabis shortage, says Robinson — the legal industry did. Since the licensed producers needed more pot than they could grow and since their growers stemmed from the underground, where many still had connections, it was not difficult to find pot if you were desperate — even if you had a legal licence — and knew where to look. Smaller licensed producers needed revenue to keep the lights on.
Pot, says Robinson, was coming into Bonify’s facilities without documentation and was arriving not in Brink’s armoured trucks, but in pickup trucks driven by guys with tattoos. “It didn’t require Columbo to ascertain where marijuana was arriving from in Manitoba,” he says. It was coming from the black market. Further, Robinson discovered that, without any documentation, the Bonify CEO had approved the product and its head of finance had approved the payment. The payment, to say the very least, was uncommon. “If everything else wasn’t red flagged enough,” Robinson tells me, “it sure as hell should’ve caught someone’s attention that these invoices had to be routed through Mexico.”
Robinson says that Bonify’s problems were writ large for the industry: they’d entered into supply agreements for thousands of kilos of pot, which they had no way of growing, but which was their only revenue option, and there were bills to pay. Bonify, says Robinson, needed to deliver the illegal weed to get the money to continue to grow the legal weed and secure additional funding.
It was similar to the mess unfolding at CannTrust. When you overpromise, there’s a reckoning when it’s time to deliver. To counterbalance the lack of product, cannabis companies have always bought and sold each other’s weed. And for a lot of mid-tier companies, it was more lucrative to sell their cannabis wholesale, white labelled — which means you’re giving your product to someone else to sell as their own — than it was to try to achieve their own market share. It was easier for a smaller company to sell its weed in bulk to a more established company that had production and distribution networks secured. For the bigger company, market share was worth more than the money it would lose paying too much for pot. They weren’t chasing profits; they were trying to pump their stock price and eliminate rival brands in a race to become the Coca-Cola of weed. Having the biggest patient list was valuable, as Mettrum proved. It was the perfect thing for a press release. The problem was, though they faced very different accusations, CannTrust and Bonify, according to Lalonde and Robinson, didn’t cut corners — they broke laws.
“These people didn’t care. To them, because they had no connection to the culture, weed was money,” Nick Lalonde says. “It’s almost like there was this attitude that somehow they thought weed was dirty or quasi-illegal anyways, so what’s the big deal about doing illegal things? I don’t know if they thought that weed gave them an illegal licence, but it was a fucked-up thing to see for someone who always wanted to work at a big, legal weed brand.”
There was a suspicion in the air that things were amiss.
Gabriel Grego was head of Quintessential Capital, an activist investment firm in New York that studies markets and companies and seeks to question their leadership and poke holes in their business claims to make money. Our banker Chip calls Grego “a short seller on crack,” meaning that if all short sellers are pit bulls, Grego was a Tyrannosaurus rex in terms of his aggressive methods. A former Israeli paratrooper, Grego became interested in Canadian weed. When he looked at the industry, he saw a market fuelled by enthusiasts with little hope of meeting market valuations; their expenditures went well beyond the rosiest expectations for revenue. Grego didn’t think too highly of Karasiuk’s projections at Deloitte.
“It’s not bubbles that catch my eye — it’s corporate malfeasance,” Grego tells me from New York. At the end of 2017, he was studying the Canadian cannabis market. He believed Canada was too cold for inexpensively harvesting marijuana and had a population too small to match the Deloitte consumption projections. He also thought Canada’s first-mover advantage was slipping. By the start of 2018, nine U.S. states and Washington, DC, had legal recreational marijuana, and thirty-five of the fifty U.S. states would have legal medical marijuana by 2020. Why would Germany, Mexico, or Jamaica buy Canadian weed?
The gossip in investment circles, much of it fanned by Bruce Linton and other Canadian companies hell-bent on expansion and by Canadian media hungry for a scoop, was that Europe, South America, and Israel would be the next to end cannabis prohibition. Grego, however, didn’t think so and began investigating the investments of Canadian weed brands. He believed that Aphria, started by Cole Cacciavillani and now led by Cacciavillani’s friend, CEO Vic Neufeld — and valued at more than $2 billion in the summer of 2017 — had made self-serving deals.
Grego tells me he wanted to explore whether management had profited on unethical, perhaps illegal, mergers and acquisitions. He believes there were circular transactions with a company Neufeld once led called Scythian Biosciences and that there were attempts to hide names on corporate registries. Executives, he alleged but never proved, were paying exorbitant sums for shell companies they owned. “A lot of the companies Aphria was buying had applied for a name change shortly before the transaction,” Grego tells me. His investigations into Aphria’s dealings — inspired, he says, by spy movies — took him to Argentina, Colombia, and Jamaica. He was reliving his paratrooper days as a banker. In Colombia, he says, he discovered an abandoned building that was supposed to be the headquarters of Colcanna, a pharmaceutical distribution company that Aphria bought.
Grego also went to Jamaica to see Aphria’s assets on an outdoor grow, part of an acquisition that cost Aphria $300 million, but Grego couldn’t find the farm. Later, reporters from Bloomberg went to Kingston, Jamaica, themselves and were able to locate the production facility. Clearly some of the problems Grego was uncovering were rooted in the difficulty of determining anything’s value. Even if a farm in Jamaica wasn’t yet producing grams of marijuana, how much were a greenhouse, staff, and a production licence worth there, a country where everybody in cannabis wanted to own property? Jamaican ganja could be sold at a premium. It would be like selling wine from France. Lorne Gertner had made it his personal mission to set up a Canadian shop out there. Bruce Linton made several trips to Jamaica and definitely wanted in.
Plus, if you bought something, anything, generally, your stock would rise. Companies still can’t advertise in 2024. So in 2017, whose pot should you buy and which company should you invest in? It was not hard to do the math and say, “I like the company that’s growing weed in Jamaica. They’re spending big money and are doing big things.” So what was that Jamaican company worth to Vic? Vic says he never did anything wrong. However, on the ground in Jamaica, Grego says, it was easy to dismantle the hype. As proof, he says, he discovered that a Jamaican cannabis-growing licence wasn’t hard to obtain. “All you need is the will, five hundred dollars, and a bunch of Jamaican board members. That’s it.”
Aphria executives wanted to point out that Grego’s “short report” — a document laying out why he believed the company was overvalued — was self-serving. Grego intended to profit from it. The nature of Grego’s business was to borrow shares from current stockholders and then sell them at their current value. He then issued his short report, after he’d sold his borrowed shares, sending the stock down. Then, when he’d sunk a stock, he bought the shares back, at the lowest possible price. He profited, but all of the other investors lost their shirts.
Aphria promised a furious rebuttal to Grego’s report. But it never came.
Perhaps the industry was due for a correction anyway. The company would lose more than $1 billion in value from their encounter with Grego. In biblical terms, marijuana had its first burning bush.
“It was like somebody took a knife and turned it in my heart,” says Cacciavillani, adding that he’d never heard of a short report until one was issued for his company. Cacciavillani says Grego was full of shit, the report was all lies, and even if his company was overvalued, as many of the Canadian cannabis stocks were at the time, it had never engaged in anything against the law. “The report basically said the stock is worthless, but it’s far from being worthless. The $800 million we spent building the place is all there and worth every penny of it,” he tells me. “How can these fucking guys make shit up and lie and I have to defend it? Gabriel Grego tells lies.”
Grego would receive death threats after issuing his report, which only added to his allure, while the Canadian market hemorrhaged based on his claims.
“Instead of a rebuttal,” Grego says, “they sacked their CEO and entire board.”
Meanwhile, legislators in Canada were still working behind the scenes to make recreational legalization occur. In Ottawa, Eric Costen, the lead at Health Canada who would usher in the Cannabis Act, had his sleeves rolled up. Regarded fondly by activists and cannabis executives, Costen speaks about recreational legalization with humour and grace. “When young Mr. Trudeau declared his intentions, we could see the groundwork had been laid by Mr. Harper,” Costen explained. Marijuana legalization was pushed forward after Trudeau’s election win, and it was Costen who turned so many people’s dream into a plan. As the executive director of the Office of Medical Cannabis, with a staff of one hundred people, Costen took the Harper MMPR policy and updated it for Prime Minister Justin Trudeau. Costen told me that, while cannabis valuations broke through the stratosphere and Aphria’s Vic Neufeld dealt with Gabriel Grego, he kept his focus on the patients and the plants. He believed the Cannabis Act was important, and he consulted far and wide to understand the needs of the community.
“We had a foundation already for a regulated market,” said Costen. “Pot wasn’t being grown in somebody’s dank basement. We could show senators what these grow ops looked like — people walking around in hazmat suits in safe and secure locations. The message at Health Canada became ‘We’re going to legalize cannabis to better protect our children.’” It was the inverse of the Harper message, updated for Trudeau. “Our job was to frame legalization not as an absence of controls, but a set of new controls,” said Costen, “and that message was delivered by Mr. Blair.”
Blair, Toronto’s former police chief, could polarize. But according to Eric Costen, Bill Blair carried weight. He reaffirmed nervous constituents that an adult was watching over legal marijuana — even as Bruce Linton and Project Claudia made the news. But if Blair appeased nervous voters, like Canopy and Lorne Gertner, he also rankled activists countrywide. He’d arrested so many people for marijuana — especially a disproportionate number who didn’t look like him. Alan Young hardly wanted a cop in command, but for legalization to succeed, there had to be a decrease in marijuana stigma. Bill Blair was part of the team whose first order of business was getting the Cannabis Act passed for Trudeau. So, while Costen worked to hammer the rules in place at Health Canada, Trudeau’s best people — Jody Wilson-Raybould and Jane Philpott, with Blair acting as secretary for both officers — worked to execute the Cannabis Act, Bill C-45.
In the Senate, the job to bring the bill home fell on one man. Tony Dean, an independent senator appointed to the chamber on November 10, 2016, did not smoke marijuana, at least when his pot journey began. An independent lifelong public servant, Dean volunteered to shepherd the cannabis file. Like Anne McLellan and Trevor Fencott, he had no personal cannabis beliefs, but he saw a chance to make history. “It was enormously rich in terms of policy. It had the health component, the social justice element, and the economic window in terms of tackling an estimated three- to five-billion-dollar illegal market,” says Dean, who learned everything there was to know about marijuana and worked tirelessly to open minds among his Senate colleagues. Finally, once Anne McLellan’s cannabis task force report became Eric Costen’s bill, it was introduced by Jody Wilson-Raybould to Parliament on April 13, 2017. Tony Dean’s job was to wrangle enough votes to see it through. It was by no means an easy job. Dean says that some of his peers scoffed at reading the material he prepared — “We don’t do things like that around here,” said one colleague about reading. However, there were others, especially newly appointed independent senators like Dean, who were ready to dig in.