“Peltz is sitting across from another monster fucking billionaire, eating and talking about Aurora, and he goes, ‘This fucking thing is worth $12 billion,’” recalls Booth. “Here I am trying to justify the cannabis space and he’s coming to work with me! I should’ve sold my shares that day.”
Justifying the cannabis space was every weed executive’s job. John Fowler, the founder of Canada’s Supreme Cannabis Company, one of the sixteen Canadian cannabis brands to reach a billion-dollar valuation, says he never escaped his financier partner’s weed jokes: about the Cheeto stains on the keyboards, the boardroom meetings held beneath clouds of smoke. The industry was started by unconventional outsiders. But by the summer of 2019, you couldn’t still be investing serious sums in marijuana and laugh at the product, which made many of the original founders shift their beliefs. Trevor Fencott was no longer that far off, ethically, from Hilary Black. Terry Booth at Aurora financed Akwasi Owusu-Bempah at Cannabis Amnesty. And the companies prided themselves on obeying the laws. The licences still meant everything.
Cannabis companies were being judged by Merrill Lynch and audited by Ernst & Young. CannTrust couldn’t be Ascent Industries or Bonify. Its licence to sell recreational and medicinal pot was the engine behind its entire valuation. Without its licence, it would go broke. The industry was competitive and it was always a race: to build facilities, grow weed, come out with a new product. But you couldn’t screw with Health Canada, couldn’t screw with the prime minister’s Cannabis Act — so the Canadian companies adhered to the rules. The success or failure of legalization, a major Liberal election platform, would be measured on companies’ not embarrassing regulators. And the people running the companies, they’d assure investors, didn’t even use their product; at most of Canada’s largest weed brands, it was everyone else at the companies who did.
Eric Paul and Peter Aceto at CannTrust could assure their backers that they didn’t smoke weed. They were above it. Someone like Nick Lalonde, however, thought that pot was important; legalization mattered to him. Pot wasn’t an iPhone. It was a community. Meanwhile, Paul and Aceto, so the market was led to believe, were valuable executives because they could keep potheads in line. Lalonde says he wanted nothing more than for the industry to succeed. “Legalization was a dream come true,” he says. “I grew up in the city, and weed was a big part of my life — when you hung out, you smoked it — and so when I got over to CannTrust, oh wow, the best growers in the world were my colleagues. This was it for me. But I didn’t want to commit a crime.”
Crimes committed at CannTrust, emails later revealed, weren’t only committed and covered up by Nick Lalonde. The Globe and Mail reported that on November 16, 2018, Graham Lee, the company’s director of quality and compliance, emailed his bosses, including Paul and Aceto, after a Health Canada inspection. “We dodged some bullets,” wrote Lee. Unlicensed rooms were filled with plants. And vast sums of cannabis were lost and not reported. Health Canada hadn’t discovered these mistakes — this time. But eventually, concluded Lee, they would.
The company was steps ahead of the firing squad, and Graham Lee didn’t know what to do. He turned to his professional bosses for help. “Although serious on their own, each of these [breaches] can be talked through,” wrote Lee. “The concern is that together they will paint a picture with the regulator of a company not in control.”
These emails did not mention Lalonde’s concerns, and Health Canada never got the chance to prove Lee right about the multiple violations at CannTrust. Because, Lalonde says, he couldn’t hold his tongue any longer.
No one at CannTrust would listen to Lalonde, so he quit his job in May. Before leaving, he told his bosses, “You’re going to get caught. You’re screwing over so many people. It’s not the right thing to do. I’m not going to let this go.”
Lalonde tried to let it go, he really did. But when he read the CannTrust press releases about their production volume, he knew the company was duplicitous. He understood the pressure his former company was under to produce volumes of weed. But he also knew the facility inside out and knew the company was exaggerating its numbers. There was no need to lie. They were (really) about to legally acquire two hundred acres of outdoor production in British Columbia, which could add three hundred thousand pounds of production in the new year. It wasn’t fair. On June 14, 2019, two weeks after leaving CannTrust and taking a job in construction, Lalonde sent a letter to Health Canada, the Globe and Mail, and his local paper about the role he had been asked to perform at the company.
When Health Canada again inspected the CannTrust facilities, this time it knew what it was looking for and found it. On July 8, three weeks after the Health Canada inspection, nine days after Bruce Linton was fired, CannTrust announced that Health Canada had put a freeze on 5,200 kilograms of cannabis grown in five unlicensed rooms — the rooms that Lalonde had been instructed to disguise. CannTrust, in announcing a freeze on its product, also admitted it had provided inaccurate information to regulators. It was determined 12,700 kilograms of marijuana had been grown in unlicensed rooms from October 2018 to March 2019.
In two days, the company’s share price dropped 33 percent.
Peter Aceto and Eric Paul were fired on July 25, but the biggest bombshell was yet to drop. It was one thing to be accused of growing weed in an unlicensed room that was exactly the same as your licensed rooms — because you needed to get weed onto shelves and you were growing faster than Health Canada’s staff of inspectors. It was simply stupid. And there was a well-established legal workaround in the industry. “If they were one or two months away from their licence, and they’re losing ground to guys like us, guys with product, then do something about it — buy cannabis!” says Aphria’s former CEO Vic Neufeld. The weed companies often bought each other’s stuff and still do that today. Cannabis companies had operated in grey zones since the medical days. Insider trading allegations, however, stank of old-fashioned corruption.
“CannTrust officials sold shares after email about unlicensed pot” was the Globe and Mail headline on July 30 after investigative reporters David Milstead and Mark Rendell discovered that Eric Paul and Mark Litwin, CannTrust’s vice-chairman, sold their stock on the day they received Graham Lee’s email. Paul and Litwin sold $1 million worth of their CannTrust shares that day, and then they sold $5 million worth of their shares over the next thirty days.
“We will not allow our company to be associated with the illegals, period,” Eric Paul had written back in 2016, on an early email thread started by Hilary Black and Marc Wayne among the original medical cannabis companies about the need to end taxation of medical cannabis. The signatories on the associated press release would include grey market wellness dispensaries. Eric Paul said no way and Terry Booth of Aurora had a response: “The ‘we don’t want to be associated with illegals’ bullshit is simply put, bullshit. Get off your pedestal. You wouldn’t be here without the fight/risk that these dispensaries, compassion clubs and MMAR over-growers have taken to provide medicine for the safe, wonderful cannabis plant you are now hoping to profit from.”
Trading by company executives and board members who have confidential information about the company that would affect their stock price is insider trading. The people buying cannabis stocks, by and large, are retail investors, many of whom feel a close connection to the plant. On July 8, CannTrust was trading at $6.46. After it revealed its Health Canada sanctions, it was trading at $2.86 and froze sales of all its recreational and medical products.
The industry had little sympathy for the company, especially because it seemed like the executives had parachuted in without paying dues. “[Just] because you wear a suit, you’re not smarter than my cousin who fixes a tractor,” says Sébastien St-Louis at Hexo.
St-Louis says he never felt CannTrust deserved to be put on its pedestal. While the market turned on cannabis companies, he thought the real problem lay somewhere else. “I don’t blame cannabis — I blame the power structures,” he says. “At CannTrust, it was up to the board of directors to sniff the bad behaviour out, but when they don’t, and when it’s rewarded, people get hurt and the results speak for themselves.”
Lalonde says CannTrust was under tremendous pressure to produce more cannabis. But that same pressure was felt by all the leading cannabis brands, and CannTrust’s revelations sent the industry into free-fall: Canopy’s stock dropped by 7.99 percent. Aurora dropped by 5.98 percent.
“Just as CannTrust does a listing through the Bank of America and trades on Nasdaq across a whole U.S. group, it turns out they’re not doing what they said they would do and they were very bad,” says Bruce Linton, who did a press tour the day after his sacking, wearing a hometown Martello Technologies T-shirt on Bloomberg, which sent that company’s stock up 89 percent.
On the day of his firing, Linton said something that would often be repeated: “Canada is through.”
None of the major companies were profitable and there was a stench around the sector — a reckoning in the air — and hopes around Cannabis 2.0 felt deflated. In August 2019, Lorne Gertner had flashbacks to what it was like when he first started seeking financing back in 2013: the money dried up for weed brands. Citing “prevailing market conditions,” Tom Flow, now the CEO of a company called Flowr, backed by Stephen Arbib, decided against his $125 million public offering.
Linton says, given the CannTrust situation, he was not surprised. “So what does the situation with CannTrust do? It makes all institutions say, ‘I’m out of this shit until there’s a sheriff in town.’”
Hilary Black, Akwasi Owusu-Bempah, Alan Young, Jodie Giesz-Ramsay, Rosie Rowbotham, and Terrance Parker all feel CannTrust confirmed their worst apprehensions of the legal industry. The wrong people were running the show. “It’s painful that rich white businessmen getting into marijuana see it as an avenue to circumnavigate the rules and use it merely to focus their greed,” says Black. Now that she was working as Canopy’s chief advocacy officer, without Linton, Black was concentrating on removing the tax on medicinal marijuana. While her efforts were based on patients accessing cannabis, as they always had been, it was hard not to be dismayed by the corporate world she’d been defending. Bruce Linton was her buddy and he sold his stock before legalization without telling her. Everybody in the legal sector piled on CannTrust.
“I’ve seen more bad actors in the legal space than I ever did when I was buying illegal weed,” says John Fowler.
Alison Gordon says everyone was losing money and confidence in the weed stocks. She says her massage therapist lost a significant amount of money after the CannTrust breach. The therapist said that everybody in cannabis broke the rules, right? “I was like no! Maybe I’m naive, but I can tell you one hundred percent that we don’t!” Gordon reiterates that the entire value of a cannabis company is tied to its licence, and if you jeopardize that licence, you risk your entire business.
The cannabis companies, however, were plagued by mistrust, as if the stigma they were trying to alleviate was given licence to return, full thrust. And it wasn’t just in Canada.
On August 15, 2019, the U.S. Federal Bureau of Investigation released a statement. “States require licenses to grow and sell [marijuana] — opening the possibility for public officials to become susceptible to bribes in exchange for those licenses,” FBI public affairs specialist Mollie Halpern said on an episode of the FBI This Week podcast. “The corruption is more prevalent in western states where the licensing is decentralized — meaning the level of corruption can span from the highest to the lowest level of public officials.”
Corrupt officials. Fake walls. Insider trading. No more Bruce Linton. And CAFE was selling unlicensed marijuana out in the open while budtenders on the front lines at the retail locations struggled to hold on to their marijuana dreams. The stocks were down and the investment capital was dry. Alison Gordon is dismayed. “Everything is compliance, that’s why CannTrust is shocking — it’s sad. Fake walls? What’s going on?” she says. “Part of the problem with the markets is a lack of trust and that my friend would say, ‘Everybody in weed’s doing that.’ No! How could you risk something so valuable?”
Nick Lalonde took a job in construction. He says he received death threats. He never wanted to be a sheriff of the industry, least of all at CannTrust, among people he viewed as mentors, as friends. He gave up booze, but not marijuana, and moved in with his girlfriend, helping raise her son. “Part of the problem with the pot industry is the people they had running it,” he says. “There’s this air of superiority, but it’s like, ‘No, you’re not superior to stoners.’ We’re not idiots and you’re not smart, and you can’t do whatever you want because you went to a fancy college. Fuck you. Weed was here before you and we don’t need you — we’ll be here after you’re gone.”
Chapter 18 2.0
“We all get the bullet eventually.”
Terry Booth
In the fall of 2019, Sébastien St-Louis stopped drinking alcohol and started smoking weed. The pounds had been accumulating and the hangovers had gotten worse, and with two children and nonstop work pressure, the rigours of cannabis life required intense concentration. Booze could not be sustained. St-Louis was a former weightlifter and athlete who saw the corporate world through anecdotes about sports. Alcohol, despite being part of the Hexo culture, had become a distraction. One of his favourite days was when, after announcing to the team their joint venture with Molson Coors — one of Canada’s oldest companies, born and still based in Quebec — he had a fifty-three-foot trailer pull into their warehouse. He opened its rear doors and proceeded to hand out six-packs of Coors Light. “Look how far we’ve come,” Sébastien couldn’t help thinking. The idea that a trailer full of Coors Light represented the apex of success betrayed his youth. It was the suds of choice shared by Sébastien and his brother-in-law and founder-in-arms, Adam Miron. That had been a year before, drinking a Coors Light with his partner, with a billion-dollar valuation, on top of the world.
St-Louis was ready to double down that fall after CannTrust imploded and Bruce Linton was axed. In July, before the October release of the 2.0 products, Miron had decided he’d had enough marijuana and left the company he helped create. Miron’s dad had been Hexo’s first medical marijuana patient, and Adam and Sébastien had done everything together those first few years. But the times were changing, and the approach had to change as well.
“Adam had built a marketing organization that was stakeholder focused as opposed to consumer focused,” St-Louis says. “You had to [be], at the time, competing with guys like Bruce, but we needed to make a reversal and we needed to cut expenses.”
St-Louis says he never considered stopping. Instead he would pivot his company. The first problem to address was that, in the fourth quarter of 2019, his stock was sinking, losing 20 percent after missing their guidance projections, just as Aurora had done. St-Louis said he’d hit $26 million in revenue, but it was closer to $16 million, a shaky enough quarter to have the company rescind guidance for 2020, blaming, among other things, the slow pace of store openings in Ontario and regulatory uncertainties. “With the stock collapsing and the stock pressure, we needed a capital raise and we thought we had more runway. We needed to cut expenses, but all the while I knew the company was maturing,” St-Louis says.
So, as CEO of a weed corporation, St-Louis began using his product. Just like Trevor Fencott. Terry Booth, on the other hand, had always smoked weed. There had been times in Sébastien’s life when he drank too much — and this was not going to be one of those times. Without his brother-in-law, the success of the entire company sat on his shoulders. Despite everything, he was optimistic. “I saw the CannTrust failure as a positive. It created uncertainty in the market, but the market is short term,” he says. “When CannTrust happened, I saw it as getting rid of a competitor that was using an unfair advantage and taking up a lot of airtime.”
He had the same thought about Canopy’s firing of Bruce Linton. “He’s a wild card. He’s able to create unexpected angles of attack. Without Bruce, I know Canopy isn’t going to do anything bananas to blow me out of the water.”
