Marijuana firm’s reply to controversy sparks more doubt on claims

An attempt by CEN Biotech to address serious questions surrounding its bid to become Canada’s largest medical marijuana company has led to further examples of misrepresentation and problematic claims by the company.

In a 29-page letter responding to an investigation by The Globe and Mail published in December, CEN Biotech chief executive officer Bill Chaaban argues that his company has been the victim of “innuendo” and unfounded allegations.

But in responding to The Globe’s investigation – which detailed a pattern of questionable conduct by the company in its bid for a Health Canada licence – the company appears to have added to the problems that have already made it a controversial figure in Ottawa.

The lengthy document sent to Health Minister Rona Ambrose, NDP health critic Libby Davies, deputy Liberal leader Ralph Goodale, and The Globe on Friday contains numerous misrepresentations by Mr. Chaaban, including a claim that the CEO never conducted an interview for which there is a recording. The letter was created under the advisement of Toronto strategic relations firm Pathway Group, and raises further questions about CEN Biotech’s conduct as it seeks to open a massive medical marijuana facility in Lakeshore, Ont.

The company has reached the final stage of Health Canada’s licence approval process. But the concerns raised in the investigation – including misleading statements by Mr. Chaaban that helped push the company’s stock price up substantially while he sold off more than 71 million shares at a significant profit – have cast doubt on how much Health Canada has vetted the conduct of the companies it is licensing.

Last week, the opposition NDP and Liberals called on Health Canada and Ms. Ambrose to halt the company’s licence application for further investigation, given the questions and concerns surrounding CEN Biotech’s conduct.

Since then, CEN Biotech’s attempt to set the record straight have resulted in what appear to be further misrepresentations in a letter submitted directly to the government. They include:

• A claim by Mr. Chaaban that he never conducted an interview in which problematic statements were made regarding his licence application: The Globe revealed that Mr. Chaaban said in an Aug. 5 interview with a reporter that CEN Biotech would have its Health Canada licence that month. This statement came in spite of a written warning from Health Canada that he could not make claims that a licence had been obtained or was imminent. Such statements, made by the CEO several times in 2014, helped drive up the company’s share price even though they were not true. The Globe detailed that Mr. Chaaban was actively selling large numbers of shares after the statements were made. But in the letter sent Friday to Health Minister Rona Ambrose and others, Mr. Chaaban denies the interview took place. “Bill Chaaban never did an interview on Aug. 5, 2014,” the letter states. When informed on Monday that there was a recording and e-mail record of the interview occurring on Aug. 5, Pathway Group could not explain the statement in the letter.
  
• A claim by Mr. Chaaban that his company’s press releases have been misquoted and misconstrued: The Globe reported that CEN Biotech issued a misleading press release more than a year ago, which helped its stock to skyrocket. The company said it had been issued a “Ready to Grow Letter” by Health Canada, and had “received its regulatory approval from Health Canada to become one of Canada’s commercial medicinal marijuana growers.” This misrepresentation and others helped the company’s shares surge 2,800 per cent in a matter of weeks. At about the same time, Mr. Chaaban sold millions of his shares, which he had been issued for next-to-nothing as an insider. However, Mr. Chaaban states in his letter to government officials that the company’s press release was misquoted and draws attention to a Jan. 9 press release as evidence for his claim. But the press release in question, in fact, was issued on Dec. 30, 2013, at 4:23 p.m. on AccessWire. It is not clear why the letter is directing government officials to the wrong press release.
  
• Mr. Chaaban claims his company was never able to respond to allegations of multiple misrepresentations and questionable stock trades because it has been in a “quiet period” mandated by financial regulators due to the announced spinoff its Canadian division. However, information provided to The Globe by the U.S. Securities and Exchange Commission indicates such claims are unfounded. According to SEC rules, neither CEN Biotech nor its parent company, Michigan-based Creative Edge Nutrition, are eligible to claim a quiet period under SEC rules because they are non-reporting companies. It is not clear why the illegitimate quiet period claim is being communicated to the federal government in the letter.
  
• A claim by Mr. Chaaban that he has been taken out of context: At an industry conference in Denver in July, Mr. Chaaban implied to prospective investors that CEN Biotech has a close relationship with Health Canada, suggesting that his company was “going to partner with them to build the industry, domestic and foreign.” The comments, said in context with other statements touting the company’s shares and position in the market, were highly unusual and distinctly out of step with how other companies conduct themselves in the Canadian medical marijuana industry. The statement, made without approval from Health Canada, helped further stoke the shares. Mr. Chaaban argues in his letter that he was taken out of context though. Yet, when asked about Mr. Chaaban’s comments, which helped push up his company’s share price while the CEO sold his stock in large numbers, Health Canada disagreed that the statement was allowable and issued the following statement to The Globe in December: “Health Canada does not endorse or partner with any licensed producer or licensed producer applicant.”
  
• A claim by Mr. Chaaban that all of his share sales are approved by regulators: The Globe reported that Mr. Chaaban filed paperwork to sell a large number of shares, including one share sale that came in advance of a controversial announcement that CEN Biotech was being spun off by its parent company, Creative Edge Nutrition. The move could reasonably be expected to cause the shares to drop, since it was unexpected and potentially negative to the stock, and that is precisely what happened: The shares fell 32.6 per cent following the announcement. However, Mr. Chaaban’s share sales prior to the announcement would have shielded himself from that drop. In his letter, the CEO says he “filed the appropriate paperwork.” However, the filing of paperwork to sell shares doesn’t mean the sales have been approved or vetted by regulators, as Mr. Chaaban has claimed. The CEO also maintains that he funds the company’s operations through his personal share sales. When asked by The Globe if he thought it could be seen as highly unusual for a company to fund itself through the CEO’s personal share sales, rather than through a public issuing of stock that is subsequently recorded in a transparent manner for other shareholders to see on the firm’s books, Mr. Chaaban said: “I’m not going to debate with you,” and said he didn’t violate any laws.
  
• An assertion by Mr. Chaaban that the company did not improperly use material belonging to another company to tout its own operations: At a presentation to residents of Lakeshore in October, a company official used a large photo of a high-tech growing operation to tout what CEN Biotech was building in the town. However, when asked if it was an actual photo of the inside of the CEN building, the official acknowledged it was not, and that the photo was instead of an operation in Japan. However, The Globe learned the photo belongs to a company in Texas. In his letter, Mr. Chaaban states CEN Biotech was merely “providing an example of what the inside of the facility would look like.” It is not clear how CEN Biotech obtained the photo, or why the company was not up front about the origins of the material. Mr. Chaaban has not responded to questions on the matter.
  
• A claim by Mr. Chaaban that he severed ties with his investor relations firm: In the letter distributed to Health Canada, Mr. Chaaban said reports that the company’s investor relations firm cut CEN Biotech loose were untrue. On Dec. 31, The Globe reported that 5WPR of New York dropped Mr. Chaaban’s company after learning that CEN issued unsubstantiated press releases under 5WPR’s name, without its knowledge or permission. Among the unauthorized press releases was a Dec. 21 response to The Globe investigation claiming Mr. Chaaban’s share sales were grossly misstated. 5WPR said it could not vouch for that press release and ordered the company to remove its name from the CEN website, which took several days for Mr. Chaaban to do. In his letter, Mr. Chaaban states he sent a message to 5WPR giving them 30-day notice of termination on Nov. 18, which severed their contract. 5WPR president Ronn Torossian disputes this. He said in response to Mr. Chaaban’s claim in the letter: “Due to confidentiality concerns we do not discuss client relationships, however this claim would be categorically untrue.”
  
• New questions about the legitimacy of Mr. Chaaban’s signature on key company documents: In recent weeks, documents have emerged showing numerous distinctly different signatures on documents Mr. Chaaban has filed to regulators in the past few years. The letter Mr. Chaaban sent to The Globe and to government officials, including Health Canada, appears to contain yet another noticeably different signature. When asked about the discrepancies in his signature last week, Mr. Chaaban shrugged off the concerns in a phone interview, saying the way he signs his name “depends on the mood I’m in.” He added: “Maybe I’m Sybil and I have five personalities and need five signatures. It’s a ridiculous point to focus on.” Mr. Chaaban’s mention of Sybil is a reference to the character in a 1976 movie starring Sally Field about a woman with multiple personalities. Mr. Chaaban did not say the signatures aren’t his, or that someone else signed any of the documents for him.
  

Below are examples of the different signatures.

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Although the NDP and Liberals raised concerns about the company’s conduct last week, Ms. Ambrose has refused to answer questions about CEN Biotech. A spokesman for her office said the minister does not get involved in licence applications. However, more than 100 licence refusal letters obtained by The Globe and Mail through Access to Information show the minister is repeatedly referenced as the person turning down a licence application. In one letter sent in April, Health Canada states the licence for an unnamed B.C. company is being turned down because “the Minister has reasonable grounds to believe that false or misleading information” has been supplied.

NDP health critic Libby Davies has said the government’s new medical marijuana program, which has so far licensed 15 companies and is expected to be worth billions of dollars, requires closer scrutiny, particularly since CEN Biotech is applying to be the biggest company in Canada’s new privatized industry.

Deputy Liberal leader Ralph Goodale said in an interview that the government needs to probe the concerns further.

“If at any point in the application process something untoward comes up – when you’re dealing with allegations of misrepresentation, stock manipulation, falsified documents etc. – the applicants surely are on notice that if there’s a hint of that before, during, or after the application process, your application is in jeopardy,” Mr. Goodale said.

“And if the companies were not told that, then there’s serious dereliction of responsibility on the part of the government.”