Cannabis company, ex-CEO settle OSC allegations

By James Langton | November 4, 2022 | Last updated on November 4, 2022
3 min read
a farmer puts his marijuana plant into soil, related to pot index
123RF/Eric Limon

A cannabis company, which was allegedly used to divert investor funds to another firm that never repaid them, has settled with regulators for disclosure violations.

Ontario’s Capital Markets Tribunal approved a settlement between staff of the Ontario Securities Commission (OSC) and Canada Cannabis Corp. (which became Canadian Cannabis Corp. following a reverse takeover) and its former CEO, Benjamin Ward, who admitted to violating securities laws when the company issued offering memoranda that contained misleading statements.

According to the OSC, in 2014, the company raised approximately $3.2 million and US$8.8 million from investors through private placements, ostensibly to finance its operations.

However, the regulator alleged that some of that money was used to finance the transfer of $4 million (a $3 million loan and $1 million equity investment) to another firm, Growlite Canada, which was owned by one of the founders of CCC.

The OSC alleged that some of the money that went to Growlite was ultimately diverted, and that the loan to Growlite was never paid back and was eventually written off.

After the settlement with CCC and Ward, allegations against two other men — Silvio Serrano and Peter Strang, who were vice-presidents with Canada Cannabis and allegedly benefited from the diversion of investor funds — remain outstanding.

Those allegations haven’t been proven.

“Between February 2014 and August 2016, funds were directed away from the business of Growlite Canada to the benefit of Mr. Serrano, Mr. Strang, their families or companies controlled by them,” the tribunal noted in its reasons setting out the allegations.

In the meantime, the OSC has now settled allegations that relate only to the offering memoranda that CCC used to raise funds from investors, which CCC and Ward admitted contained misleading information — including misleading disclosure about Growlite, failing to disclose that it did not independently value Growlite, and failing to disclose that the company was not overseeing the financing provided to Growlite, among other things.

Under the settlement with CCC and Ward, the companies are to permanently cease trading and banned from registration, and Ward is banned for six years, and agreed to pay $10,000 in costs — but no financial sanctions are ordered against them.

In approving the settlement with no administrative monetary penalty, the tribunal said the agreement is “within a reasonable range” because of the “significant non-monetary sanctions” in the context of the entire settlement.

It also noted that the company agreed to admit to a breach that was not specifically alleged, but that covers its role in the overall conduct relating to the offering memoranda, and that Ward admitted to allowing this breach to happen.

“Staff and the settling respondents have agreed to facts that both narrow and expand upon the facts pleaded in the statement of allegations,” it said.

The tribunal also noted that Ward did not receive any of the money that went to Growlite, and that, “a disgorgement order is not necessary in these circumstances.”

By settling, CCC and Ward “have recognized their wrongdoing and accepted accountability,” the tribunal said; adding that the settlement will save the regulator the time and cost involved with a contested hearing.

“At the time CCC agreed to the Growlite transaction, Ward believed the Growlite transaction was in the best interests of CCC and its investors. Ward admits that he should have done more diligence,” the settlement said.

James Langton headshot

James Langton

James is a senior reporter for Advisor.ca and its sister publication, Investment Executive. He has been reporting on regulation, securities law, industry news and more since 1994.