Charges against three former cannabis executives in Ontario could set a legal precedent for publicly traded cannabis companies that fail to comply with provincial regulations—notably securities offenses—in Canada.

Legal proceedings are expected to begin Oct. 17 in the Ontario Court of Justice involving CannTrust Holdings Inc.’s (now doing business as Phoena Holdings Inc.) former CEO Peter Aceto, as well as Eric Paul and Mark Litwin, the company’s former board chairman and vice chairman. They face charges of fraud and of permitting unlicensed activity in connection to thousands of kilograms of cannabis grown in 2018, The Canadian Press reported.

Ontario Securities Commission (OSC) officials claim that the three former executives did not disclose about 50% of the growing space at the company’s Pelham, Ontario, facility, which was not licensed by Health Canada, according to the news source. The commission’s filings claim the men used corporate disclosures to assert they were compliant with regulations.

OSC officials first filed the charges in June 2021, which has now led to the commission’s first legal proceeding involving a publicly traded cannabis company, The Canadian Press reported.

In addition to charges of fraud and abetting in noncompliant cannabis cultivation, Litwin and Paul were charged with insider trading, specifically in relation to allegedly trading CannTrust shares while possessing undisclosed information regarding the unlicensed cultivation in question.

Also, Aceto and Litwin were accused of making a false prospectus and a false preliminary prospectus that they signed off on to allegedly raise money in the U.S. The financial documents stated CannTrust was fully licensed and compliant with regulatory requirements, according to The Canadian Press.

The news outlet reported that CannTrust’s board terminated Aceto’s chief executive status and that Paul was forced to step down in 2019, and Litwin resigned in March 2021.

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