Health Canada is investigating CannTrust for growing over ten thousand kilograms of cannabis in unlicensed rooms between October, 2018 and March, 2019. The Globe and Mail reported this week that allegedly the chairman and CEO of CannTrust were made aware of these growing rooms at least seven months before Health Canada began its investigation.1

CannTrust's conduct, and the current Health Canada investigation, raise legal questions regarding risk analysis, the duty to cease the non-compliant activity once it is discovered, and whether there is a duty to report the noncompliant activity once it is discovered.

Zone of non-discovery by the Regulator

A company may discover non-compliant behavior in the "'zone of non-discovery by government,' where regulators have no knowledge of the issue."2 Temporally, the zone of non-discovery may be a narrow window in time. Government investigations are often begun after a whistleblower reports the misconduct up the ladder internally, prompt action is not taken to ameliorate the misconduct, and the whistleblower reports to regulatory authorities.

Risk of getting caught as a prohibitive factor

It appears from the Globe and Mail article that through their conduct, CannTrust may have been weighing the risks of getting caught against the profits the allegedly non-compliant activity would bring. However, as Archibald and Jull write, "in the zone of non-discovery, it is not appropriate...to consider the risk of getting caught as weighed against permitting the improper activity to continue."3 Of course, in some regulatory matters, there will be grey areas subject to interpretation: in these cases, a risk analysis is an appropriate tool. However, in the case where the rule is clear, a risk analysis should not weigh the chances an organization will get caught in their misconduct.

As Jull and Archibald write, the International Chamber of Commerce (ICC) cautions (in the antitrust context) that a risk calculation regarding chances of being caught should not be a factor in a risk matrix analysis:

"There is, in the field of antitrust, a distinction to be made between managing risk around (i) outright prohibitions/illegal practices and (ii) "grey areas" in respect of which companies may legitimately seek specialist antitrust advice on the feasibility/legality of contemplated commercial options (eg. of potential foreclosure effects of trade terms or joint venture agreements).

In addressing risks around hard core/clear violations, meaningful corporate commitment to compliance must include a clear ban on manifestly illegal conduct: the 'likelihood' of enforcement action should never be viewed as a relevant factor in determining risk (i.e., there should be no 'cost-benefit' analysis of compliance where a certain activity is clearly illegal)."4

The chairman and CEO of CannTrust allegedly were told via email that the company was growing cannabis in unlicensed rooms. The Cannabis Act is clear that rooms in which cannabis will be grown must be licensed.5 The executives in their emails noted that Health Canada had been slow in licensing the rooms, that Health Canada had not inquired about the additional rooms, and that CannTrust had gotten "lucky" in not getting caught in their non-compliance. These factors should not have been part of the risk analysis of continuing non-compliant activity, as operating unlicensed rooms ran contrary to the Cannabis Act.

There are some claims that CannTrust may have concealed the rooms by moving them or hanging false walls to conceal them. If this is true, much like the Volkswagen emissions scandal, where Volkswagen developed and concealed the defeat devices used to cheat on emissions tests, CannTrust's actions may be characterized as a "defeat tactic." By taking actions to conceal the rooms, CannTrust may have tried to "defeat" the regulator to make it more difficult for Health Canada to discover the breach. But for the whistleblower, the violation may not have been discovered – which should not have been a factor in the risk analysis.

Footnotes

1 http://globe2go.newspaperdirect.com/epaper/viewer.aspx?noredirect=true

2 Todd L Archibald and Kenneth E Jull, "Profiting From Risk Management and Compliance" (Toronto: Thompson Reuters) at INT-128.

3 Todd L Archibald and Kenneth E Jull, "Profiting From Risk Management and Compliance" (Toronto: Thompson Reuters) at INT-129.

4 Todd L Archibald and Kenneth E Jull, "Profiting From Risk Management and Compliance" (Toronto: Thompson Reuters) at 7-12 (quoting the ICC Toolkit).

5 Cannabis Act Regulations Rule 14.

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