Unwilling to recognize that the jig is up, Creative Edge Nutrition's Bill Chaaban truly doth protest too much
Written by Matt Finston
April 28, 2015: 'Billieve' it or not, Bill Chaaban, former CEO of Creative Edge Nutrition (FITX), has outdone himself. In his most recent press release, Chaaban has disclosed evidence of misrepresenting himself and the company to investors for the past year and a half.
The latest chapter in the fiasco began two weeks after Health Canada denied Cen Biotech a license to grow marijuana. On Mar 25, 2015, the Ontario Securities Commission (OSC) released a statement to the Globe and Mail, disclosing the existence of an investigation into CEN Biotech. OSC spokesperson, Carolyn Shaw-Rimmington, revealed,
In response, shareholders and management initiated a protest against the investigation. Shareholders hit social media with a vengeance. Addison Bradley Bachman, one of social media's most ardent supporters of FITX, commanded his fellow shareholders to protect their investment. They were told they were required to vocalize their belief in FITX and its CEO Bill Chaaban."The OSC has an active investigation into this matter"
Bachman had become more than just a shareholder since his initial investment in December of 2013. Not only has he been fundraising-purportedly for charity--by selling "I-Billieve/FITX-Long T-shirts" but he also conducted an interview with Roger Glasel and his imaginary alter-ego, Isak Weber.
Shareholders heeded the call. Letters were sent en masse to various securities regulators expressing feelings of confusion, anger, and desperation at their predicament. Shareholders believed that this level of scrutiny was unusual, as was the OSC's disclosure of an investigation. According to the OSC's Guidelines For Staff Disclosure of Investigations, the disclosure of the Cen Biotech investigation the shareholders may have had a point:
“In the ordinary course, OSC Staff do not publicly disclose the existence of an investigation or details regarding an investigation.”
However, the OSC will disclose the existence of an investigation if it is believed to be in the best interest of protecting investors.
“6. Exceptions In certain circumstances, OSC Staff may notify the market participant that the existence and nature of an investigation by the OSC ought to be disclosed. Investor protection outweighs factors favouring non-disclosure.
This may occur where there appears to be credible evidence, for example, of fraudulent behaviour such as an ongoing scam, and where non-disclosure would result in losses to investors. Investor protection may also be engaged where information gathered about a market participant during an investigation reaches a level where lack of disclosure of the investigation may be prejudicial to investors.”In other words, the OSC disclosed the investigation because it potentially had had reasons to believe that something unscurpulous may be afoot. Upon learning about this letter writing campaign, Chaaban posted the following on the shareholders' group Facebook page:
Chaaban did issue a press release on April 8th, within which he provided links to some 260 pages of private letters from shareholders to regulators. The letters were uploaded in pdf format to OTCmarkets.com in four parts (part 1, part 2, part 3, part 4). Some letters appear to be duplicated, for example, Part 4 contains three copies of the same letter from pages 27-29.
By making the letters known to the public, Chaaban had hoped to put the damaged shareholders out on display and perhaps create a pity-party, all the while giving the impression that he and the company had been absolved of any blame for Health Canada's denial of the application.
The April 8th press release also promised to disclose for the first time Chaaban’s email exchanges with Health Canada. With these emails, it was hoped that Cen Biotech would show that Health Canada was culpable in the "campaign of misrepresentations being perpetrated against the company." For nearly a year and a half, Cen Biotech had trumpeted a purported close relationship with Health Canada. Now that it found itself humiliated the company by the denial, Cen Biotech was prepared to show another side to the story.
As promised, on April 23rd FITX issued a press release which included a link to the afore-promised email exchanges between Chaaban and Health Canada. The press release included this odd request:
“CEN Biotech simply asks the public to base its determination solely on the documentary evidence and not on the bashing articles that are certain to follow this release to discredit it.”The company believed the documents revealed:
1. "CEN Biotech's acquiescence with the request to build as fast as possible."
2. "Health Canada's promise of an inspection to be conducted as soon as possible."
a. That Chaaban was not diligent in his communication with Health Canada
b. That Chaaban was negligent in submitting an updated license application for the 58,000 square foot facility that had been under construction for over half a year
c. That Chaaban's actions led to avoidable delays, which unnecessarily postponed the inspection process
d. That Chaaban had repeatedly violated Health Canada's instructions to not suggest publicly "that a license had been obtained or that the issuing of a license is immanent."
e. That Chaaban had lied to regulators regarding statements the company had made to the public
"We would like to obtain a status update on the readiness of your proposed site. Could you kindly advise us of a timeframe when your proposed site will be ready for a prelicensing inspection? This will allow us to ensure that an inspector is available to carry out the inspection as early as possible, and to prepare your file for referral to the regional office.
Please note that an average of two weeks is required to prepare for the pre-licence inspection once we have been notified of the readiness of the site."The email asked for a "timeframe" for readiness because it takes two weeks "to ensure that an inspector is available to carry out the inspection." This is what Chaaban says represents, "Health Canada's promise of an inspection to be conducted as soon as possible." In actuality, Health Canada did not ask anyone "build as fast as possible." It asked for a status update. Additionally, Health Canada specifically stated that it takes two weeks notice to have an inspector available. The only thing that was urgent was for Health Canada's to carry out its responsibility to roll out Canada's new federally regulated medical marijuana program by the April 1st deadline. Health Canada had a job to do and it was trying to execute that job in the most efficient manner. Even assuming Chaaban's interpretation was correct and Health Canada did want Chaaban to "build as fast as possible," why would he then not respond for the next ten days?
When Chaaban did finally reply to Health Canada, he stated it would take five months until their proposed site would be ready.
This email might have confused officials at Health Canada. Why would it take five months to retrofit the facility with the physical security requirements? The answer is that CEN Biotech was building a brand new facility, not retrofitting the facility discussed in the application. Chaaban had received a "ready to build letter" for the already built 26,4000 square foot facility, which was described in a press release dated Nov 19th, 2013:
"It has leased a six acre site with buildings in the Town of Lakeshore, Ontario, Canada. There is a 26,400 square foot (240'x110') steel barn and a 2,000 sq. ft. building located on the property. CEN Biotech, Inc.'s purpose of incorporation is to produce and sell medicinal marijuana in jurisdictions where it is allowed by law."
The 26,400 square foot facility was the proposed facility. If it was already built and just needed the proper retrofits to comply with the security requirements, why did Cen Biotech then build a 58,000 square foot facility? Only the facility that contained the marijuana grow operation required inspection and a license.
From the Health Canada inspection report of the CEN Biotech facility:
"The proposed facility is approximate 25000 square feet."
That sounds a lot like the building leased on Nov 19. So what were the other buildings for?
"There are three buildings located on the property. Building 1 will house the growing rooms (pods) and the vault. Building 2 will be used as an office/administrative building and Building 3 will be used for storage of documents/equipment."
Building 1, the proposed facility, refers to the 26,400 square foot pole barn. Which means the 58,000 square foot pole barn was either the "office/administrative building" or for "documents/equipment."
At the end of March, Chaaban sent an urgent sounding email to Health Canada.
Huh? It's Mar 28. MMPR was going into effect in four days. Chaaban ostensibly had spent $10 million to build a new facility, and he had yet to submit an application for the 58,000 square foot facility? The representative Health Canada sounded just as surprised."I also have questions regarding modifying our current location."
"Since you change[d] your proposal for your current site, [y]ou need to submit the updated information to allow us to review your new site model and we will need to ensure that it meets the MMPR requirement on paper."
In other words, from Dec 2013 to Apr 2014 had yet to submit an updated application. Did Chaaban intentionally delay the inspection process?
Failing to communicate promptly with Health Canada and to submit an updated application demonstrates management's negligence. Was this accidental or intentional? While it is difficult to determine intentions from the documents alone, it remains highly suspect that management would be neglectful in its duties to shareholders while engaging in excessive insider trading.
Chaaban had made time to sell 79 million shares for proceeds of $4.9 million and vice president, Jeff Thomas, found enough time to sell 27 million shares which netted $2.3 million. Additionally, Chaaban and Thomas filed to sell an additional 50 million shares combined, potentially netting the pair a total of nearly $10 million from 2014 stock sales
Cen Biotech had released the email correspondences between Chaaban and Health Canada in order to demonstrate that "its intentions have been nothing but honorable.” However, the documents do not reveal the company had acted honorably. After a blog published on the Forbes website stated that Creative Edge Nutrition had received a license to grow marijuana in Canada, Chaaban received a stern warning never to make such statement again.
"You can not in any way suggest that a license has been obtained or that the issuing of a license is imminent."To which Chaaban replied,
"We never held out, insinuated, nor misrepresented that we possessed a license as issued under the MMPR."This statement is patently false. Prior to this correspondence, a December 30, 2013 press release stated in plain language that Cen Biotech had received a license to grow marijuana in Canada.
Just by this issuance of this press release, Chaaban honorableness is in question. Once FITX made the false statements, local news outlets reported the story as if it were fact. Rick Thompson on Jan 1st, 2014 writes:
“Michigan company will grow, sell marijuana in Canada; first US company to win approval”
Chaaban never issued a public statement to clarify, correct, or amend any statement that would have prevented potential investors from purchasing shares of FITX. Instead, he continued to make public insinuations that the company was going to receive a license to grow medical marijuana.
From that moment onward, Chaaban had known that he was not to "in any way suggest that a license has been obtained or that the issuing of a license is imminent." Yet Chaaban goes on to violate this specific instruction time and again.
There is even a digital recording on June 30, 2014 at WeekStock of Chaaban telling a room full of investors and shareholders that,
"Some people say they're not getting a license? Not when you spend $20 million. You are getting a license."
Yet again, Chaaban can be seen here, violating Health Canada's specific instructions. Then, in a Globe and Mail article published August 16th, 2014, Chaaban told reporter, Grant Robertson, that "he expects the licence by the end of this month." Although Chaaban was told not to even "suggest" that the company was close to obtaining a license, he ignored the admonition. Now, Chaaban has the audacity to publicly point the finger in every other direction but towards himself.
Although Health Canada did not disclose why it denied Cen Biotech a license, it seems plausible that failure to follow instructions contributed to the decision.
One has to wonder why management allowed Chaaban to carry on without restraint. Perhaps FITX Director, Sam Alawieh, explains it best in his diatribe presented during CEN Biotech's open house on Feruary 21, 2014. Cen Biotech is the exact the type of company one would expect from four grown men pretending to be 5-year-olds living in the "imagination space." To a 5-year-old, investors' money, like "reality, is a technicality, right?"