Winnipeg-based licensed producer Bonify allegedly bought illegal marijuana, then sold it on the government-regulated recreational cannabis market, a source with knowledge of the situation has told the Free Press.
In mid-November, a whistleblower at Bonify told federal cannabis regulator Health Canada the company had purchased 200 kilograms of illegal marijuana from out of province, according to the source, who said the unlicensed product was stored at the company's North End facility.
On Dec. 7, Bonify voluntarily recalled 52 packages of cannabis sold at three licensed stores in Saskatchewan. At the time, Health Canada said the marijuana was recalled because Bonify couldn't prove those specific lots had passed laboratory testing for contaminants.
However, the source said the recalled cannabis was the same product Bonify allegedly got outside the licensed regime. The source said Health Canada seized cannabis from Bonify on Dec. 13.
The Free Press broke the story at noon Thursday. Three hours later, Manitoba Premier Brian Pallister called the situation "a black day for the distribution of legal cannabis" during an impromptu news conference in the rotunda of the Manitoba Legislative Building.
"It casts a pall on the other companies, who didn't do anything wrong, who are working through the system. We want to make sure we protect the integrity of that system, because our competition is the underground economy," said Pallister.
"And if people aren't confident that our system works well to protect them... they'll go back to their old supplier and get it out of the alley."
The premier criticized what he described as a lack of communication from Health Canada, saying the Manitoba government only heard about problems at Bonify on Tuesday, a week-and-a-half after the recall began. Pallister said Manitoba was notified by Bonify itself, not by Health Canada.
"When (Health Canada finds) out that a non-regulated, non-approved product has entered into the stream, I would think it would be pretty logical to expect they should notify us, right away," he said.
Pallister said his government notified the Winnipeg Police Service about the situation, who advised it to contact the RCMP. A Manitoba RCMP spokeswoman wouldn't confirm nor deny whether the force is investigating Bonify, citing privacy and operational concerns.
The premier said the provincial government is concerned the allegedly illegal cannabis "may have been" sold by licensed stores in Manitoba. Although it's not clear whether the product is unsafe for human consumption, he said, "we're acting as if it is, and I think that's the only appropriate course of action to take here."
Manitoba sales and distribution of Bonify cannabis have been suspended, according to a joint statement issued Thursday by Manitoba Liquor & Lotteries and the province's retail cannabis regulator, the Liquor, Gaming and Cannabis Authority of Manitoba.
LGCA is seizing Bonify products from licensed cannabis stores across the province, and is advising consumers to return any Bonify products for a refund. Bonify products "have been delisted and removed" from MLL's catalogue of wholesale products.
Health Canada confirmed in a statement its inspectors "recently visited the Bonify site," and said its ongoing investigation has not yet determined whether or not federal law was violated.
The federal health department said its regulatory regime for cannabis production "contains multiple measures that are designed to protect the health and safety of Canadians and the integrity of the system," adding it takes complaints about licensed cannabis producers seriously.
"The department remains fully committed to sharing information with partners, including provincial and territorial officials and law enforcement, as appropriate," said the statement.
Bonify's board of directors said in a statement a review by Health Canada and a third-party consultant "has revealed irregularities pertaining to the recalled product."
"An investigation into these irregularities is ongoing and Bonify's board will be able to provide further comment at the appropriate time after the investigation reaches its conclusion," said the statement.
Under the new federal Cannabis Act, "illicit cannabis" is defined as any marijuana "sold, produced or distributed" by someone without government authorization to do so.
If Bonify did indeed pass off illicit cannabis as a legal, government-regulated product, the consequences could be severe.
Distribution of illicit cannabis can be an indictable offence carrying a maximum penalty of 14 years in prison. For an organization, knowingly distributing illicit cannabis could also mean the imposition of hefty fines.
If the allegations against Bonify are true, the company also stands to lose its valuable government permits to grow and sell marijuana, said an attorney who specializes in corporate cannabis law.
"If it turns out it's true that a licensed producer knowingly bought illegal cannabis from the black market, and then sold it into the legal market knowingly, I don't see how the government can do anything less than take their licence away," said Matt Maurer, vice-chairman of the cannabis law group at Toronto firm Torkin Manes LLP.
In its statement, Health Canada said it "will not hesitate to use the enforcement tools available under the Cannabis Act when it encounters instances of non-compliance."
It's surprising such an alleged infraction could happen at such a high level in Canada's federally-regulated cannabis supply chain, said the owner of a licensed cannabis store in Saskatchewan that sold one package of the Bonify product before it was recalled.
Everyone involved in the new market for recreational marijuana is "well-aware that we have to be very careful where we source our product for sale," said Geoff Conn, owner and general manager of the Pot Shack in Saskatoon.
"The government made it perfectly clear, as we were receiving our licence, that we have to maintain integrity for our supply across the board," he said.
Conn said his store posted the recall notice for the Bonify cannabis it sold, but the customer who bought the recalled product hasn't returned.
"They probably just consumed it and went on their merry way, you know?"
Solomon Israel is a full-time reporter for the Winnipeg Free Press and for two years, the lead writer for Free Press cannabis news site, The Leaf News. He continues to provide coverage of the cannabis beat while covering business in the city and province.
Updated on Thursday, December 20, 2018 at 12:09 PM CST: Updates headline
12:32 PM: tweaks headline, adds photo
12:57 PM: Updates with comment from Bonify
1:57 PM: Updates LGCA development
3:25 PM: Updates
6:59 PM: Final write through