CRIMINAL CAPITALI$M

CannTrust CEO was warned over illicit pot growing: former compliance worker

Tara Deschamps, The Canadian Press

A former director of quality and compliance at CannTrust Holdings Inc. says he warned the company's chief executive that Health Canada could levy penalties if the firm grew cannabis in unlicensed rooms at its Niagara, Ont. facility. 

In the months leading up to Health Canada finding pot growing in unlicensed rooms, Graham Lee said Tuesday that he told Peter Aceto he couldn't say what the exact consequences could be, but knew the government regulator had previously issued warning letters and handed out penalties.

For example, Lee said Health Canada reviewed CannTrust's inventory more extensively after it discovered the company using a storage facility at its Vaughan, Ont. location contrary to licensing.

“In general, Health Canada was there every day checking up on the inventory," Lee recalled.

Though he warned Aceto about consequences, Lee said he didn't give him advice about whether to disclose alleged unlicensed growing to the public or Health Canada. Lee, who was hired by CannTrust in 2017, also didn't report it to the public or Health Canada because he didn't consider it his job.

His comments were made at the Old City Hall courthouse in Toronto in response to questioning from Dihim Emami, a lawyer representing the Ontario Securities Commission (OSC) in a case aiming to prove Aceto and other former CannTrust executives are guilty of several offences related to unlicensed growing at the Niagara facility.

Aceto, former CannTrust chairman Eric Paul and former vice-chairman Mark Litwin have pleaded not guilty to fraud and authorizing, permitting or acquiescing in the commission of an offence.

Litwin and Paul are also facing insider trading charges, and Litwin and Aceto are charged with making a false prospectus and false preliminary prospectus.

The OSC and Royal Canadian Mounted Police allege Litwin, Aceto and Paul did not disclose to investors that about 50 per cent of the growing space at CannTrust’s Pelham, Ont. facility in the Niagara area was not licensed by Health Canada. They say the men used corporate disclosures to assert that they were compliant with regulatory approvals.

They also allege that Litwin and Aceto signed off on prospectuses used to raise money in the U.S., which stated that CannTrust was fully licensed and compliant with regulatory requirements, and that Litwin and Paul traded shares of CannTrust while in possession of material, undisclosed information regarding the unlicensed growing.

The men no longer work for CannTrust and their lawyers are arguing their clients are all innocent.

Frank Addario, Aceto’s lawyer, previously told The Canadian Press his client was hired because of his financial acumen and track record. Before his time at CannTrust, Aceto was the president and chief executive of ING Direct Canada.

Addario also pointed out that CannTrust was subject to inspections and financial audits that uncovered no material issues.

“The evidence will show Peter Aceto behaved legally and with integrity during his time at CannTrust,” Addario said in an email.

However, Lee testified Monday that the growth of cannabis in unlicensed rooms was "very openly discussed" at the pot company.

“There was no hiding this. There was no denial of this," he said.

On Tuesday, he reinforced those allegations, describing how he brought up his concerns about unlicensed activity during at least one meeting in February 2019 that he recalled Aceto attended.

“I noticed that no one in the room was referring to or cognizant of the fact that these were unlicensed areas, so I reminded them," Lee said.

In response to questioning from Litwin's lawyer Scott Fenton on Tuesday, Lee added that during the application process, Health Canada requested photos of the doors in some of the unlicensed rooms where growing was occurring to ensure security protocols were being followed.

Lee asked staff to move plants out of the photos. He admitted this could be seen as "deception," but argued Health Canada might have already had knowledge that plants were in the unlicensed rooms.

"I did not hide the plants from Health Canada," he said. "On other occasions, we recorded them on reports, we took them through the rooms.”

He also believed the regulator heard about the unlicensed growing from Nick Lalonde, a former CannTrust employee who Lee heard was terminated for performance issues.

In the summer of 2019, Lee said Lalonde messaged him on LinkedIn asking if Health Canada would be OK with some of the company's practices, including unlicensed growing.

“You may reply if you like or I can ask Health Canada myself,” Lee said Lalonde wrote.

Lee didn't respond to the message, but said he wasn't particularly concerned

"I had a pretty fatalistic approach at this point. It is what it is," he told the court. "Lalonde is going to say what he is going to say and we will deal with the consequences.”

Health Canada later visited the facility. Lee deduced it was because of Lalonde because the regulator's questions mirrored the issues raised in his message to Lee.

By August, Lee was terminated and he surmised it was because of his knowledge of unlicensed growing along with his communications with Health Canada. 

Lee, who still had 5,000 shares in the company, felt “not happy but not surprised.”

Book distributor Thomas Allen & Son to close in 2023, pass contracts to Firefly Books

Nicole Thompson, The Canadian Press

A customer picks out a book in the Kinokuniya Co. book store at the Aeon Mall in Phnom Penh, Cambodia, Sunday, May 26, 2019. , Photograph: Taylor Weidman/Bloomberg

Thomas Allen & Son, one of Canada's oldest book distributors, will close its doors in a matter of months, becoming what the company's CEO describes as another casualty of consolidation in the publishing industry.

Jim Allen said he had little choice but to shutter the 106-year-old business after several publishers it worked with were acquired by larger houses that handle distribution in-house. 

"It's just one more marker for the changes that have been occurring in the industry," said Allen, whose great-grandfather founded the distributor. "There have been a number of pretty large, independent family-owned companies that do what we do that have disappeared over the years."

Thomas Allen & Son distributes books, most of which are published internationally, as well as stationery and calendars to bookstores, libraries and other retailers. 

But many smaller publishers who have contracts with book distributors like Allen's have been acquired by larger publishing houses, which either handle distribution themselves or have existing contracts with larger, global distributors.  

Allen said plans for the closure were made in 2021 after Workman Publishing, whose books and calendars made up a significant portion of his company's annual sales, was acquired by Hachette Book Group. Hachette handles its Canadian distribution in-house. 

"It was sort of a foregone conclusion. I had considered selling the business, and I had spoken privately to a number of different people about that," he said. 

But as the company isn't a publisher and doesn't own any intellectual property, he said options for selling the company were limited. 

Allen said he came up with what he believes is a best-case solution for the closure: passing distribution contracts to the Richmond Hill, Ont.-based Firefly Books starting at the end of March 2023.

Firefly is largely a publisher, but has a small distribution arm that will expand to take on these contracts, Allen said. 

As it stands, roughly 10 staff members work in Allen's office, he said, and 20 work in the warehouse. He said about eight of the office staff will be offered contracts with Firefly, as will some of the warehouse workers. 

"It was not an easy decision," Allen said of the closure. "But I think it's probably the best decision under the circumstances as the market gets more and more difficult."

Thomas Allen Ltd. was founded in 1916, and published books by Nellie McClung, William Lyon Mackenzie King and Agatha Christie.

Three decades later, the founder's son, Forbes Duncan Allen, joined the company and built up the distribution business.

Jim Allen is the fourth Allen to helm the company, and in 2000 he launched a renewed publishing division, Thomas Allen Publishers, which he sold to Dundurn Press in 2012.

This report by The Canadian Press was first published Dec. 6, 2022

Profits in 15 sectors, including oil and gas, driving bulk of inflation: Report

The Canadian Press\

A new report by the Centre for Future Work found that growth in corporate profits this year compared to pre-pandemic has been concentrated in a small number of sectors where consumer prices have also risen the fastest.

Report author and economist Jim Stanford analyzed the profits of the 52 business sectors tracked by Statistics Canada, and found that just under a third of these sectors were responsible for driving overall corporate profits up. Combined after-tax profits in the 15 most profitable sectors grew by 89 per cent during the most recent 12-month period compared to the four quarters before the pandemic hit. 

Meanwhile, profits in the other 37 sectors tracked by Statistics Canada fell during the same period. Among all sectors combined, profits were up almost 30 per cent. 

After-tax corporate profits in 2022 so far make up 17.4 per cent of Canada’s GDP, the highest share in history, Stanford said. 

The oil and gas sector tops the profitable list by far with a $38-billion increase in profits, or more than 1,000 per cent, since 2019. Other highly profitable sectors included mining, which saw profits rise by almost 700 per cent, banking, real estate, building products, motor vehicle dealers, grocery stores and food manufacturing.

In fact, the report said that large price increases on eight specific products sold or produced by those sectors accounts for more than half of overall inflation in the past year, based on Statistics Canada data.

Stanford said he found this number “startling.” 

“Both the concentration of profits in those sectors, and the concentration of price pressure in products produced by both sectors, really shows that this is not a generalized overheating problem," he said.

These eight products were home fuel oil, home natural gas, gasoline, mortgage interest, groceries, home maintenance, motor vehicles and insurance, and together Stanford calculated they accounted for 3.51 percentage points of the overall October inflation rate, which was 6.9 per cent. That’s despite the fact that those eight products make up less than 30 per cent of the weight of the CPI basket as measured by Statistics Canada. 

Stanford argues that this data proves rising corporate profits are the dominant cause of inflation, since those eight products alone account for more than half the percentage-point increase in the latest inflation numbers. 

Some of those eight products, like gas, also had knock-on effects on things like food prices, the report notes, which also factor into inflation. 

Some economists and the Bank of Canada have expressed concern that as wages rise in the face of inflation, this could entrench inflation and cause what’s known as a wage-price spiral. In July, Tiff Macklem warned employers not to build inflation into longer-term contracts. 

But so far, wages have not surpassed overall inflation. In fact, corporate profits have increased around three times as fast as wages since the beginning of the pandemic, Stanford said. 

He said the Bank of Canada has been putting too much attention in recent months on the role of the labour market in persistent inflation. 

“The Bank of Canada's argument that inflation is up because Canadians have too much work and too much money to spend is absolutely contradicted by this evidence.”

The Bank of Canada has said that inflation increasingly reflects domestic pressures, and has cited Canada's low unemployment rate as "unsustainable."

The report recommends measures for policymakers to consider other than interest rate hikes, measures he argues in the report would be better than “a ‘cold bath’ of employment-reducing monetary tightening.” 

These include targeted price regulations to limit how much companies can profit from sector-specific disruptions, like in energy or housing; excess profit taxes; and offsetting fiscal support for consumers financed by said taxes. Stanford notes several European countries have already implemented some of these types of things, such as a price cap on energy, or excess profit taxes for the energy sector that go to household transfers. There are also examples of these measures within Canada, such as a recent tax on big bank profits, making such measures not unprecedented, he said. 

“We have taken it for granted that companies are allowed to charge whatever the market will bear, even in a national emergency. And our response to the inflation that results from that assumption has been to punish the people who are trying to pay for the stuff that’s vastly overpriced,” he said. 

“With targeted measures like that, you could take a lot of the steam out of this inflationary problem, rather than necessarily cooling off the whole national economy.”

Bank of Canada has room to stop hiking before U.S. Fed, survey shows

Erik Hertzberg and Sarina Yoo, Bloomberg News

The Bank of Canada has leeway to end its interest-rate hiking cycle in coming months even if the Federal Reserve keeps pushing borrowing costs higher next year, according to economists.

Governor Tiff Macklem and his officials can comfortably leave their benchmark rate as much as 100 basis points lower than that of their southern counterparts, a Bloomberg survey shows. 

More than half of the 16 respondents say the Bank of Canada won’t end up signaling a pause. But Macklem is nonetheless expected to stop hiking after this month’s meeting or in January, leaving borrowing costs at 4.25 per cent. 

In the US, short-term money markets are betting that Chairman Jerome Powell will raise the Fed funds rate to between 4.75 per cent and 5 per cent.

That gap in expectations suggests Macklem has some flexibility as he searches for an endpoint to Canada’s aggressive rate hike cycle, just as momentum in the domestic economy starts fading.

“The only reason that the Bank of Canada would be worried about diverging from the Fed would be the currency reaction,” Royce Mendes, head of macro strategy at Desjardins Capital Markets, said by email. “Given that there is already a material divergence priced into markets, the exchange rate should already have taken that into account.”

Consensus in the Bloomberg survey is split on whether the Bank of Canada will hike rates by 25 or 50 basis points at its meeting next Wednesday. Jobs data due Friday will be a key input into the decision.

Macklem and his officials have already raised the overnight rate to 3.75 per cent from the emergency pandemic low of 0.25 per cent that held until March. The Bank of Canada surprised markets and most economists at its last meeting by opting for a half-percentage-point hike, down from a 75-basis-point increase in September and a full-percentage-point jolt in July.

The Bloomberg survey took place between Nov. 25 and 30.

Other Highlights

• 94 per cent of respondents say Canada’s economy is more sensitive to interest-rate hikes than the US
• Half of economists say the Bank of Canada’s most recent forecasts for economic growth are too optimistic
• Respondents expect policymakers will start cutting the overnight rate in October 2023
• Nearly 80 per cent say the government of Canada’s spending isn’t undermining the central bank’s effort to return inflation to target

DEBT KEEPS CAPITALISM FUNCTIONING

CANADA

Consumer debt tops $2.36 trillion in third quarter, up 7.3% from last year

The Canadian Press

Equifax Canada says an increase in borrowers helped push total consumer debt to $2.36 trillion in the third quarter for a 7.3 per cent rise from last year, even as mortgage volumes decline. 

It says average non-mortgage debt rose to $21,183 for the highest level since the second quarter of 2020, with early signs of strain starting to show in auto loans and credit cards.

Overall non-mortgage debt came in at $599.9 billion for a 5.3 per cent climb from last year, and up 1.9 per cent from the third quarter of 2019, as the number of borrowers rose by 3.1 per cent.

Rebecca Oakes, Equifax Canada's head of advanced analytics, says the rising debt stems from a combination of growth from immigration, pent-up spending, as well as increased borrowing as consumers feel the strain of higher living costs.

Credit card spending in the quarter was up 17.3 per cent from last year to an all-time high for the time period. 

Average spending put on credit cards was almost $2,447, a 21.8 per cent jump from the third quarter of 2019.

There's been an increase in credit card spending and new cards issued across all consumer segments, including the sub-prime segments, said Oakes in a statement.

She said there are some signs that borrowers are starting to have trouble covering the bills, with average payment rates for those who carry a balance down from a year ago, she said. 

"Consumers have been making strong payments, but we are starting to see a shift in payment behaviour especially for credit card revolvers — those who carry a balance on their card and don't pay it off in full each month."

Delinquencies on auto loans have also started to trend up, especially those opened since late 2021, she said. 

The overall rate of more than 90 day delinquencies for non-mortgage debt was 0.93 per cent, up from 0.87 last year, though insolvencies are still well below pre-pandemic levels.

New mortgage volume dropped 22.7 per cent in the quarter compared with last year and by 14.9 per cent compared with the third quarter of 2019. First-time home buyers are paying over $500 more for almost the same loan amounts as first-time buyers last year. 

Overall insolvency rates are up from a year ago but from a relatively low starting point, and there are some areas of concern including a rise in consumer proposals by seniors, said Oakes.

"The true impact of interest rate hikes could be visible by the end of 2023.” 

 This report by The Canadian Press was first published Dec. 6, 2022.

LA REVUE GAUCHE - Left Comment: Search results for DEBT 

Debt: The First 5000 Years : David Graeber : Free

 Download, Borrow, and Streaming : Internet Archive

Publication date 2011

Debt: The First 5,000 Years is a book by anthropologist David Graeber, published in 2011. It explores the historical relationship of debt with social institutions such as barter, marriage, friendship, slavery, law, religion, war and government; in short, much of the fabric of human life in society. It draws on the history and anthropology of a number of civilizations, large and small, from the first known records of debt from Sumer, in 3500 BC until the present.

CANADA

Court upholds all but one rule on airline compensation for passengers

Caitlin Yardley, The Canadian Press

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The rules that bolster compensation for air passengers subjected to delayed flights and damaged luggage have been largely upheld in a Federal Court of Appeal ruling.

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The court on Tuesday dismissed the appeal that challenged the validity of the passenger bill of rights, with the exception of one regulation that applies to the temporary loss of baggage. 

Earlier this year, Air Canada and Porter Airlines Inc. along with 16 other appellants that include the International Air Transport Association — IATA has about 290 member airlines — brought the challenge to the passenger bill of rights to a Federal Court of Appeal panel. 

The airlines argued that the country’s passenger rights charter violates global standards and should be rendered invalid for international flights.

This includes the most recent amendment made to the passenger protections that require airline compensation if they cannot provide a new reservation within 48 hours of a flight cancellation or "lengthy delay" for delays and cancellations outside of the airline's control such as major weather events or a pandemic.

The three-year-old federal regulations took on renewed relevance to thousands of Canadians in 2020 as pandemic lockdowns and border closures grounded fleets and prompted mass flight cancellations.

A request from the airlines to suspend the Air Passenger Protection Regulations (APPR), initially launched by the airlines in 2019, was turned down by the Federal Court of appeal in 2020. 

In court filings, the airlines argued that the regulations exceed the Canadian Transportation Agency’s authority. They also went against the Montreal Convention, a multilateral treaty, by imposing heftier compensation requirements for flight cancellations or lost baggage. For example, the rules demand higher damages based on the length of a delay and regardless of “the actual damage sustained by each individual passenger,” according to the appellants.

In a case that pitted IATA and the airlines against the CTA and the attorney general, Ottawa argued that there is no conflict between the passenger protections and the Montreal Convention.

However, the court said that the interpretation of "lost baggage" was inconsistent with the Montreal Convention that entitles passengers to compensation for lost or damaged baggage. 

Air passenger rights advocate Gabor Lukacs said, “the decision upholds Canadian passengers’ right to be treated fairly.”

While Lukacs has criticized the lack of breadth and enforcement of the APPR, he said that the court's decision to uphold passenger protection in Canada "breathes new life into the initiative to revamp the APPR and correct its many shortcomings." 

Canada's air passenger charter came under scrutiny at a November parliamentary hearing where advocates called for improvements to the current compensation system's loopholes and backlogs.

Sylvie De Bellefeuille, legal adviser from Option Consommateurs, told MPs that it is up to customers to seek compensation based on the information provided by the airlines, leading to a lack of transparency such as in the case of flight disruptions this summer.

Currently, a backlog of over 20,000 complaints remains in front of the CTA.

Lukacs said there is a lot of work ahead to get air passenger protections that actually work and advocated for a passenger bill of rights similar to that of the EU. 

A similar challenge was presented by IATA to the EU, who argued that a regime similar to the regulations has been in force since 2004 and the Court of Justice of the European Union ruled it is compatible with the Montreal Convention, despite challenges from the airline industry.

The CTA and appellant lawyer Pierre Bienvenu were not immediately available for comment. 

US, UK Sign LNG Deal in Race to Secure Supplies for Next Year

Ellen Milligan, Anna Shiryaevskaya and Elena Mazneva, Bloomberg News

(Bloomberg) -- Britain and the US agreed to work together to ensure liquefied natural gas keeps flowing next year in an effort to underpin energy supplies threatened by Russia’s war in Ukraine. 

London and Washington agreed to set up a joint action group that will work “with international partners and industry” to ensure at least 9-10 billion cubic meters of American LNG is delivered to the UK over the next year. While that’s double the amount exported in 2021, it matches the record volume US producers delivered to the UK this year.

“We will look to identify opportunities to support commercial contracts that increase security of supply,” UK Prime Minister Rishi Sunak and US President Joe Biden said in the joint statement. The US commitment includes providing the necessary regulatory environment to achieve the delivery goals.

Britain’s accord is a result of the increased global competition for LNG, especially from Asia and the European Union, where Moscow’s decision to throttle pipeline gas deliveries is threatening to push the continent’s economy into recession. The US-UK agreement provides little clarity on how the LNG supplies will be secured, and Britain has already imported more than 10 billion cubic meters of US LNG this year. 

The deal follows a similar agreement the US struck with the EU in March for at least 15 billion cubic meters of additional LNG this year. That accord raised questions over where exactly the supply would come from, as soaring EU gas prices would likely pull the super-chilled fuel to European shores anyway.

While the US filled some of Russia’s supply gap by exporting record amounts of LNG from its seven plants, global markets are going to have to wait at least two more years before any new supplies from America come online. Three large-scale projects requiring more than $30 billion of financing are now under construction in Texas and Louisiana, yet none will be ready next year.

Still, the deal has political significance with the UK’s Sunak trying to forge new trade deals and diplomatic relations with partners outside of Europe. The countries will collaborate on renewables and nuclear projects to reduce global dependence on Russian exports and help stabilize energy markets.

The partnership also aims to drive international investment in clean energy technologies and work to decarbonize the aerospace, aviation and automotive industries, according to the statement. The first meeting of the group will be held virtually on Thursday.

--With assistance from Gerson Freitas Jr..

©2022 Bloomberg L.P.