Kyle Drake Hildebrand v. Registrar, Alcohol, Cannabis and Gaming Regulation and Public Protection Act, 1996, 2020 CanLII 27346

Date: 2020-01-21

Appeal under s. 15 of the Cannabis Licence Act, 2018 from a Proposal of the Registrar, Alcohol, Cannabis and Gaming Regulation and Public Protection Act,1996, to Refuse an Application

Between:

Kyle Drake Hildebrand

Appellant

-and-

Registrar, Alcohol, Cannabis and Gaming Regulation and Public Protection Act,1996

Respondent

DECISION AND ORDER

Adjudicator: Jeanie Theoharis, Vice-Chair

Appearances:

For the Appellant: Justin Jakubiak, Counsel

For the Respondent: Faye Kidman, Counsel

Aviva Harari, Counsel

Heard in Toronto: December 4-5, 2019

Closing Submissions: December 13, 18, 20, 2019

REASONS FOR DECISION AND ORDER

OVERVIEW

1This is an appeal of the Registrar’s Notice of Proposal to refuse an application for a cannabis retail operator licence (“application”) to Kyle Drake Hildebrand (“appellant”) under the Cannabis Licence Act, 2018, S.O. 2018 c.12, Sched 2. (“Act”). The Notice of Proposal was issued on July 30, 2019.

2The Registrar proposes to refuse the application based on the following two grounds:

3(4)2 There are reasonable grounds to believe that the applicant will not carry on business in accordance with the law, or with integrity, honesty or in the public interest, having regard to the past or present conduct of the applicant.

3(4)6 The applicant or an employee or agent of the applicant makes a false statement or provides false information in the application.

POSITION OF THE PARTIES

3The Registrar submits that the appellant made false statements on his application by failing to accurately disclose information relating to charges, findings of guilt and/or convictions; that the appellant repeated his nondisclosure in subsequent interviews with people assigned to investigate matters relating to the licence application on behalf of the Registrar; and ultimately provided an unreasonable explanation for the nondisclosure.

4The appellant agrees that there was non-disclosure on the application but asserts that he ultimately did provide complete and accurate disclosure and that there was no intention to deceive the Registrar.

PRELIMINARY ISSUE:

Issue: Does the Notice of Proposal provide notice and particulars to the appellant that the Registrar is relying on two grounds to show that the appellant is not eligible to obtain a retail operator licence?

5The appellant asserts that the Notice of Proposal is narrowly drafted and does not provide adequate notice to the appellant that the Registrar is relying on two grounds to show that the appellant is not eligible to obtain a retail operator licence. The appellant asserts the only issue that ought to be addressed is pursuant to subsection 3(4)6 – The applicant or agent of the applicant made a false statement or provided false information in the application and not subsection 3(4)2 – there are reasonable grounds to believe that the applicant will not carry on business in accordance with the law, or with integrity, honesty or in the public interest, having regard to the past or present conduct of the applicant.

6The Registrar asserts that the Notice of Proposal identifies and provides detail related to the two grounds he is relying on.

7I agree with the Registrar. I find, as I did at the hearing, that the Notice of Proposal asserts that the appellant is not eligible to be issued a retail operator licence based on two grounds, both subsections 3(4)2 and 3(4)6, and that the particulars on the Notice of Proposal relate to both issues.

8The Registrar provided background information relating to the application, the appellant’s criminal offence disclosure, the appellant’s actual criminal offences record, the failure to accurately disclosure details related to all his criminal offences, and the appellant’s failure to be honest with the Alcohol and Gaming Commission of Ontario (“AGCO”) consultants or the Ontario Provincial Police investigator.

9Moreover, schedule A of the appellant’s notice of appeal, indicates that the appellant is appealing from the Notice of Proposal in respect of the following reasons, which include for instance that the Registrar erred in concluding the appellant would not carry on business in accordance with the law and with integrity and honesty; not carry on business in accordance with the public interest, or that the appellant’s past conduct is inconsistent with the intention or objective of the Act. This shows that the appellant was aware of the grounds the Registrar was relying upon when issuing the Notice of Proposal to refuse a licence.

10Also, following the filing of the appellant’s notice of appeal, the parties participated in a case conference on September 17, 2019. A case conference order dated September 18, 2019 also indicates that the Registrar was relying on two grounds for his refusal under subsections 3(4)2 and 3(4)6 of the Act.

11I find the Notice of Proposal provided adequate notice and particulars to the appellant of the two grounds upon which the respondent was relying upon. The evidence presented at the hearing was taken into consideration to address both grounds.

ISSUES

12The Notice of Proposal indicates that the Registrar proposes to refuse the appellant’s application because he is not eligible for a licence based on subsections 3(4)(2) and 3(4)6 of the Act. As such, the issues to be determined are:

a. Does the appellant’s past or present conduct show that there are reasonable grounds to believe that he will not carry on business in accordance with law, or with integrity, honesty or in the public interest?

b. Did the appellant or an agent of the appellant make a false statement or provide false information on his application for a retail operator licence when he failed to disclose various charges and convictions from 2014 and 2016?

c. If either of the above issues are answered in the affirmative, then are there appropriate conditions that can facilitate a registration?

RESULT

13For the reasons that follow, I find that there are reasonable grounds to believe the appellant will not carry on business in accordance with the law, or with integrity, honesty or in the public interest. I also find the appellant made a false statement and provided false information on his application for a cannabis retail operator licence and that there are no conditions that would facilitate a registration.

14Therefore, the Notice of Proposal issued by the Registrar to refuse a licence is confirmed.

LAW

15A person may apply to the Registrar for a retail operator licence. The Registrar shall consider every application for a retail operator licence and shall issue the licence if the applicant has met the application requirements, is not ineligible to be issued a licence and has paid the required fee. If any of these requirements are not met, the Registrar shall issue a proposal to refuse the application.

16In this appeal, the Registrar asserts that the appellant is not eligible to be issued a licence based on two grounds. Each ground is independent of the other. Failure to satisfy either ground is enough to refuse licensure.

17After holding a hearing, the Tribunal may by order confirm or set aside the proposal or decision of the Registrar and direct the Registrar to take any action specified by the Tribunal that it considers appropriate to give effect to the purposes of the Act, including for instance attached conditions to the licence. The Tribunal may substitute its opinion for that of the Registrar when deciding to set aside the Registrar’s proposal or decision.

18The onus is on the Registrar to prove that the appellant does not meet the requirements of the Act. The statutory test requires the Tribunal to examine the appellant’s past and present conduct.

ANALYSIS

19The Registrar has met the onus in proving both grounds to show that the appellant is not eligible to be issued a retail operator licence pursuant to section 3(4).

Background: Cannabis Allocation Lottery and Application Process

20The cannabis regime in Ontario is new. The cannabis legislation and regulations were recently enacted to address the newly legalized recreational cannabis usage in Canada. The AGCO was given the responsibility to grant the licences required for retail cannabis sales. Although the legislation is new, the aspects of licensure are similar to other established regulatory body licencing regimes in Ontario. The objective of the licensing regulatory model is to focus on the safe, responsible and lawful sale of cannabis, ensuring that the retail cannabis sale is carried out with honesty, integrity and in the public interest.

21On January 9, 2019, the appellant submitted an expression of interest to enter Ontario’s first cannabis allocation lottery. The expression of interest contained basic information and did not request details related to past conduct. Approximately 17,000 applications were received. The lottery was effectively the government’s mechanism to limit the number of licences to be issued in Ontario to 25.

22The appellant’s expression of interest was chosen. He was number 26 on the list of lottery winners, the first runner-up. In other words, if one of the 25 lottery winners could not proceed to obtain a licence, the appellant would be the next in line to apply for a licence. On February 7, 2019 the appellant was invited to apply for a licence because one of the other lottery winners was disqualified. On February 14, 2019, the appellant filed an application for a retail operator licence with the respondent.

Agreed Facts

23The Notice of Proposal asserts the following particulars which were agreed to by the appellant:

a. Kyle Drake Hildebrand has applied as a sole proprietor for a licence under the Act as a cannabis retail operator by way of an application for cannabis retail operator licence, received by the AGCO on February 14, 2019.

b. The Application asks: "Have you ever been charged, found guilty and/or convicted of any offence in any jurisdiction? This includes any absolute and/or conditional discharges, withdrawn charges, suspended sentences, convictions, fines or guilty pleas. Please provide the following information: 1. Name of offence; 2. Jurisdiction of offence; 3. Year of occurrence; 4. Outcome (such as sentence, penalty, conviction, discharge or other outcome)".

c. The Applicant responded as follows: "Yes. 1. Driving under the influence, Driving under the influence per se, Speeding, No seat belt; 2. Commerce City, Colorado; 3. 12/30/2007; 4. Plea was to Driving While Ability Impaired. That plea resulted in 48 hours of public service, 6 months suspended license, 2 years probation, 12 hours level II education, MADD courses and $700 fine."

d. An eligibility assessment was conducted by the AGCO and revealed that the Applicant has the following charges, findings of guilt and/or convictions:

Offence Date

Offence contrary to the Colorado Revised Statutes

Disposition

12/30/2007

Driving While Ability Impaired Driving Under The Influence DUI Per Se Seat Belt Not Used Speeding 25/more Over Limit

Guilty Plea to Lesser Charge Amended Dismissed Dismissed Dismissed

10/31/2014

Driving Under The Intl - w/1 Prior Alc Driving Under The Influence Driving Under The Influence Per Se Careless Driving

Guilty Amended Dismissed Dismissed

10/17/2016

Driving Under Restraint Careless Driving Failure To Display Proof of Insurance Failing to Report Accident - Call Police Driver's License - Permit Unauth Person to Drive

Dismissed Dismissed Dismissed Dismissed Guilty

e. The Applicant provided false statements on his Application by failing to accurately disclose information relating to his charges, findings of guilt and/or convictions.

f. When interviewed by AGCO consultants, the Applicant failed to accurately report his history of charges, findings of guilt and/or convictions.

24The appellant agrees in principle to particular #7 noted on the Notice of Proposal but subject to an elaboration/explanation:

g. When interviewed by an Ontario Provincial Police investigator, the Applicant failed to accurately report his charges and made false statements and/or representations respecting the underlying facts leading to his charges, findings of guilt and/or convictions as detailed above.

There are Reasonable Grounds to Believe the Appellant will Not Act within the Law, with Integrity or with Honesty or in the Public Interest

25The Registrar has the burden to prove the appellant’s conduct provides reasonable grounds to believe that he will not carry on business in accordance with the law, integrity, honesty or in the public interest. The standard of proof is “reasonable grounds for belief” which is a lower standard of proof than a balance of probabilities, but more than a mere suspicion, and considers the appellant’s past or present conduct.

26The Court of Appeal in Ontario (Alcohol and Gaming Commission of Ontario) v. 751809 Ontario Inc. (Famous Flesh Gordon’s) 2013 ONCA 157, determined that there must be reasonable grounds for belief that the person will, in future, carry on activity in a way that is contrary to the public interest such that they will not act in accordance with the law, with honesty and with integrity. The Court of Appeal emphasized that any and all past or present conduct can and should be considered as it relates to the reasonable grounds for belief that the individual will not carry on business as required by the Act.

27The purpose of the Act is consumer protection. The appellant’s past and present conduct in all matters, not just the convictions, must be examined in order to determine if the respondent has met the test.

28The conduct that I considered to reach this decision included the appellant’s criminal convictions, the appellant’s conduct following the application, character witnesses and employment record, and the testimony and exhibits presented at the hearing.

29The appellant’s past conduct includes criminal convictions from 2007, 2014, and 2016 for driving under the influence, or impaired driving. The appellant’s past conduct involving serious criminal conduct does not, in and of itself, preclude the appellant’s eligibility to obtain a licence. However, I took into consideration the elements of honesty and integrity when assessing the appellant’s past and present conduct.

30In this case, the appellant failed to provide full and complete information about his prior offences. In February 2019, the appellant submitted his application to the AGCO and a personal disclosure form disclosing only the information requested on the application related to the 2007 offences. He omitted to provide the required information related to his 2014 and 2016 offences.

31The appellant testified to reading the declaration on his application before submitting the application to the AGCO. The declaration indicates in part “I solemnly declare that I have read over this form/application and I make this solemn declaration conscientiously, believing its contents to be true. … I understand that providing false, incomplete or misleading information, or omitting to provide information in this form/application or related documents may result in the refusal, suspension or revocation of a licence…” The appellant thereafter checked the box confirming that he solemnly declares “that all information provided in this application is true and correct.”

32Despite having completed the application, reviewed its contents, and made a declaration about its truthfulness and completeness, the appellant testified that he was aware the documents were false and incomplete because he did not disclose the required information related to his 2014 and 2016 offences.

The appellant’s conduct following the filing the application and in providing disclosure of his 2014 and 2016 offences does not show an ability to carry on business in accordance with the law, or with integrity, honesty or in the public interest

33The appellant testified that after having been chosen in the lottery, many individuals/companies contacted him about establishing a business relationship. One such company was Origin House. As part of their business relationship, the appellant agreed to permit Origin House to conduct due diligence searches, including a background check on the appellant. Origin House ordered and obtained a document entitled BackCheck Detailed Report, dated March 14, 2019, which the appellant testified he forwarded to the respondent at the direction of Origin House. The BackCheck Report was sent to the respondent by email dated March 20, 2019.

34The appellant had also retained a lawyer to assist him in obtaining a temporary residence permit to enable him to work in Canada. As part of the application for the permit, the appellant’s full criminal history was provided to the Canadian federal government. The dates on the bottom of the supporting documents indicate March 8 and 12, 2019.

35Also, following the application submission to the AGCO and as part of the application process, the appellant had two telephone interviews with AGCO representatives. The Deloitte interview on June 11, 2019 was to review the application details and ask some clarification questions. An interview with Officer Ballantyne on July 4, 2019 was to assist the Registrar on the appellant’s application and reviewing some items that the Registrar identified as requiring further investigation and clarification.

36The appellant submits that he is able to comply with the regulatory rules, and will act with honesty and integrity. He also indicates that the subsequent disclosure, albeit late, shows that he did not intend to mislead the respondent.

37I respectfully disagree. The appellant’s conduct affords reasonable grounds to believe that he will not act in accordance with the law, with integrity and honesty. The initial application was misleading and raises concerns about the appellant’s honesty and integrity and his conduct with the ACGO representatives was not forthcoming. The appellant was vague in his answers and minimized the seriousness of his prior offences. This conduct is indicative of his unwillingness, or inability to comply with the law, act with honesty and integrity.

38When looking at the totality of the evidence presented, I find that the appellant seems to comply with the law when others direct him to do so, or when he sees no other choice. I find that he is not at the stage of his life where he has accepted his past and is able to self-regulate his actions in a way that ensures compliance with rules and regulations, or to act with honesty and integrity.

39The appellant testified that he knew his February 2019 application package was incorrect and missing his 2014 and 2016 offence details. He testified that as part of his application for a temporary resident permit he obtained supporting documents which contained a complete history of his criminal offences in 2007, 2014 and 2016, yet the appellant took no active steps to submit the supporting documents with his complete criminal history to the AGCO.

40The appellant testified that Origin House obtained information about his criminal offences which are detailed on the BackCheck Detailed Report, and because Origin House directed him to do so, he forwarded the Report to the AGCO on March 20, 2019. This was the first instance that the appellant’s 2014 and 2016 offences were disclosed to the Registrar.

41The appellant did not take the self initiative to provide the information about the 2014 and 2016 offences. He did not disclose the temporary residence permit supporting documents; and only disclosed the BackCheck Report to the respondent because someone at Origin House directed him to do so.

42Once the disclosure detailing the 2014 and 2016 offences was provided to the respondent, I would have thought that the appellant should have been willing to be open and honest with the respondent in discussing his criminal past, including providing details related to the offences from 2007, 2014 and 2016. However, that was not the case.

43In June 2019, during his interview with AGCO representatives from Deloitte, when asked “Do you have any convictions or charges?” he only spoke about the 2 DUI charges in 2007 and 2014 in Colorado, USA.

44Also, at the July 2019 telephone interview with Officer Ballantyne, the appellant was open and candid about the 2007 and 2014 offence details. However, he was not open and candid about the 2016 DUI, his third. It was only after Officer Ballantyne continued to ask questions related to the 2016 incident that the appellant became aware that Officer Ballantyne knew of all the details and he started to tell the truth.

45The appellant explained that he did not initially give full details about the 2016 offences because he was ashamed having engaged in the same behaviour and making the same mistakes yet again. He testified that when asked about the 2016 incident, that he was overwhelmed and started giving Officer Ballantyne a false story, that he knew he was lying to Officer Ballantyne and that it was a natural instinct to make something up. He further indicated that he knew he “screwed up my opportunity” and described it as being “self-sabotage.”

46The appellant’s inability to comply with the law is exemplified by his actions following his 2014 offences. After his second DUI, he lost his driver’s licence and was on probation which included a condition that he not consume alcohol. He was obligated to call in daily to find out if he was required to provide a urine sample to be tested for alcohol consumption. Despite having lost his driver’s licence and having to abstain from drinking alcohol, the appellant continued to drink, and continued to drink and drive. He indicated that when no one was monitoring him, he would continue to drink and drive without a licence.

47The appellant was charged with his third DUI, and a charge related to driving with a suspended licence. Even following his third DUI, he continued to drink alcohol, which eventually resulted in a failed urine test and a breach of his probation. He testified that he thought one failed urine analysis test would be forgiven.

48The appellant’s attitude and conduct, past and present, do not show that he is able to comply with the law, act with honesty or integrity. Despite his charges, he continued to violate the law, and violated his probation. Although time has passed since his last criminal offence, his actions in filling out the application and subsequent interviews indicate an inability to be truthful, honest and act with integrity. In 2019, he knowingly was untruthful on his application package and in his responses to AGCO representatives.

49I acknowledge that since his third DUI and extended probation term, he has now been sober since March 17, 2019, and I commend him for continuing to be motivated to lead a life free from alcohol. He attended alcohol classes and is no longer addicted to alcohol. Although he does consume cannabis, he is not addicted to it.

50The appellant submitted written statements in support of his good character. The letters highlight his good work ethic, leadership and ambitious nature. The authors provide their support in his application to obtain a retail operator licence and are genuinely happy for him. While the witness statements are supportive of the appellant’s endeavours and provide indication of his drive to succeed, I find little weight can be applied to them. It is unknown whether the authors were aware of his complete personal background, or the circumstances that led him to this hearing. This weakens the weight to be applied to them.

51The appellant’s lack of honesty and integrity about his convictions and his failure to address and accept his past causes significant concern with regard to his ability to act with honesty, integrity, in accordance with the law, and in the public interest. His actions carry consequences. Considering the totality of the evidence, I find that the Registrar has met his burden to show that there are reasonable grounds to believe that the appellant will not act in accordance with the law, with integrity, with honesty or in the public interest.

The Appellant provided False Statements or False Information in his Application for a Retail Operator Licence.

52It is not contested that the appellant’s application submitted to the AGCO contained false information in that the appellant only disclosed the charges/convictions from 2007; and that it did not contain any information regarding the appellant’s 2014 and 2016 charges/convictions. The appellant testified that he knew the application was false when he submitted it to the AGCO in that he omitted all details related to his 2014 and 2016 offences.

53Subsection 3(4)6 of the Act makes it a standalone ground for being ineligible to be issued a retail operator licence if the applicant made a false statement or provided false information in the application. The submission of the application is the first test of integrity for a person who seeks to be licenced in a regulatory industry.

54The appellant submits that the subsequent disclosure of the BackCheck Report in March 2019 is indicative that he did not purposely keep information about his 2014 and 2016 offences, and that this subsequent disclosure ought to overcome a finding of having made a false statement or provided false information on his application.

55I don’t find that it is. Despite the fact that eventually all the information was obtained by the respondent, I find that his initial omission of the 2014 and 2016 offences was purposeful, and the subsequent disclosure was only done because someone else directed him to disclose the information, and that, based on the facts of this hearing, the subsequent disclosure does not overcome a finding of the appellant’s ineligibility to obtain a licence.

56The appellant is high school educated and admitted to not knowing much about the cannabis regime in general and more particularly in Ontario. However, he had had the assistance of a friend who has a post-secondary degree in Business Administration, is a Colorado city counsellor and a chief compliance officer for a Colorado company’s cannabis division. The appellant indicated relying heavily on his friend’s assistance.

57The appellant also reached out to seek advice and guidance from the AGCO representatives, and Ontario counsel. The appellant, perhaps not knowledgeable on his own accord, was sufficiently aware that when he needed assistance, he went out and sought help.

58The appellant testified to reviewing the application prior to submitting it to the respondent and to knowing that the application was false and inaccurate. The appellant understood the question to detail charges and convictions and provided information about his 2007 offences. The appellant acknowledged that he understood the declaration on the application and that filing an application with false, misleading or omitting to provide information may result in the refusal of the licence. Despite this understanding, the appellant decided to submit the application to the Registrar. The appellant’s actions have consequences and a late disclosure is not enough to cure it in this case.

59The appellant knowingly made a false statement on his application form.

Conditions are not appropriate to facilitate a registration.

60The cannabis regime in Ontario is one which requires licence holders to ensure compliance with the laws and regulations. A licence holder has a positive obligation to notify the Registrar if any aspects of the Act or regulations have been breached.

61The appellant submits the appellant be granted a licence subject to the following conditions:

a. The applicant shall advise the Registrar in writing, within five business days, of any findings of guilt, convictions, or pending charges under any law.

b. The applicant shall advise the Registrar in writing, as soon as reasonably practicable, of any statements of claim, legal proceedings, judgments, bankruptcy, liens or changes in financial status that might reasonably be anticipated to affect the applicant’s ability to comply with any requirement under the Act or Regulations.

c. The applicant will provide the Registrar with full and complete disclosure in all future correspondence and on all future applications, regardless of whether or not disclosure has been made previously to the Registrar.

d. The applicant shall, within 60 days of registration, enter into a compliance plan with the Registrar that provides such additional and reasonable controls as can be agreed between the applicant and the Registrar (acting reasonably) to ensure compliance with the Act and these Terms and Conditions. This condition may include, by way of example, the hiring of a third party (such as Deloitte) on a short-term basis to monitor and assess the applicant’s operation of the retail store and compliance with the Act.

62The Registrar submits that a finding that the appellant made a false statement on the application requires that the Tribunal rule the appellant is ineligible to be issued a licence. In the alternative the Registrar submits that should the Tribunal determine that it has the discretion to consider conditions, that conditions are not warranted.

63I do not need to decide this issue because I find that conditions are not appropriate in this case. Most of the suggested conditions require the appellant to advise and/or provide the Registrar with information or documents. Given my analysis above, I find that the appellant will not carry on business in accordance with the law, or with integrity, honesty or in the public interest. I am not satisfied that he would be willing or able to comply with any of these conditions.

64The cannabis regulatory scheme requires a relationship based on trust as it is dependent on licensees’ self-reporting, acting in the public interest, and acting in accordance with the law, with integrity and honesty even when doing so might be contrary to their own interests. Regulators trust their licensees to comply with the requirements, and trust that licensees will take steps to notify the regulator when the requirements were not followed. The Act is about protecting the public interest, and rules have been made to ensure the public is protected. The Act requires individuals to be able to comprehend the importance of compliance, address stressful situations, own up to their mistakes and deal with any consequences resulting from failing to comply with any requirements.

65The appellant does not have experience being in a regulator/licensee relationship, and therefore cannot show a positive history of being compliant to a regulatory scheme. In looking at this relationship, the appellant had an obligation to be honest and truthful with the respondent but was not. The appellant indicated an inability to deal with his past, and that he just wanted to disregard his past because he felt too ashamed to discuss it.

66I have sympathy and understanding into the appellant’s life circumstances and his prior addiction. He should not think that he is a ‘bad person’. He appears to be on the right path to addressing his past and dealing with it, but I don’t find that he is there yet. His sobriety is something to be proud of. He now has to work at being truthful and open when discussing his past, to show that he is able to work and live within the rules. Although 2.5 years has since passed since his last offence, it is his failure to be candid, open and honest with the respondent that is a cause of concern.

67I am not confident that the appellant can be monitored closely enough to ensure he is being truthful, nor do I have confidence that he will take the requirements seriously. I find that conditions are not appropriate in these circumstances.

ORDER

68In accordance with the authority set out in s. 15 of the Act, I confirm the proposal of the Registrar to refuse a licence; and direct the Registrar to carry out his proposal dated July 30, 2019 to deny the appellant’s application for a cannabis Retail Operator Licence.