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Cannabis Fired Namaste CEO disputes dismissal, seeks injunction to retain role

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The recently fired chief executive officer of Namaste Technologies Inc. is contesting his dismissal, alleging in a lawsuit filed this week that he was hastily and improperly removed from the cannabis company he co-founded in 2014.

Sean Dollinger is alleging that he was wrongly ousted from his roles as CEO and director of Vancouver-headquartered Namaste after repeated, but unsubstantiated threats from other directors that Namaste’s auditor, PricewaterhouseCoopers LLP, would resign if Mr. Dollinger wasn’t dismissed, according to court documents filed Tuesday with an Ontario court. He says he was told that his termination was “the lesser of two evils.”

Mr. Dollinger is fighting back. He is asking a judge to issue an injunction stopping the board or any committee of the board from terminating his employment. He wants the courts to declare that he is, in fact, still CEO and a director of Namaste, a company that sells cannabis accessories in more than 20 countries and is licensed to sell medical cannabis produced by other growers in Canada.

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For its part, Namaste has already moved on. It named a new interim CEO to replace Mr. Dollinger and is now weighing a sale after it says an interested buyer emerged.

Since Mr. Dollinger’s firing Monday until midday Friday, shares of Namaste had taken a nosedive, losing more than $140-million in value. Meni Morim, Namaste’s interim CEO, then tried to calm the market by assuring investors and employees that it’s business as usual. In a letter to shareholders posted Friday afternoon, Mr. Meni said the company has a “strong, talented management team in place” that is focused on running and growing the business.

The stock had been down 10 per cent Friday and spiked after the letter was published to finish the trading session up 11 per cent to $1.13. The company’s stock is now worth $347-million.

That said, the court filings paint the picture of a frenetic weekend at Namaste leading up to Mr. Dollinger’s firing, revealing a tense battle for control and an ongoing fight over whether proper corporate governance procedures were followed.

Namaste is one of several marijuana companies that have been targeted by activist short-sellers who have criticized governance practices and company valuations amid a steep rally in share prices. Other firms that have been attacked include Aphria Inc., Aurora Cannabis Inc., Tilray Inc. and Cronos Group Inc.

Mr. Dollinger filed his application with the courts on Tuesday, a day after Namaste said in a press release that it was firing him after an internal investigation found alleged wrongdoing related to recent deal-making. The probe was conducted by a special committee of two directors – whom Mr. Dollinger has also named in his lawsuit – after a short-seller took aim at Namaste in two reports alleging fraud and self-dealing. Namaste’s special committee, which was advised by Miller Thomson LLP and Ernst & Young LLP, found that Mr. Dollinger had allegedly breached his fiduciary duty to the company and improperly enriched himself.

Darren Seed, a spokesman for Namaste, said the company can’t comment on the matter because it is before the court. Mr. Dollinger said he was travelling Friday and was not available for an interview prior to publication. A PwC spokesman said in an e-mail the firm doesn’t comment on clients or work it performs on their behalf. An e-mail to Jay Hoffman, a lawyer at Miller Thomson who advised Namaste’s special committee, wasn’t returned.

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In its Monday press release, Namaste said it would be filing a lawsuit against Mr. Dollinger for damages and disgorgement of any profits the company says Mr. Dollinger improperly earned. Mr. Seed said a lawsuit hasn’t been filed, as of early Friday.

In mid-October, Namaste struck a special committee to review claims made by an activist short-seller against the company and some senior employees, including Mr. Dollinger. At first, it was a committee of one board member – Branden Spikes. A second director – Laurens Feenstra – was added last month.

Mr. Spikes said in an e-mail that Mr. Dollinger’s “version of events is false.”

The matter came to a head last Friday, when the special committee said it was ready to present its findings to the other directors. According to court documents, Mr. Dollinger says he was told after the meeting that the special committee had decided to terminate his employment, but would give him 96 hours to decide whether he’d rather resign instead. Mr. Hoffman, the lawyer for the special committee, originally gave Mr. Dollinger until Tuesday to decide, but Namaste’s press release announcing his firing was published early Monday morning. E-mails were being sent from both sides of the dispute late Sunday night and into the morning.

In the court filing, Mr. Dollinger argues that the special committee doesn’t have the authority to fire him and remove him from the board. He also claims that half of that board meeting last Friday was held with too few directors to meet the company’s definition of quorum. He says he and two other directors were bullied into agreeing to recuse themselves from the second half of the meeting. Mr. Dollinger also claims that another board meeting was held Sunday that suspended the authority of the special committee. The two directors on the special committee dispute this.

Namaste hasn’t fully explained why Mr. Dollinger was fired. It did take issue with one transaction the company completed in 2017 to sell two Web domains that served the U.S. market for US$400,000. That sale allowed the company to list its shares on the TSX Venture Exchange. (The TSXV doesn’t permit cannabis companies that violate U.S. federal laws from listing their stock on the exchange, even if the companies comply with state law.)

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Among the allegations published in a report last year, activist short-seller Citron Research claimed that the U.S. entity – named Dollinger Enterprises US Inc. – was sold to a related party when Mr. Dollinger said on a conference call it was an arm’s-length buyer from Europe. Mr. Dollinger denies Citron’s allegations, calling them “spurious and without merit.”

The company filed audited financials for 2017 last January; it has yet to file audited financials for 2018.

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