In wake of Namaste fiasco, Canadian cannabis firms urged to boost corporate governance

An expert in the cannabis industry is urging Canadian marijuana companies to improve corporate governance in the wake of a controversy involving Namaste Technologies and other “unicorn” firms.

Toronto-based Namaste on Monday said it removed Sean Dollinger as chief executive officer and director and is commencing legal action against him after a special investigation.

The company is seeking damages and disgorgement in connection with findings “related to the sale of its U.S. subsidiary, Dollinger Enterprises US Inc., in 2017, and subsequent transactions involving its assets and companies in which Sean Dollinger and Namaste’s head of marketing, David Hughes, have a beneficial interest, as well as breaches of fiduciary duty by Sean Dollinger and evidence of self-dealing.”

In a statement the following day, Dollinger said he intends “to begin setting the record straight and clearing any misconceptions caused by the inaccurate allegations leveled against me.”

This charge and recent instances involving Aphria and MedMen demonstrate the need for improved corporate governance across the sector, according to Vijay Sappani, CEO of Toronto-based Ela Capital, a venture capital firm exploring emerging markets in the cannabis space.

“The cannabis industry has been the Wild West,” he said. “It is time for cannabis companies to focus on corporate governance.

“It’s time that both industry and the government look at regulations, corporate governance and social responsibilities.”

Sappani said Canadian marijuana industry leaders such as Canopy Growth and Aurora have demonstrated a sense of corporate governance and responsibility, but many other companies in the fast-growing sector need improvement in this area.

Some companies in an emerging sector such as cannabis have demonstrated activities that would be “an absolute no-no in any established industries,” he said.

In September, officials with Tilray confirmed in an email to Marijuana Business Daily that it had “ended its relationship” with Namaste after a highly publicized “pledge party” involving women dressed in “sexy” nurse uniforms. The event was reportedly held for stockholders who promised not to sell company shares for 90 days.

“Some of the corporate governance is questionable from the actions they have shown in public, whether that’s a press release, an action, an acquisition,” Sappani said of the broader industry.

“Everybody needs to be compliant with regulators, but some of these activities these companies are involved in are very questionable.”

Experts say that marijuana companies – especially those seeking to go public – must pay careful attention to corporate governance.

They note the following points as critical to success:

  • Management and boards should be independent.
  • Real or perceived conflicts of interest must be strictly avoided.
  • Executive pay is best tied to performance.
  • Creating an executive committee of the board can prove a great option.
  • Gender diversity is key.

Finance reporter Lisa Bernard-Kuhn contributed to this report.

Matt Lamers can be reached at [email protected]

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