Lawsuit Alleges Secret Cash Payments. By Colorado CBD Company CEO, Kashif Shan

By Teri Buhl

A wholesale CBD oil company, called Folium Biosciences, is being accused of siphoning off cash to its founder Kashif Shan and another top executive in a lawsuit filed this week in Colorado state court.

The accusation comes while Shan is courting potential outside buyers for the company.

The Colorado Springs-based company, whose legal corporate name is Whole Hemp Company LLC,  is being sued by its former Vice President of business development and marketing, Dale Takio, after Shan allegedly tried to cut him out of his promised equity in the privately held company. The lawsuit accuses the company, Kashif Shan and Quan Nguyen of breach of contract, breach of fiduciary duty, and demands an accounting of the company books and records.

Folium made news this January when it received a $3 million investment from U.S. based Australis Capital, which is a financing spin-off of Canadian cannabis powerhouse Aurora. Australis is traded publicly on the OTC pink sheets under ($AUSAF) and is run by Scott Dowty.

Shan said in a podcast with Green Rush that the investment was a secondary offering and the funds were used to pay off some of its early investors but looks forward to a long partnership with Australis. Shan also bragged that the company funds its expansion through its own revenues and doesn’t need outside capital, which according to people familiar with the company are in the single digit millions.

Folium Biosciences says it is the largest vertically-integrated producer, manufacturer, and global distributor of hemp-derived phytocannabinoids. It is a business-to-business, bulk and wholesale supplier of hemp-derived CBD 0.0% THC oil, CBD water-soluble technology, CBD 0.0% THC edibles, cosmeceuticals and CBD for animal health. The company ships to over 20 countries internationally, according to Shan.

The state court lawsuit, filed by corporate litigator Henry Baskerville of Colorado-based Fortis Law Partners, says Takio was originally offered a .5% equity as part of his compensation package and it was negotiated down to .25%. Emails of the equity negotiation between Takio and Shan were included in the lawsuit but there is no official signed contract attached to the legal filings. Folium has countered the suit by filing an action in Colorado federal court asking for a judge to make a declaratory judgement that there is no equity contract with Takio. Because of diversity of residence issues the federal court motion has a chance of being thrown out giving way to the State court case leading the court battle. The federal court action was filed after Takio’s lawyer had sent a demand letter notifying the company of the coming lawsuit.

Takio accuses the company of secretly recording employees who are located in a one-party state, which means each party has to agree to be recorded otherwise the recordings are illegal. But the juiciest part of the lawsuit takes a look Shan’s self-dealing and negligence, according to first hand knowledge by Takio.

The lawsuit states :

“For example, on January 8, 2019, Shan and Nguyen caused $585,070.55 to be transferred from Folium’s bank account to Nguyen. That same day, Shan and Nguyen caused $1,999,921.84 to be transferred to Shan’s wife. On January 18, 2019, Shan and Nguyen caused $464,745.69 to be transferred to Nguyen. Also on January 18, 2019, Shan and Nguyen caused $1,664,672.54 to be transferred to Shan’s wife.

In other words, in January 2019 alone, Shan and Nguyen caused $3,664,594.38 to be transferred to Shan’s wife and $1,049,816.24 to be transferred to Nguyen. Other Folium members, such as Takio did not receive similar distributions.”

Shan has made statements to the press that the company does pay dividends to its seed investors. The company refused to answer questions from Cannabis Law Report regarding if Shan’s wife has any official job at Folium that would justify the payments or if she is an investor in the company. According to a person who has worked with the company Shan has allegedly made comments to staff that ‘his wife is good for hiding money’. His Linkedin bio doesn’t list  any work experience before starting Folium but he said on a podcast he previously worked in the tech business in San Francisco. Shan is a Colorado resident.

A minority percentage of equity ownership, which according to an email from Shan, is given out to senior staff to lure talent to the company. While Shan publicly tells the press he is not interested in taking the company through a public stock offering he privately tells staff that he is seeking a buyer. That courted buyer is Aurora Cannabis ($ACB), according to people who are familiar with the company. Shan has said he received an initial $800 million offer but thinks he can get $2 billion for the company. A number that could be an industry record and outweighs a comparable value of another CBD seller Charlotte’s Web.   Charlotte’s Web is currently trading around ten times its sales in revenue. The hemp/cannabis industry is currently using revenue to value companies. Assuming Folium is making similar revenue numbers a $2 billion offer would be 20 times sales revenue valuation. Given how fast the market is seeing sales of CBD jump and a hype of the product because the Farm Bill made CBD without THC legal who knows where valuations will go. Or if Shan’s 2 billion buyout is a pipe dream.

Takio’s lawsuit last line of allegations says….

“On information and belief, Shan and Nguyen have engaged in numerous other acts of misconduct that have caused significant harm to Folium and its members, including Takio”.

Basically making a broad warning that other dubious allegations could come out in an amended complaint.

Folium has definitely been through some recent employee turnover with their general counsel also recently leaving the company.

Folium is represented by Justin Baily of Colordao Springs-based Sanders Law Firm. Attorney Baily did not respond to a request for comment. Takio would not comment on the lawsuit only referring us to his attorney who when reached for comment said he thinks the lawsuit speaks for itself.

 

Resources

Law 360 Whole Hemp Company, LLC v. Takio