Cannabis sector players denied security clearances

Executives fight back in court against federal government over alleged criminal associations

Some cannabis firm principals are taking the Canadian government to court after being denied security clearances over alleged criminal connections |  Shutterstock

As Canadian cannabis companies struggle to achieve profitability in the burgeoning recreational weed market, executives at some firms are dealing with struggles of their own, forced to go to court with the federal government after their bids for security clearance under the Cannabis Act were denied over alleged criminal ties.

Documents filed in the Federal Court of Canada in the latter half of 2019 reveal that executives from a handful of Canadian cannabis firms have had their security clearances denied, despite having no criminal records.

Under Health Canada regulations, certain key players in cannabis companies must bid for security clearance in a process “to determine whether the applicant for a security clearance poses a risk to public health or public safety, including the risk of cannabis being diverted to an illicit market or activity.”

One case filed in December involves Peter Wojcik, CEO of Coquitlam-based Pharmagreen Biotech Inc. His security clearance application was denied in October 2019 on the basis that he had associated in the past with an unknown and unidentified “associate” of an outlaw motorcycle gang, and had once sent medical marijuana as a designated grower to an address other than the patient’s residence. A prospectus filed with the U.S. Securities and Exchange Commission in March outlines a laundry list of risks associated with investing in the company, including the firm’s heavy reliance on Wojcik as president and CEO.

“The loss of Mr. Wojcik’s services could seriously interrupt our business operations, and could have a very negative impact on our ability to fulfill our business plan and to carry out our existing development stage operations,” according to the registration statement.

In November, Silverio Manuel Dasilva filed a similar judicial review application in Federal Court, naming Todd Cain, director general of the Controlled Substances and Cannabis Branch at Health Canada, and the attorney general of Canada as respondents. Dasilva applied to become head of security for Forest Farms Growth Corp., an Ontario-based “craft cannabis” firm headed by his wife.

Health Canada, according to his application, denied his security clearance based on unspecified “investigative reporting” that allegedly confirmed that he was “an associate of the Hells Angels.”

“The Applicant has asserted that these statements arising from these checks are false and without factual foundation by his wife, the President of the company, Carmen Dasilva Azevedo, who has been notified she might also be denied such a security clearance simply because she is the spouse of the Applicant,” Dasilva claims.

Wojcik’s and Dasilva’s lawyer, John Conroy, told Business in Vancouver in a phone interview that his clients have been unfairly blindsided by the findings.

In Dasilva’s case, Conroy said his client is “bewildered by this allegation and responded to them saying that that was false and not true and they still denied him on that basis.”

“They have a duty to act fairly, which means they have to tell you the case against you in sufficient detail that you can have a fair opportunity to respond to it before they act against you, unless it’s an emergency,” he said. “We’re saying, ‘Tell us the case against him so he can have a fair opportunity to respond, and by the way, you’re violating his constitutional rights by not doing so.’”

Conroy said he’s heard from cannabis company employees facing similar fates over potentially dubious or tenuous findings from background checks, which include details of police interactions recorded in law enforcement databases.

“The new prejudice nowadays is not having a criminal record; it’s being in a digital database and then finding out about it years later and trying to have a fair opportunity to respond to it,” he said. “Let’s assume there was a hint of legitimacy to some of these things. I can think of some cases where people have been turned down who were involved, in the past, in the black market.

“What do you want to do? Do you want to exclude them so they continue to compete with you or do you want to roll them all in like we did with the Bronfmans and the Seagrams and the Kennedys in terms of booze?”

In addition, he said, details of potential criminal associations in Health Canada checks are problematic because “they assume that you know all about the other person’s background and history.”

In a case filed in June, Edmond Chiu, chief operating officer and vice-president of grow operations for Creston-based WeGrow BC Ltd., claims he was unfairly tarred with criminal associations for police findings dating back to 2007. A background check, according to his application, turned up five occasions of him associating with individuals convicted of drug offences, weapons violations and assault. One instance included him being seen at a Vancouver nightclub in the company of unnamed subjects in 2007. Chiu’s lawyer, Michael Peraya of Singleton Urquhart Reynolds Vogel LLP, declined comment on the case.

In another case filed in September, Kan Paul Lum and Mission-based Grun Labs Inc. claim Health Canada refused Lum’s security clearance for his association with “an individual whose spouse has been linked to organized crime for the last 20 years and has drug related convictions.”

Lum’s background check revealed he is a director of 1045158 B.C. Ltd., a Richmond-based supplement company, where a co-director was “the spouse of a known Asian Organized crime figure in the Lower Mainland of B.C.” who had been convicted of drug trafficking and weapons offences. Lum claims he was unaware of the woman’s spouse’s criminal ties.

“I have no intention of jeopardizing my lengthy business career, or my reputation, by engaging in any activities which may pose a risk to public health or safety,” Lum wrote in a letter to Health Canada. “I am taking immediate steps to disassociate myself from [name redacted] and her spouse and would be open to considering any additional steps that Health Canada would suggest to further support my application.”

Health Canada officials refused to make anyone available for an interview, but stated in an email that the agency had received, as of November 30, 2019, 4,268 security clearance applications since the Cannabis Act was passed, fewer than half of which have been granted.

 “Of these, 1,984 individuals have been granted a security clearance,” Geoffroy Legault-Thivierge, a communications officer with Health Canada, stated in an email. “The remaining security clearance applications are being processed or have been refused. Less than 1% of applicants are refused a security clearance.”

For Conroy, the difficulties faced by his clients and others indicate the government has “failed to understand the market.”

“Because it all came out of prohibition, there’s still this heavy stigma,” he said. “Look at the local governments that are all dragging their feet about whether to have a dispensary. It’s bizarre that Alberta has 300 or something and B.C. has what, 10 or 20? And B.C. was always the cocoon of this whole cannabis thing.”

He said attitudes from former police officers turned politicians such as Public Safety Minister Bill Blair are counterintuitive and predicated on “this belief that if you’ve been bad, that’s it, instead of realizing that part of our objective is to reform and rehabilitate people so they won’t be bad in the future.”

“Their big concern that they always use to deny people is ‘We think you will divert into the black market,’” he said. “You’re forcing them into the black market instead of bringing them in and putting them on conditions so they don’t do that.” •