Emerald Health Sciences sought an injunction against a shareholder who raised concerns about company ties to a major U.S. fraud investigation.

A B.C. cannabis company has lost a court case against a disaffected shareholder, who claims he was “oppressed” to remain quiet about the firm's connections to a major securities fraud scheme alleged in the United States.

Emerald Health Sciences (EHS) had sought an injunction against defendant Kris Kallu, who had used the company’s shareholders email list to voice concerns about the criminal indictment of the company’s president and CEO Avtar Dhillon, who is Kallu's cousin.

Emerald Health Sciences is a private investment firm for cannabis product development. It was founded by Dhillon, Vancouver lawyer Jim Heppell, Dhillon’s nephew Punit Dhillon and his cousin Yadvinder Kallu, according to Dhillon's court filings. The latter is a convicted heroin trafficker and Kris Kallu’s brother.

According to the B.C. Supreme Court ruling released May 25, Kallu had emailed all of the company's shareholders in September 2021 — a month after Dhillon’s arrest in California.

Kallu, a Richmond resident, told the court in his affidavit his email expressed concerns about the United States Securities and Exchange Commission (SEC) alleging financial fraud against Dhillon and several other defendants who were also shareholders of the company.

Heppell, the company’s director, wrote back to Kallu stating Kallu breached his duty of confidentiality, and the company subsequently launched a lawsuit against Kallu, the ruling shows.

The company claimed Kallu improperly used the emails of shareholders that was distributed in error back in June 2018 by a legal assistant at the law firm Bennett Jones LLP. The assistant had failed to blind copy the shareholders in a letter and inadvertently exposed all of their emails. The company had requested shareholders delete the email but Kallu did not and subsequently used the information to contact the shareholders about Dhillon’s legal troubles.  

Justice Ronald Skolrood ruled the company could not prove Kallu breached confidentiality or that the company maintained confidentiality beyond Kallu’s alleged breach.

The company, now headed by Heppell, also alleged Kallu was trying to pressure the company to buy back his shares, considering Kallu had already launched a lawsuit against the company in 2020 following a dispute resulting in Kallu not being paid out.

But the judge found Heppell’s argument speculative.

“In my view, it cannot be said that raising concerns about the management and financial status of the company with other shareholders is a misuse of the information,” wrote the judge.

“Mr. Kallu is clearly a disaffected shareholder who has aired concerns about the management of EHS. Whether or not those concerns are well founded is disputed but is not in issue on this application,” concluded Skolrood.

The company also claimed Kallu's communications to shareholders harmed its ability to raise capital in the future.

"These are simply bald and speculative allegations of harm not grounded in the evidence," stated the judge.

Kallu stated in his affidavit to the court that Emerald Health Sciences filed its claim against him "to continue to oppress me and to divert the attention of the shareholders from the fact Sharp Parties hold shares in EHS."

Dhillon was arrested in California on civil charges from the SEC and criminal charges from the U.S. Department of Justice last August. He is accused of securities fraud for collaborating with ex-Vancouver lawyer and offshore shell facilitator Fred Sharp, who authorities say "masterminded" a network of pump-and-dump schemes in the 2010s involving over one billion dollars worth of trades across hundreds of U.S. companies. Dhillon is presumed innocent until or unless a court rules otherwise.

Kallu's affidavit claims Heppell acknowledged some co-defendants in the case are on the company's securities registry, dated to January 2020.

Separate lawsuit ongoing as Emerald subsidiary pivots business plans

Emerald Health Sciences has a controlling interest in the publicly traded Canadian firm Emerald Health Therapeutics, which holds a cannabis producing licence and presently trades for five cents per share.

Kallu’s disputed shares of Therapeutics are held by the parent company Sciences.

Dhillon resigned from directing Therapeutics following his arrest. The company also saw its CFO and auditor resign on their own accord in late 2021.

Trading of Therapeutics was halted by the B.C. Securities Commission on May 3 after the company failed to file annual financial statements. The company says it now expects to file by June 13.

Therapeutics' board of directors consisting of Heppell, Punit Dhillon and Bobby Rai announced May 12 the company had reached a proposed agreement to fund Punit Dhillon’s U.S. company Skye Biosciences to develop a synthetic cannabinoid-derivative therapeutic.

Therapeutics is now seeking approval from its shareholders.