CBD giant battles lawsuits from former employees

click to enlarge Folium Biosciences takes pride in its unique extraction process. - COURTESY FOLIUM BIOSCIENCES

  • Courtesy Folium Biosciences
  • Folium Biosciences takes pride in its unique extraction process.

Colorado Springs — still a relatively conservative, weed-spurning enclave in a now-purple state — is at the center of the rapidly growing market for CBD, a substance extracted from the hemp plant and used in everything from softgels to soap.

That’s according to Folium Biosciences, which claims to be the country’s largest CBD company controlling the entire production process from seed to market. On Dec. 11, the company announced some big news: It will merge with Australis Capital Inc. (AUSA), a cannabis investment firm with roots in Canada, to become a massive, publicly traded CBD company that it says will be the biggest in the world.

Over the years, CEO Kashif Shan and his team have worked to ingratiate themselves with Mayor John Suthers and the Colorado Springs Chamber & EDC. And Shan is quick to point out that the company donates to local charities, including the Colorado Springs Philharmonic, Care and Share Food Bank for Southern Colorado, and Discover Goodwill.

But earning a glowing reputation also entails fighting to protect it, and Folium’s shown it’s more than willing to fight both internal and external forces in order to do just that.

Today, Folium is facing lawsuits from three former employees lobbing a series of shocking accusations: contract breaches, bad business practices, and even an attempt to hire someone to kidnap or murder an ex-employee.

Folium has its own version of events — including a different murder-for-hire plot that it says was reportedly directed at the company’s former general counsel.

An early challenge for the company, founded in 2014, was proving to local officials and business players that “we’re not in the THC business,“ says CEO Shan, referring to the substance in cannabis responsible for getting you high.

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Folium maintains that its CBD products, derived from hemp plants containing less than 0.3 percent THC — as required by the federal government — contain 0.0 percent THC, due to the company’s unique extraction process. It sells those products wholesale to retailers around the country and world.

But given Colorado Springs’ opposition to marijuana, which is now officially defined as cannabis with more than 0.3 percent THC, Folium encountered some resistance in the beginning.

“It was hard even getting a building for us to work out of because landlords didn’t even understand what we were doing,“ Shan says. “… It was a challenge educating people about what we did, how it was different from THC and how we can really view what we do as having significant medical benefits.“

Folium began extracting CBD in 2015, according to the company’s general counsel, Ric Calzada. It soon started butting heads with the Colorado Springs Fire Department.

“Our unfortunate experience with [Folium] goes back to 2017, when we got referred to them,“ Fire Marshal Brett Lacey says. He told the Indy he wasn’t sure whether that referral arose from an individual’s complaint or from a fire station.

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In March of 2017, a fire department inspector visited Folium’s extraction facility near  Wooten and Galley roads, down the road from the company’s current location.

“They had multiple violations and a lot of hazardous materials,“ Lacey says. “… I think they were doing alcohol [extraction] at the time … which they had no permits for, no hazmat permits for that, and so we basically told them they were not allowed to do that, and we told them to stop until they got their plans and permits approved.“

Then, in July 2017, one of Folium’s refrigerators blew up when some alcohol ignited. The fire department responded by issuing the company a cease-and-desist letter, Lacey says. Folium submitted plans for a new extraction facility at 615 Wooten Road.

Lacey says that such explosions are common when people are “using equipment that’s not appropriate for that kind of operation.“

“If you have the proper listed and installed equipment, you won’t have those upsets,“ he adds.

click to enlarge Folium recently acquired a pharmaceutical license. - COURTESY FOLIUM BIOSCIENCES

  • Courtesy Folium Biosciences
  • Folium recently acquired a pharmaceutical license.

Around the time of the explosion, Folium hired Juanita Ramos — who’s now suing the company in federal district court — as executive vice president of U.S. and foreign government affairs. Ramos was fired in late August of 2018.

Ramos’ troubles began after Ryan Lewis, Folium’s head of global sales and chief marketing officer, left the company in January 2018 for undisclosed reasons.

According to Ramos’ lawsuit, filed Nov. 18 of this year, Lewis at some point had a “dispute“ with Shan and Quan Nguyen, Folium’s vice president of operations. Then, Ramos’ lawsuit says, “Shan asked Ramos to hire someone to kidnap Lewis.“

Ramos allegedly refused, but according to her lawsuit, Shan “approached her a few days later and asked her to find someone to kidnap and murder Ryan Lewis. She again refused.“

But Colorado Springs Police Department documents tell a different story.

A police report dated Aug. 29, 2018, includes summaries of interviews between a police detective and Craig Brand, who was Folium’s general counsel at the time. Brand tells the detective that his head of security, Luke Smith, reported having a conversation with Ramos the week of Aug. 20, “in which Ms. Ramos stated she was going to go work with a competitor of Folium Biosciences, identified as Global Cannibinoids [sic], owned by a former employee of Folium Biosciences, Ryan James Lewis.“

Smith told police that Ramos told him Lewis offered someone named Shaun Vanderpool $100,000 to “take out“ Brand, according to the police report.

Folium’s current general counsel, Ric Calzada, tells the Indy that Smith, a private investigator from Alaska, was hired specifically at Ramos’ recommendation after she told Folium executives that Lewis intended to hire someone to murder Brand. Smith spent part of July and August looking into this alleged murder-for-hire plot, Calzada says.

According to the police report, Smith secretly recorded about two hours’ worth of phone conversations and personal conversations with Ramos and Vanderpool. The investigator told police that “because Ms. Ramos thought they were good friends, she confided in him about how much she hated the company and Mr. Brand.“

The version of the story in the police report contradicts Ramos’ version of the murder-for-hire plot laid out in her lawsuit: that Shan and Nguyen wanted Ramos to hire someone to kill Lewis. That is, the police report indicates Ramos — at least initially — said Lewis wanted someone to kill Brand. 

Folium took Ramos’ claims very seriously at the time, Calzada says, and hired armed security to guard the building’s entrances and the homes of the CEO and former general counsel.

Brand did not respond to an emailed request for comment.

But the story gets weirder. Police followed up with Ramos in a Sept. 6 interview, and she provided them with a different story. Ramos told police that Lewis filed several civil lawsuits against Folium after leaving the company, which “caused both Kashif Shan and Craig Brand to develop extreme hatred“ toward him.

Smith, Ramos told police, was actually hired by Shan and Brand to locate Lewis. According to Ramos, the executives ordered the investigator to kidnap Lewis and then drive him to New Jersey, where Ramos said he was wanted for outstanding child support payments.

Ramos also told police that around Aug. 6, she had facilitated a meeting with Brand and Vanderpool to discuss product shipping options for Folium.

About five minutes into this meeting, Brand asked Vanderpool if he would kill Lewis for $100,000, Ramos told police. This “shocked everyone at the table,“ she added.

But the investigator, when questioned by police about Ramos’ account of the meeting, said “he did not think that Mr. Brand ever made a request to Vanderpool.“

Smith told police that Brand and Lewis met on Aug. 25 “in order to sort out their differences and ‘bury the hatchet’ between them,“ according to the police report.

Is it conceivable that Lewis harbored enough animosity toward Folium — or the other way around — that someone could have been killed over it?

That’s hard to say. Both Lewis and Calzada declined to comment on why Lewis left the company, citing a nondisclosure agreement.

But Lewis’ LinkedIn profile includes a description of his stint with a “Private Company“ from June 2016 to January 2018, the same time he would have been at Folium. It provides a window into why his departure may have been contentious:

“While at the company, I increased sales from practically Zero to over $50M during an 18 month period,“ his LinkedIn profile says. “…Established distribution channels into Europe, Asia, and South America. Generated enough revenue via sales to enable the company to fully fund a brand new 50,000 Sq. Ft. Extraction and Purification facility.“

He ends the description with a bombshell: “Sold equity interest back to company in mid 2018 in exchange for CBD oil instead of $ and created new company – BIGGER and BETTER.“

Lewis’ current role, according to his LinkedIn profile, is as chief business developer at Global Cannabinoids.

It’s pretty significant that Lewis was able to sell back his equity in Folium, if the LinkedIn description is true. Folium has a unique ownership model in which a handful of executives are offered equity as an incentive for staying with the company, Calzada says. Together, Shan and Nguyen still own the majority of Folium.

But Ramos, along with two other ex-employees, are currently suing Folium for financial damages and equity in the company — lawsuits that the company plans to fight, Calzada says.

“Lawsuits like these are par for the course when a company is going public,“ Calzada wrote in a text to an Indy reporter. “They’re a sign that Folium Biosciences is highly valuable and everyone wants a piece.“

Local attorney, restaurateur and developer Perry Sanders, of Sanders Law Firm, will defend Folium in the Ramos lawsuit.

All three plaintiffs are represented by Henry Baskerville and David Olsky of Denver’s Fortis Law Partners. Baskerville declined to comment for this story on behalf of the plaintiffs.

Crucial to two of the lawsuits — those of Ramos and Brandon Young, a former marketing contractor — is a document from July 28, 2017, titled “Written Consent of the Majority of the Members of Whole Hemp Company LLC.“

The document explains that Folium “desires to admit“ Juanita Ramos as a member with 1 percent ownership.

Then, the document lists each member of Folium and their corresponding interest in the company. The 51-member list begins with Kashif Shan (34.0315 percent) and Quan Nguyen (19.5 percent), and includes Ryan Lewis (7 percent), Juanita Ramos (1 percent) and Brandon Young (0.5 percent).

Attached to that document is a signature page signed by Shan, Nguyen, Ramos and several of the other members.

But Calzada points out that signature page is in a different font than the rest of the document. It’s also identical to a page in an operating agreement for a different company  — and is therefore a forgery, he says.

Affixed to that signature page is a second signature page, in the same font as the membership list, with places for Shan and Nguyen to sign. Calzada says that this was the signature page attached to the actual written consent form that would have granted Ramos equity in the company.

Only Nguyen has signed this page, though — and Calzada says the absence of Shan’s signature proves Ramos never actually had a membership interest in Folium, which would need to be verified by Shan and Nguyen alone, since they are the majority owners.

So who is Brandon Young, and why is he suing Folium?

Young’s history with the company goes back to early 2016, when he was hired as a contractor to generate leads and sales with clients in the CBD industry, according to his lawsuit, filed Sept. 27 of this year in Colorado district court.

In June 2016, Young alleges, Shan offered him a 0.5-percent membership in Folium, and an additional 0.5 percent for each $10 million in sales revenue he generated, up to 2 percent. This verbal agreement also included a sales commission of 5 percent, the lawsuit says.

But in March 2018 — a couple of months after Lewis left the company — Folium stopped paying Young his commission, Young alleges. Not only that, but “Folium refused to issue the equity owed to Young on the purported basis he was no longer an employee,“ Young’s complaint says.

In its answer to Young’s complaint, Folium denies that Young has any membership interest in the company.

click to enlarge CBD extraction requires special permits. - COURTESY FOLIUM BIOSCIENCES

  • Courtesy Folium Biosciences
  • CBD extraction requires special permits.

Meanwhile, Folium fired Ramos on Aug. 27, 2018, according to the police report. Ramos’ murder-for-hire story — and the resulting expenses of hiring armed security and a private investigator — led to her firing, Calzada says.

That’s different from what Ramos alleges in the lawsuit: “Shan terminated Ramos in retaliation for her refusal to go along with the illegal conduct in which Shan was engaged, including the kidnapping or murder of Ryan Lewis. Shan was also concerned that Ramos would report on the illegal activity she witnessed at Folium to government agencies and others.“

The following month, new issues arose with the Colorado Springs Fire Department. 

Between the July 2017 explosion and September 2018, the department “had a lot of back-and-forth with them about their plan reviews and the inspections,“ Fire Marshal Brett Lacey recalls.

“They needed to get sprinklers installed,“ he says. “There was a lot of communication and stuff going back and forth. They were struggling to get things going, and then … September of 2018, we found them doing extractions and so again we issued another cease-and-desist for them to stop.“

Folium had ethanol and carbon dioxide in the facility without the proper permits, Lacey explains. But in October, at a subsequent inspection, “we found that an extractor was hooked up and they were extracting,“ he says.

Lacey says violating the September cease-and-desist would have meant criminal misdemeanor charges entailing a fine of up to $2,500 and 189 days in jail, if convicted. 

But the fire department needed to serve CEO Kashif Shan with a court summons, and could not locate him until after the statute of limitations had expired, Lacey says — despite searching for him at “multiple locations.”

Calzada maintains that Folium never received a written cease-and-desist letter from the fire department in September of 2018. In addition, he says, it was part of Ramos’ responsibilities to interface with the fire department, so the issues could have resulted from her ignoring those duties or intentionally sabotaging the company’s relationship with the department. 

Lacey could not be reached for follow-up before the Indy‘s press deadline to provide written records or comment on Calzada’s assertions.

In the midst of all this, Folium hired another employee, Dale Takio, who’s currently suing the company in Colorado district court. Takio began working as Folium’s vice president of business development in October 2018.

Takio’s lawsuit, filed Aug. 28 of this year, alleges he was hired for a monthly salary of $10,000 for 12 months and the option to purchase at least $350,000 of company stock. But Takio’s offer letter did not include the stock options, so he drafted a revised letter and sent it to Calzada, Takio says in the complaint.

“Based on the promise that Folium would honor the equity purchase agreement, Takio began working for Folium on Oct. 15, 2018,“ the lawsuit says.

The following January, Takio continues, Shan offered him a promotion and a pay increase of $5,000 per month — along with 0.25 percent equity in the company. Takio believed this equity meant he’d be entitled to monthly distributions.

That same month, the fire department finally approved Folium for CBD extraction, after it found that the facility complied with fire code requirements.

“Since then, I don’t know if we’ve had any other issues,“ Lacey says. 

And in February, Folium was selected for an elite tour with the Colorado Springs Chamber & EDC — representing a milestone in the company’s relationship with the city.

For all intents and purposes, the company appears to have been doing well around this time. According to Ramos’ and Takio’s lawsuits, Shan and Nguyen had millions of dollars transferred from Folium to personal accounts for Shan’s wife and Nguyen in January and February.

“In January 2019 alone,“ Takio’s lawsuit says, “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.

“In February 2019, Shan received $345,817.78 in distributions, Shan’s wife received $2,000,000 in distributions, and Nguyen received $907,000 in distributions,“ Takio’s complaint continues. “Again, these types of distributions were not shared with all of the other members of Folium, such as Takio.“

Those numbers — which Folium doesn’t explicitly contest — provide a glimpse at the scale of the company’s operations. Calzada says the transfers were merely distributions, which Shan and Nguyen were entitled to make to themselves as majority members of Folium.

Takio left the company in June without receiving any distributions, his lawsuit says.

In its answer to Takio’s complaint, Folium says Takio never had any membership interest in the company.

Calzada declined to comment on Takio’s lawsuit specifically, but explains that though Folium does make offers of equity to a handful of executives, these offers are tied to a vesting schedule — and no one has membership interest in the company until they’ve worked at Folium for a year. 

Takio had been at Folium for less than a year.

Ramos, meanwhile, had stayed at the company for just over one year. Calzada  points out that even if Ramos had been a member of Folium, she would have received 0.25 percent each year for four years, with the first 0.25 percent interest granted after her first year at the company. But she’s suing for 1 percent.

Notably, a fourth lawsuit by Adam Rahman, a former hemp broker for Folium, ended in a Nov. 27 settlement in state district court. Rahman alleged Folium failed to pay him $11,449.20 in commissions for hemp that he arranged for the company to purchase in March 2018.

“To me, making that payment shows good faith on our part, that we do the right thing,“ Calzada tells the Indy. “So, if we look in our records and find out we owe something, you know what? We pay it.“

But the company doesn’t take threats to its reputation lightly. Case in point: It’s suing a reporter, Teri Buhl, who wrote an article about Folium that was published online in November in Cannabis Law Report.

The company is suing Buhl in New York federal district court for $10 million.

In her reporting, Buhl relies on several unnamed sources but outlines many of the same claims brought by ex-employees against Folium in civil court — including breach of employment contracts, buying hemp that contained more than the legal limit of THC, and Ramos’ version of the murder-for-hire plot.

Folium is in good standing with the Colorado Department of Public Health and Environment, and the pending lawsuits won’t interfere with a special certificate the company holds with the state, according to Jeff Lawrence, director of CDPHE’s Division of Environmental Health and Sustainability.

Folium was one of the first CBD manufacturers to obtain a Certificate of Health and Free Sale, Lawrence confirms. The company received the certificate — a sort of quality assurance for other countries and states hoping to import hemp products — the first time it applied, in June of 2019.

Notably, Ramos alleges in her lawsuit that Shan and Nguyen transported “hot hemp“ with more than 0.3 percent THC across state lines, mislabeled ingredients that were shipped nationally and internationally, altered Certificates of Analysis to say that products were free of THC when they were not, and operated a “secret, unlicensed and unpermitted extracting facility.“

Those are all claims Calzada denies. First of all, he says, it doesn’t make financial sense for the company to buy “hot hemp“ for its 0.0 percent THC products.

“We spend a lot of money getting rid of THC“ from CBD oil derived from hemp, Calzada explains. “We lose valuable product in the process. So if there was more THC in it, we would lose even more.“

The lawsuits don’t appear to have jeopardized the company’s rapid growth and future expansion plans.

“There’s nobody on the same scale with us, and we are peerless in the industry,“ Calzada contends. 

A new 110,000-square-foot extraction facility in Pueblo West, set to open in 2020, is expected to give Folium 10 times its current extraction capacity.

Recently, Folium acquired an active pharmaceutical ingredient certification from the Food and Drug Administration for its CBD isolate. That license will place it “in a registry of a select few companies that can provide pharma with the active ingredient for the development [of] CBD-based drugs,“ according to an October statement from Folium.

Those achievements seem to have set up Folium well for the merger with Australis Capital, a company that was previously traded on the Canadian Stock Exchange.

AUSA originated in 2015 as the investment arm of Canadian investment company Aurora Cannabis Inc. AUSA spun off from Aurora Cannabis in 2018 to gain access to the U.S. cannabis market.

Following the merger, Folium will become a wholly-owned subsidiary of AUSA, and both companies will be rebranded as Folium Biosciences, a publicly traded entity, according to a Dec. 11 joint statement. 

When the merger is complete, Folium’s members will hold 89 percent of the company, and AUSA’s shareholders 11 percent, “resulting in a reverse takeover of AUSA,“ the statement says. Based on previous figures for AUSA, that means the resulting company could be worth more than $500 million U.S. dollars when it begins trading on the Canadian Stock Exchange.

“Folium’s core tenants [sic] of quality, science, scale, and innovation — coupled with its broad customer base, long runway of product innovation, operating history, minimal debt structure, and opportunities to further grow the business … makes this an exciting and unique opportunity for AUSA stakeholders,“ AUSA CEO Scott Dowty says in the statement.