Cannabis e-commerce company Namaste Technologies Inc. (NXTTF) rebounded some 10% Friday to cap off a wild week that saw the stock lose as much as 34.6% from last week's close at one point. The shares tanked after the company fired Chief Executive Officer Sean Dollinger on Monday.
Namaste said it had sacked Dollinger after a special committee investigated "certain allegations regarding the company made by a short seller" last October. That's apparently a reference to a report by famed short-seller Andrew Left's Citron Research, in which Citron claimed that Namaste was a "complete fraud."
Dollinger responded by suing Namaste in Canadian court, telling TheStreet in a statement that "I intend to take immediate legal action to begin setting the record straight and clearing any misconceptions caused by the inaccurate allegations leveled against me. In the meantime, I continue to be committed to the company as a director on the board and as its largest shareholder. I also support the newly appointed chief executive and chief strategy officers."
He added: "I am deeply sorry and disappointed that this day has arrived after having devoted years and countless hours to build Namaste Technologies Inc. into a successful company. ... What saddens me most is that for the time being, I will not be able to continue steering the incredible journey of growth for the company's wonderful shareholders and investors, who believed in me and what we were creating."
Citron made multiple allegations against Dollinger and Namaste in its October research note. For example, Left's firm noted that Dollinger apparently claimed in a company video that Namaste had been "accepted" to trade on the Nasdaq --except that it has only applied to do so. The company remains listed on the OTC markets, and the video has since been removed, although Citron said an archived version remains on the Web.
Citron also accused Dollinger of playing fast and loose with the 2017 sale of a Namaste unit known as Dollinger Enterprises US. The firm wrote that Dollinger "said he sold this asset to an arm's length party ... but it was really sold to David Hughes, who has been with Namaste since February 2015 (and Paul Burn who has been with Namaste since 2016)." Hughes and Burn declined through a Namaste spokesman to comment.
Namaste's board said Monday that its special committee reviewed all of the allegations, but "the only one that was substantiated and required action ... related to the sale of Namaste's 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 light of these findings and the special committee recommendations, the board concluded that it is in the best interest of Namaste that Sean Dollinger be terminated from his role as CEO for cause and removed as director of the company. In connection with the findings of the investigation, the company is commencing legal action against Sean Dollinger for damages and disgorgement."
Namaste appointed Meni Morim as interim CEO and named Darren Gill as chief strategy officer. Morim has served as NXTFF's chief product officer and director of artificial intelligence since May 2018, when Namaste acquired Findify AB, a company Morim co-founded and led as CEO.
In a letter Friday to shareholders, Morim wrote that "I'd urge you to focus on communications that you receive from the company and ignore the rumors, even though I know they can get loud. I'd also ask you to focus on what really matters -- this is a fantastic company with great people, products and prospects."
NXTFF also announced on Monday that it was launching a strategic review that could include Namaste's possible sale following an unspecified "expression of interest" in the company. Management said it will be hiring an investment bank to advise it with regards to a potential sale of the firm.
But the question is, who would want to buy such a toxic entity? NXTTF is already the subject of numerous shareholder lawsuits claiming the company made false statements. And while Namaste might have fired Dollinger, he hasn't exactly left the building.
As indicated in his statement to TheStreet, Dollinger is the company's largest shareholder, and a Namaste spokesman confirmed that the embattled executive still sits on the board "as of now."
Crazier still, as Namaste was investigating Dollinger, it approved a new employment agreement with him. Just four weeks ago, the company agreed to pay Dollinger $300,000 a year plus stock options and bonuses.
And while NXTFF says its cash balances are intact and that it's in a strong financial position, the company reported a C$23.2 million net loss for the fiscal year ending August 2018. While revenues totaled C$18.6 million, expenses came to C$29.6 million -- and that's before the legal issues began mounting.
Citron believes the company is worth just 26 cents a share, even though it closed Friday at 86 cents per share.