Cannabis company executives fight for security clearance against allegations of organized crime links

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When legalization of recreational marijuana was on the near horizon, right after the final report by the Liberal government’s legalization task force in late 2016, a would-be cannabis company purchased property in B.C. suitable for cannabis production.

The purchase price was $2.9 million and the company, Grun Labs, Inc., had high hopes after nearly 100 years of marijuana prohibition. In the coming months, another $1.1 million was spent on the project.

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Cannabis company executives fight for security clearance against allegations of organized crime links Back to video

Grun Labs applied to be a licensed cannabis producer under the old medical marijuana regulations with Health Canada. The government reviewed the application and had no critical concerns.

Meanwhile, Kan Paul Lum, Grun Labs owner, applied for security clearance, a status needed for him to run his planned business.

Although laws legalizing recreational cannabis radically loosened marijuana use in 2018, the corporate side of its production remained regulated, monitored and controlled.

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A month after the Cannabis Act law took effect in 2018, the RCMP’s Security Intelligence Background Section did its check on Lum and sent the results to Health Canada’s Controlled Substances and Cannabis Branch.

Lum had no criminal record. The RCMP, however, still had concerns.

The report from the RCMP outlined a 2015 organized crime investigation in B.C. into money laundering and drug trafficking, targeting “a known Asian organized crime figure in the Lower Mainland of BC.”

There is a credibility issue with the source of their information

Don’t think for one second the crime figure was Lum. It was the husband of a woman who was a director of another company Lum was also involved in.

The woman is identified in court documents only as Subject A. Her husband, the purported gangster, is identified as Subject B. He has been “criminally convicted of Trafficking in a Narcotic, Possession for the Purpose of Trafficking, Possession of an Unregistered Restricted Weapon and Personation with Intent,” the RCMP’s report says.

On News Year’s Eve 2018, Health Canada told Lum his application was doomed to fail unless he had a suitable rebuttal to the information.

Lum ultimately challenged the government’s decision in Federal Court, saying it was both unreasonable and procedurally unfair.

He is not alone.

At least five challenges from cannabis company executives over security clearance denials were taken to court.

The first to appeal a cannabis security clearance denial was Edmond Chiu, named to senior roles with We Grow BC Ltd.

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Health Canada’s background check, however, described five occasions between 2007 and 2014 where police said Chiu was in the company of people of concern, some with drug trafficking convictions. He argued there was no basis to link him to any criminal activity.

Chiu’s case was identified as potentially precedent setting on the emerging issue by the Federal Court and given special attention in scheduling. A week before the hearing was set to begin in June, it was suddenly cancelled and the case discontinued.

Reefer Madness still exists in 2020

Chiu’s lawyer, Michael Peraya, said a resolution was reached prior to the hearing.

That left Lum’s case as the first to reach a hearing.

Lum disputed Health Canada’s decision. He replied to the New Year’s Eve notice saying he had no idea about the criminal past of his business associate’s spouse until he read the government’s letter. He later sent corporate documents showing her removal from the company.

He said he would not jeopardize his business career or reputation by doing anything to endanger the public nor divert cannabis to an illicit market.

It didn’t sway Health Canada. Lum was told last summer his security clearance was denied.

The decision was a blow to his cannabis dreams. As the sole shareholder, director and officer of Grun Labs, without a security clearance certificate, the company is unable to obtain a licence to produce cannabis, despite its financial investment, he told court.

In court last month, Justice Cecily Strickland heard arguments from both sides, including examining writing on “sticky notes” attached to the RCMP report, internally asking and answering questions.

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The government argued that because cannabis production was a “nascent industry” for a product previously prohibited as a controlled drug, even peripheral associations were a concern under Health Canada’s mandate to protect the public.

The big problem these days is not so much having a criminal record — it's just being in a police database

Strickland’s ruling, released publicly this week, declared Health Canada’s procedures were fair and that Lum had the opportunity to defend himself against the information. Health Canada had no obligation to independently verify information in the RCMP’s background check, she ruled.

She also found that the RCMP’s report was vague as to how current the information was regarding Subject B’s link to organized crime, and on whether there was anything other than Lum’s business connection to his wife connecting the two.

“To be reasonable, a decision must be based on reasoning that is both rational and logical,” Strickland said in her ruling.

“What is missing from the decision is any analysis of the nature of the association and an explanation” of why that association posed an unacceptable risk.

“The decision is of great importance both to the individuals affected and to the public interest in safety and security,” she wrote.

She ordered Health Canada to give Lum’s application a second look.

Lum could not be reached for comment. His lawyers did not respond to phone messages and emails requesting an interview.

The decision will be closely read. Additional cases of cannabis executives appealing security clearance denials are close behind.

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John Conroy, a B.C. lawyer with a long history of fighting for marijuana reform, has three clients making similar complaints as Lum and Chiu.

One was denied after a police report from a decade ago turned up of a complaint from someone smelling marijuana near a car at a B.C. beach. Police spoke to a number of men nearby, including his client, but nothing happened, Conroy said.

Two others were denied over allegations of associations with outlaw motorcycle clubs, one in B.C. and the other in Ontario. An allegation against an Ontario client of being an associate of the Hells Angels seems to be based on a media report and may be mistaken identity, he said.

“There is a credibility issue with the source of their information,” Conroy said of Health Canada’s background checks.

“The big problem these days is not so much having a criminal record — it’s just being in a police database. The government just accepts that it’s true without any process to show that it’s not.

“Reefer Madness still exists in 2020.”

Geoffroy Legault-Thivierge, a Health Canada spokesman, said the department is examining the court’s decision in the Lum case and would not comment on other cases that are still before the court.

• Email: ahumphreys@postmedia.com | Twitter: AD_Humphreys