Increasing Lawsuits Against Cannabis-Related Businesses Places Spotlight on Adequacy of Disclosures
Class action lawsuits against publicly traded cannabis-related companies more than doubled from 2018 to 2019, with 13 class action cases filed in 2019 compared to 6 class action cases filed in 2018 – a staggering 116% increase. Lawsuits against cannabis-related businesses continue to grow concurrently with the expanding industry growth and mostly focus on disclosure issues. Such lawsuits are ordinarily filed by shareholders in an attempt to recover investment losses, often after a company’s stock price decreases, and are asserted, in the event that the company allegedly made false and misleading statements or omissions in connection with a securities offering, under the Securities Act of 1933 or the Securities Exchange Act of 1934 for public company disclosures.
For example, on January 16, 2020, Aurora Cannabis Inc. (TSX: ACB), in Warren v. Aurora Cannabis Inc., et al., No. 20-cv-00555, received claims for allegedly making false and misleading statements and/or failing to disclose adverse information regarding Aurora’s business and prospects. Claims against Aurora were brought under the Securities Exchange Act of 1934 after the company announced disappointing results for Q1 2020 (reporting a 25% sales decline) and that the company was halting construction on its operating facilities in various regions – … Keep reading