Cannabis Reports

Canadian Cannabis Company Targeted By U.S. Class-Action Lawsuit

A class-action lawsuit against Sundial Growers Inc. in Canada claims the company’s U.S. stock prices were affected by an unreported incident where $1.9 million worth of cannabis was returned to the company due to poor quality.

Full story after the jump.

Canadian licensed cannabis company Sundial Growers Inc. is being sued in the U.S. for allegedly failing to disclose that a customer returned $1.9 million — about a half-ton — worth of cannabis, according to a MarketWatch report. Zenabis Global, the company that reportedly sent the cannabis back to Sundial and terminated its agreement with the firm, claims that the cannabis was of poor quality and contained bits of rubber gloves and visible mold.

The lawsuit is a class action and alleged that Sundial “made false and misleading statements” about its product. The lawsuit claims that Sundial “failed to supply saleable cannabis in line with contractual obligations to Zenabis Global Inc,” and that the company’s statements about its “businesses, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.”

The transaction occurred around the time that Sundial went public on the Nasdaq on Aug. 1 with a $1 billion valuation and after raising $143 million, MarketWatch reported on August 20. The Initial Public Offering did not disclose that Sundial had a half-ton of product returned and did not mention the issue during a presentation in Toronto, Ontario, the report says. It had disclosed to the Securities and Exchange Commission that it had received C$3.3 million in penalties for not delivering cannabis to partners as promised in 2018. Shares had sold for $13 in the IPO. 

In a statement to the CBC, Sundial said they “are aware of the complaints” but do not comment on active litigation.

“… We believe that the claims are without merit and the company intends to vigorously defend itself. Sundial remains focused on what has made us successful: the growth of our business through a commitment to producing safe, innovative and high-quality products.” – Sundial, in a statement to the CBC

Philip King, an attorney with New York-based Rosen Law Firm, said in the U.S. these lawsuits are rare but are taken seriously by market regulators.

“In a claim like this, it’ll be the defendant’s obligation to demonstrate that the price declines were caused by something other than the misstatement in the offering,” Kim told the CBC.

Zenabis has declined to comment due to “disclosure rules” but indicated they had included “all material information” about the return in their second-quarter results. 

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