More Cannabis Industry Securities Suits Hit Dockets
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In our recent article1 on securities litigation in the
burgeoning legal cannabis industry, we noted that companies in this
space must be careful and thoughtful in their disclosures to avoid
securities litigation exposure. In the past month, at least three
additional securities litigation complaints were filed against
companies connected to the legal cannabis industry, including
pre-M&A disputes in the Southern District of New York and a
putative class action under the Securities Exchange Act of 1934 in
the Eastern District of New York. These complaints underscore that
while the legal cannabis industry may be relatively new, companies
looking to pursue an M&A deal or other transactions in this
space must be cognizant of securities litigation risks.
Tilray and Helix – Commonplace Pre-M&A
Complaints Alleging Misstatements or Omissions in Proxy
Two of the recently-filed suits involved forthcoming merger and
acquisition shareholder votes.
Violini v. Tilray, Inc was filed in the Southern
District of New York following the announcement of a proposed
transaction in December 2020 pursuant to which Tilray, a global
legal medical and adult-use cannabis supplier, would merge with a
cannabis-lifestyle consumer packaged goods company. 2 The
complaint alleges that the transaction would be unfair to Tilray
shareholders as it undervalues their shares and identifies a
variety of purportedly false or misleading statements in the proxy
statement filed in connection with the proposed transaction. The
complaint asserts violations of Section 14(a) of the 1934 Act and
Similarly, in Dillon v. Helix Technologies, Inc.,
plaintiff filed suit in the Southern District of New York,4
following the announcement of a proposed transaction pursuant to
which Helix, which provides supply chain management and other
services to legal cannabis businesses, would combine with a medical
analytics company, to create a new company.5 Like
Violini, the Helix complaint alleges that the
proxy statement in connection with the proposed transaction
contained material misstatements and omissions in violation of
Section 14(a) of the 1934 Act and Rule 14a-9.
Putative class actions arising after the announcement of a
merger or acquisition deal are commonplace, and regularly involve
allegations of the type made in Tilray and
Helix.6 Indeed, we believe legislative
reforms are necessary to counter the popular and abusive federal
litigation tactic of challenging deals immediately after they are
Neptune Wellness – Section 10(b) Action Following
In Gong v. Neptune Wellness,8 a putative class
action was filed in the Eastern District of New York asserting
claims under Section 10(b) of the 1934 Act and Rule 10b-5. The
complaint alleges that Neptune, which offers product development
and supply chain solutions in various health and wellness areas
including legal cannabis, made various alleged material
misstatements and omissions in press releases and public filings,
including in connection with the cost of integration of another
company’s assets after an acquisition.9
The legal cannabis industry continues to grow, and as more
companies engage in typical business transactions, such as mergers
and acquisitions, they will continue to expose themselves to
potential securities litigation risks. Companies must exercise
constant vigilance to mitigate securities litigation risks,
including ensuring appropriate disclosures and cautionary language
in any proxy statements related to an acquisition, press releases,
or other public statements or SEC filings.
Seyfarth Shaw LLP, Recent New York Appellate Decision Highlights
That Cannabis Companies Going Public are Subject to Typical
Securities Litigation Risks-and Defenses (March 15,
Id. ¶¶ 26-55.
Id. ¶¶ 19-20.
See Markel, Gregory, Sama, Vincent, and Morduchowitz,
Daphne, Abusive M&A Litigation Highlights Need for
Securities Reform, Law360 (March 4, 2021).
Id. ¶¶ 23-43.
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guide to the subject matter. Specialist advice should be sought
about your specific circumstances.
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