Marijuana Class-Action Suits On The Rise, Law Firm Finds

Publicly traded companies operating in the cannabis or cannabidiol sector are being targeted by disgruntled investors with increasing litigation.

Goodwin Proctor, a Boston-based law firm, recently analyzed the marijuana industry and found securities class-action litigation cases more than doubled in 2019. While those numbers are still small, those lawsuits went from six in 2018 to 13 last year.

“The growing number of publicly traded companies operating in the cannabis sector, regulatory uncertainties and overall market volatility in the industry have made cannabis companies a bigger target for securities class action lawsuits,” said Michael Jones, partner in Goodwin’s Securities + Shareholder Litigation, White Collar Defense and Cannabis practices. “Our detailed analysis of these cases provides critical insight for companies operating in the cannabis industry to consider when making disclosure decisions going forward.”

Legal action involving marijuana investment continues at a brisk pace in 2020. In a complaint filed in April, the Securities and Exchange Commission said Steven L. Brickner, 48, of Lithia, Fla., allegedly defrauded more than 60 retail investors out of approximately $5.5 million, according to court documents filed in the U.S. District Court for the Middle District of Florida.

The SEC alleged that, from 2015 to 2019, Brickner falsely represented to investors that he would use their money to purchase a Colorado-licensed marijuana dispensary network and conduct an IPO or merge with an over-the-counter public company, generating significant profits for investors.

Report Findings

The Update on Securities Litigation Against Cannabis Companies was authored by Jones and Goodwin Proctor associate Adanna Uwazurike.

The report highlights significant decisions and litigation matters arising as the number of companies entering the industry has increased to serve the ever-expanding legal cannabis market. It also looks into cases stemming from the uptick in activity by corporations in more traditional industries (e.g., healthcare) to develop and market products derived from cannabis.

Key findings of the report include:

1. Alongside significant growth in 2019, the legal cannabis industry saw a 116% upsurge in securities class action litigation matters from 6 cases in 2018 to 13 in 2019.
2. Most matters focused on companies disclosures related to operations, transactions, financial guidance, or financial restatements and internal controls.
3. Several of the lawsuits followed purported expose reports published by activist short-seller stockholders.
4. The majority of the cases have been filed in the federal district courts in the in the Second Circuit (specifically, New York district courts) and the Ninth Circuit (specifically, California and Nevada district courts).
5. More than half of the companies named in securities class actions have been Canadian companies traded on U.S. stock exchanges.

InsuranceNewsNet Senior Editor John Hilton has covered business and other beats in more than 20 years of daily journalism. John may be reached at john.hilton@innfeedback.com. Follow him on Twitter @INNJohnH.

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