When cannabis was legalized in Canada in 2018, many people, including financial investors, assumed the industry would be a nearly foolproof opportunity. However, due to a sudden rise in class-action lawsuits in Canada and the U.S., many shareholders are facing an unexpected devaluation of stock. Some people believe this could lead to an increase in shareholder and investor litigation in the coming months.
Class Actions Beginning Against Major Producers
In June, a major class action originating in Alberta was announced against several major Canadian cannabis companies relating to concerns over product labelling. The plaintiffs claim that labels on several products produced by multiple companies were inaccurate by at least 25% with respect to the amount of THC or CBD in various marijuana products.
If the claims are verified, the plaintiffs worry that mislabelled products could lead to accidental overdoses or other complications stemming from consumers relying on the information contained on the labels when determining dosage amounts.
Further, several Canadian producers are facing potential class-action suits in the U.S. for failing to properly inform investors of potential issues with their companies. In these cases, investors claim that the companies were not forthcoming about certain issues behind the scenes, which in turn resulted in a sharp drop in share values once the issues became known.
Some companies are also facing claims that they overestimated demand and as a result, were left with an excess supply that had to be written off, and an overabundance of commercial property investments.
Shareholder & Investor Litigation
When investors and shareholders seek to bring litigation for a loss in value in shares, they can seek remedies under federal or provincial legislation, depending on where the business was incorporated.
Devaluation of shares is a major concern for those who invested in major cannabis companies at the start when the outlook was very strong. Due to a number of factors including the ongoing class actions and other issues such as COVID-19, sales have taken a downturn in recent months. One major Canadian company, a suit claims, has seen its shares lessen in value by 75% on the New York Stock Exchange. The company denies the claim. Another Canadian producer is facing accusations that it knowingly overinflated estimates, costing investors significantly.
Liability Insurance Premiums on the Rise
Liability insurance premiums for directors and officers of Canadian and U.S. cannabis companies are seeing a steep incline owing to the growing amount of litigation in both countries. The senior vice president of one insurance brokerage said:
More frequently we’re seeing prospective investors and board members requiring (directors’ and officers’) coverage in place prior to engaging with a company in order to ensure adequate protection in the event of…litigation
The situation isn’t expected to change, as investors look to hold senior executives accountable for optimistic outcomes promised to them. Already, premiums for directors and officers in the cannabis industry are significantly higher than average and are expected to keep growing.
Incomparable Litigation Experience
At Milosevic & Associates, we are in court or in mediations almost every day and as a result, have become exceptionally adept at thinking on our feet and addressing the unexpected, particularly in a corporate law context. Over the years we have seen it all and helped our clients mitigate their legal and financial risks to keep their businesses running smoothly. Our impressive track record speaks for itself.
We have developed a reputation for professionalism and integrity that benefits our clients. We are committed to the highest standards of ethics and professional courtesy towards the courts, our clients, opposing counsel, and all other relevant parties.
For Exceptional Legal Guidance on Shareholder Matters and Representation in Related Disputes Contact Milosevic & Associates
The Toronto corporate lawyers at Milosevic & Associates have many years of experience defending the rights of business owners, directors, officers, and shareholders and advising them on maintaining the continued success of their ventures. We also regularly represent shareholders and businesses in class actions and other litigation matters. Call us at 416-916-1387 or contact us online for a consultation.