116% increase in class action lawsuits against cannabis companies: report

All business involves some risk, but publicly traded cannabis companies listed in the US have become the subject of an upswing in class action lawsuits, according to the findings of a new report.

Produced by Goodwin Law, a global litigation firm, the report provided an update into securities class actions filed in US federal courts against publicly traded companies operating in the cannabis and CBD space.

Noting significant growth in 2019, the firm also reports that the legal cannabis industry saw a “116% upsurge in securities class action litigation matters from six cases in 2018 to 13 in 2019.”

Goodwin Law

More than half of the companies named are Canadian companies trading on US stock exchanges. Cannabis is illegal on a federal level in the US, but American securities exchanges will register Canadian cannabis businesses that comply with domestic law.

The report notes that issues reportedly faced by the industry focused on companies’ disclosures related to operations, transactions, financial guidance, or financial restatements and internal controls.

Several of the lawsuits also followed reports published by activist short-seller stockholders.

“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 and shareholder litigation, white collar defence, and cannabis practices, in a release. “Our detailed analysis of these cases provides critical insight for companies operating in the cannabis industry to consider when making disclosure decisions going forward.”

The report also lays out the cases filed over the past year, as well as the companies subject to them. Among the list are Canadian licensed producers Chronos Group, Hexo Corp, Canopy Growth, and more.