In reporting on the recent trend in securities litigation brought against corporations that primarily generate revenue from cannabis, on May 15, we noted that “it remains to be seen how the courts will analyze” such allegations. Later that day, the wait was over. Justice Barry Ostrager of the New York County Supreme Court granted a motion to dismiss a proposed securities class action against Sundial Growers, Inc. (Sundial), a Canadian cannabis producer.  This decision provides the first glimpse at how the recent spate of cannabis securities litigation may play out.

In the action, a Sundial shareholder sued the company, its directors and officers, and underwriters, claiming that the defendants misled investors in offering materials for Sundial’s August 2019 initial public offering in violation of the Securities Act of 1933. See In re Sundial Growers Securities Litigation, No. 655178/2019, Dkt. No. 39 (Sup. Ct. N.Y. County). The complaint asserted claims on behalf of the proposed class under Sections 11, 12(a)(2) and 15 of the act, which provide private causes of action to purchasers of registered securities based on misleading statements or omissions in connection with a registration statement or public offering.

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