SNDL Agrees to $7 Million IPO Settlement

Sundial ended up buying Zenabis the company that triggered the IPO case.

According to Law360, a settlement has been reached in the case of cannabis company Sundial Growers, which now calls itself SNDL Inc. (OTC: SNDL). The $7 million settlement is the result of a class action suit that was led by David Draiman, singer for the heavy metal band Disturbed, which accused SNDL of not disclosing a product mold issue ahead of its $143 million initial public offering (IPO). 

The original complaint stems from the Sundial IPO that happened in August 2019. The stock was priced at $13 but closed down 35% on its first day of trading at $8.48. The drop though was unrelated to Sundial and instead was due to nervousness after a separate regulatory incident occurred with CannTrust. However, that news was prescient because within weeks of the IPO it was disclosed that Zenabis Global Inc., returned a half-ton of Sundial cannabis for having mold and bits of rubber gloves in it. The total value of the lost cannabis was nearly $2 million. 

The complaint stated that Sundial “(1) affirmatively misstated revenue estimates for the second quarter 2019, and (2) omitted that a customer sought to return a material amount of Sundial’s total second-quarter 2019 sales.”

The stock dropped 5% on the news but then buyers kept coming in and propping up the price. MarketWatch broke the story of the moldy product and was accused by the company of factual accuracies, but then admitted to having the product returned. Then the company tried to claim the amount was immaterial when it was actually 10% of its product. 

Splitting $7 Million

Draiman claimed in his November 2019 case, that he had the “largest financial interest in this litigation — having lost $104,815.50 as a result of his transactions.” He will receive $10,000 as will the other lead plaintiff 998735 BC LTD. The class also includes anyone who suffered losses after acquiring Sundial’s stock in connection with the company’s IPO. The court record stated that there were 11 million shares that were sold at the IPO price of $13.

The lawyers also ended up being big winners. Lawyers with Levi & Korskinsky LLP and the Rosen Law Firm PA will get a third of the settlement or about $2.3 million from the fund and the judge also granted them more than $33,000 in expenses.

In Closing

Sundial stock was lately selling at $2.02 and in June 2022, Sundial announced it was buying Zenabis – the company that returned the inferior product in 2019. 

In December 2020, Sundial announced the acquisition of a special purpose vehicle that owned $58.9 million of senior secured debt of Zenabis Group. However, on June 1, 2021, HEXO (NASDAQ: HEXO) said it had acquired all the common shares of Zenabis. Unfortunately for Hexo, the Senior Loan remained outstanding following the acquisition by Hexo. As of June 16, 2022, the outstanding unpaid principal balance was $51.9 million.

 Hexo ended up letting Zenabis go to Sundial. 

Debra Borchardt

Debra Borchardt is the Co-Founder, and Executive Editor of GMR. She has covered the cannabis industry for several years at Forbes, Seeking Alpha and TheStreet. Prior to becoming a financial journalist, Debra was a Vice President at Bear Stearns where she held a Series 7 and Registered Investment Advisor license. Debra has a Master's degree in Business Journalism from New York University.


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One comment

  • Jordan Wyant/UnionCannabisBlog

    October 12, 2022 at 7:17 pm

    Thank you for the update, I appreciate it. We talked back and forth here and through email a couple months ago about the Sunstream situation. I wanted to say that I started a blog, partially inspired by your articles, so thanks again for your insight.

    Reply

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