Debra BorchardtJanuary 22, 2020
The NERA Economic Consulting (www.nera.com) recently published a report that noted a trend in cannabis class action lawsuits being filed for 2019. The report wrote, “Between July and December 2019, six cases were filed on behalf of investors in the cannabis industry alleging either (1) failure to disclose weak demand for the product or the expected decline in revenue and profits or (2) misrepresentations related to quality of the product, the status of inventory, or markup on biological assets.”
These are the companies in which cases were filed in the 2nd Circuit Court:
India Globalization Capital, Inc. Filed on: 02 Nov 18 Pending
CannTrust Holdings Inc. Filed on: 10 Jul 19 Pending
Sundial Growers Inc. Filed on: 25 Sep 19 Pending
HEXO Corp. Filed on: 26 Nov 19 Pending
Trulieve Cannabis Corp. Filed on: 30 Dec 19 Pending
In the 3rd Circuit Court were:
Canopy Growth Corporation Filed on: 20 Nov 19 Pending
Aurora Cannabis Inc. Filed on: 21 Nov 19 Pending
In addition to the suite that NERA mentioned, Charlotte’s Web Holdings Inc. and Infinite Product Co. are both dealing with proposed consumer class suits in California. These cases are alleging the companies improperly marketed products made from CBD. The suits were sparked by Warning Letters published by the FDA in November. They allege that products made by both Charlotte’s Web and Infinite did not abide by the FDA regulations and, as such, violate California law.
The cases are Dasilva v. Infinite Product Co., C.D. Cal., No. 2:19-cv-10148, complaint 11/27/19; McCarthy v. Charlotte’s Web Holdings, Inc., N.D. Cal., No. 5:19-cv-07836, complaint 11/30/19.
Charlottes Web had labeled their products as dietary supplements, which seems to be what the FDA took issue with. The FDA has written, “Based on available evidence, FDA has concluded that THC and CBD products are excluded from the dietary supplement definition under section 201(ff)(3)(B) of the FD&C Act [21 U.S.C. § 321(ff)(3)(B)]. Under that provision, if a substance (such as THC or CBD) is an active ingredient in a drug product that has been approved under section 505 of the FD&C Act [21 U.S.C. § 355], or has been authorized for investigation as a new drug for which substantial clinical investigations have been instituted and for which the existence of such investigations has been made public, then products containing that substance are excluded from the definition of a dietary supplement.”
The Infinite Products situation is a little different. That company included marketing statements like “CBD can alleviate some symptoms of autism, that cannabinoids have been found to inhibit the growth of cancer cells, and that, because of opiods’ addictiveness and painful withdrawal symptoms, people have moved to using CBD.”
According to NERA, in all class action cases, the median settlement value was $12.4 million, the highest since 2012, indicating that more cases are settling for higher values than in previous years. “The Aggregate NERA-defined Investor Losses for filed cases decreased from 2018’s record high of $929 billion to $519 billion, largely due to a decline in cases with Investor Losses of $5 billion or more. However, aggregate Investor Losses for cases with losses of $5 billion or less was $173 billion, the highest this decade.”
