Pomerantz LLP has announced that a group lawsuit has been filed against Canopy Growth Corporation and some of its top executives. This lawsuit, filed in the federal court of the Eastern District of New York with the case number 25-cv-01877, represents everyone except the defendants who bought Canopy shares between May 30, 2024, and February 6, 2025.
The lawsuit aims to recover losses that were allegedly caused by the company's and officials' violations of federal securities laws. It seeks to enforce rules under Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, which regulate securities fraud.
In November 2024, Canopy Growth Corporation announced it was introducing pre-rolled joints from the "award-winning California-grown Claybourne brand" to the Canadian market through an exclusive deal with Claybourne Co. Canopy has stated in its U.S. financial filings that the cannabis industry relies heavily on making a profit from the difference between sales prices and costs. Therefore, keeping costs under control is very important for the company, which is something investors care about a lot.
Canopy has talked about its efforts to cut costs to improve profit margins, with specific steps aimed at reducing the costs of making pre-rolled joints and lowering distribution expenses. Throughout the period in question, the company frequently highlighted the positive effects of these cost-cutting measures on its potential profitability in its fiscal year 2025.
However, the lawsuit claims that during this period, Canopy's executives made false or misleading statements about the company's business and future prospects. Specifically, they allegedly did not accurately disclose that: (i) Canopy incurred high production costs for the Claybourne pre-rolled joints introduced in Canada; (ii) these costs, along with other indirect expenses related to its Storz & Bickel vaporizer products, could significantly harm the company's profit margins and financial results; (iii) as a result, they exaggerated the success of their cost-saving strategies and were not forthcoming about problems related to profitability; and (iv) their public statements were false and misleading during the relevant times.
On February 7, 2025, before the stock market opened, Canopy Growth Corporation announced its financial results for the third quarter (Q3) of its fiscal year 2025. The company reported that its profit margin fell by 4% to 32% compared to the same quarter the previous year. This drop was mainly due to the higher-than-expected costs of launching the Claybourne pre-rolled joints in Canada and increased indirect costs related to their Storz & Bickel vaporizer devices. As a result, Canopy experienced a larger financial loss than analysts had predicted, losing C$1.11 per share instead of the expected C$0.48 per share.
Later that day, Canopy held a conference call with investors and financial analysts to talk about these results. During the call, Chief Financial Officer Judy Hong explained that the high initial production costs for the Claybourne products were a significant factor in their financial performance. She also mentioned that the increased "indirect costs" for the Storz & Bickel products were partly due to shipping expenses.
Following this news, Canopy's stock price dropped by $0.76 per share, or 27.34%, closing at $2.02 per share on February 7, 2025.
Source: Pomerantz Law Firm