Canada-based Adastra Holdings faces a proposed class action lawsuit from a shareholder who alleges the marijuana company made “misleading statements about (its) ability to legally sell cocaine.”
The notice of civil claim filed March 9 in the Supreme Court of British Columbia also names Adastra CEO Michael Forbes as a defendant.
Forbes did not provide comment in time for MJBizDaily’s deadline.
Adastra, formerly known as Phyto Extractions and based in Langley, British Columbia, denies the claim’s allegations.
On Feb. 22, Adastra announced it had received an amendment to its Controlled Drug and Substances Dealer’s License to “legally possess, produce, sell and distribute” cocaine.
As MJBizDaily previously reported, the amended license did not allow Adastra to sell cocaine to the general public.
A dealer’s license allows Canadian organizations to legally possess and work with controlled substances.
Adastra’s February news release didn’t explicitly state the company planned to sell cocaine to the public, nor did Adastra’s material-change filing regarding the license amendment.
However, a statement in the news release by CEO Forbes said Adastra would “evaluate how the commercialization of this substance fits in with our business model at Adastra in an effort to position ourselves to support the demand for a safe supply of cocaine.”
British Columbia recently decriminalized possession of certain illegal drugs, including cocaine, as part of a pilot project with authorization from Canada’s federal government.
The legal claim also highlighted language used by Adastra in 2022, when the company filed a material-change report about receiving its dealer’s license to possess and process psilocybin and psilocin.
In that filing, Adastra specified it could transfer the psychedelic substances “to other companies who hold a valid Dealer’s License.”
Similar language does not appear in Adastra’s disclosure about the license amendment for cocaine or in the company’s February news release.
Adastra’s share price spiked after its cocaine announcement, and the issue briefly became political news in Canada.
Adastra formally retracted its February news release on Friday, March 3, clarifying that it could not sell cocaine to the public and “is only permitted to sell to other licensed dealers who have cocaine listed on their license” – pharmacists or hospitals, for example.
At the time, Adastra stock (XTRX) was trading on the Canadian Securities Exchange (CSE) at 1.38 Canadian dollars ($1) per share, according to the court filing.
When the CSE reopened on Monday, March 6, the price of Adastra shares fell significantly.
Plaintiff Trevor Silverwood bought 220 Adastra shares on March 3 at CA$1.45 per share.
“This action seeks to hold the defendants responsible for their inaccurate and careless representations, and to compensate individuals who purchased shares of Adastra Holdings Ltd. at artificially inflated share prices after the defendants’ misleading statements about Adastra’s ability to legally sell cocaine,” the court filing noted.
Silverwood is represented by law firm Slater Vecchio, which declined to comment to MJBizDaily.
In a news release, Adastra said it “denies the allegations in the claim and specifically that the (Feb. 22) press release was misleading and intends to vigorously defend against these allegations should the class action be certified.”
Solomon Israel can be reached at firstname.lastname@example.org.