A new lawsuit alleges the top brass of Canada-based cannabis company Tilray misled shareholders and engaged in insider stock sales during 2019 and early 2020.
The so-called verified stockholder derivative suit was filed by Tilray shareholder Lee Morgan on June 5 in the U.S. District Court for the District of Delaware. The complaint was filed on behalf of the company.
The complaint alleges the defendants – including Tilray CEO Brandon Kennedy, former Chief Financial Officer Mark Castaneda and several board members – breached their fiduciary duties regarding a revenue-sharing agreement between Tilray and lifestyle brand portfolio Authentic Brands Group (ABG) and engaged in insider trading surrounding that deal.
A Tilray spokeswoman declined comment to Marijuana Business Daily about the pending litigation.
The complaint alleges Tilray leadership made false and misleading statements about the ABG deal, overstating its benefits throughout 2019 when the agreement was actually underperforming.
Accordingly, the complaint alleges Tilray shares sold by the defendants that year were offloaded at “artificially inflated prices” with insider information about the deal.
Kennedy sold more than $22.9 million worth of Tilray shares in 2019, the complaint shows, and Castaneda sold shares worth more than $2.6 million.
The complaint claims Tilray’s market capitalization has suffered and alleges the defendant’s conduct “irreparably damaged Tilray’s corporate image and goodwill.”
It seeks damages against the defendants, an order requiring them to forfeit the proceeds from their 2019 stock sales and reform of Tilray’s corporate governance.
Seth Goldberg, a partner at Philadelphia-based Duane Morris who practices business and litigation law in the cannabis space, said the suit against Tilray is “another example of the plaintiffs’ bar that files these kinds of cases in other industries waking up to the potential to file these claims in the cannabis industry.”
“And it demonstrates, I think, the maturation of the cannabis industry,” he added.
“Over the past year, more and more class actions – either securities class actions or consumer class actions – have been filed, which reflects that plaintiffs’ attorneys view cannabis industry defendants as a potential source for damages, awards, or valuable settlement payments.”
Tilray trades on the Nasdaq as TLRY.
The court document is available here.
Solomon Israel can be reached at [email protected]