CBD Company Secures Dismissal of Securities Suit

On Monday, Judge Brian M. Cogan sided with Curaleaf Holdings, Inc. (Curaleaf) and several of its officers and directors in a securities action brought by investors. The Eastern District of New York granted the defendants’ motion to dismiss because, contrary to the plaintiffs’ argument that the company misled investors about the legality and safety of their cannabidiol (CBD) products, it ruled that Curaleaf complied with disclosure laws. The court further held that revising the complaint for a second time would be futile and denied leave to amend.

Judge Cogan explained that Curaleaf sells CBD products like lotions, patches, oils, disposable vape pens, pet treats, and more. While retailers make claims about the health benefits of CBD products, the opinion noted, the U.S. Food and Drug Administration (FDA) has warned that few claims are backed by scientific evidence.

Curaleaf’s stock began to trade on the Canadian Stock Exchange (CSE) in late 2018. The opinion highlighted that before and after its listing debut, the company repeatedly disclosed the federal illegality of the sale of CBD and explained that its products were not FDA-approved.

Curaleaf stockholders on the OTCQX, a domestic market for companies listed on qualified international stock exchanges, and in Curaleaf’s case, the CSE, filed suit against the company in 2019. The complaint was prompted by a decline in the company’s share price following a Jul. 26, 2019 warning letter issued to Curaleaf by the FDA.

According to the FDA, Curaleaf’s products were unapproved new and misbranded drugs sold in violation of the Federal Food, Drug and Cosmetic Act. The company responded by removing the troublesome statements from its website and discontinuing many of the products the FDA took issue with.

The plaintiffs argued that Curaleaf committed securities violations through misrepresentations or omissions about both the legal status of its CBD products and about their safety and efficacy. As to illegality, the court held that Curaleaf made adequate disclosures from its inception. Judge Cogan reasoned that the plaintiffs’ quarrel with Curaleaf’s choice of phrase was unpersuasive, holding that “[t]here is no requirement that a Company disclose its risk in any magic words preferred by plaintiffs.”

The court likewise determined that the company had not misled investors about its products’ safety and usefulness. The opinion cited replete instances where Curaleaf “disclosed the relevant information regularly and repeatedly,” leading the court to conclude that the plaintiffs failed to state a claim upon which relief could be granted.

The plaintiffs are represented by Wolf Haldenstein Adler Freeman & Herz LLP and Levi & Korsinsky, LLP, and the defendants by Jenner & Block.