SDNY Issues Mixed Opinion on Tilray’s Bid to Dismiss in Cannabis Securities Class Action

On Wednesday, the Southern District of New York issued an opinion and order which granted in part and denied in part Tilray, Inc. and Brendan Kennedy’s motion to dismiss the plaintiffs’ second amended complaint in the class action lawsuit Kasilingam v. Tilray, Inc. et al.

According to the opinion, Tilray is a publicly traded company that produces and sells marijuana, hemp and related products globally and that Brendon Kennedy has been Tilray’s President and CEO since January 2018. Further, the order states that the plaintiffs are those who purchased Tilray common stock during the class period of January 16, 2019, through March 2, 2020. 

The plaintiffs allege that during the class period the defendants made materially false and misleading statements to inflate Tilray’s stock price in violation of the Exchange Act. Specifically, the second amended complaint alleges that Kennedy misled investors about Tilray’s revenue and financial security resulting in a 95% decrease in share value for investors who purchased Tilray stock during the class  period. The plaintiffs argue that Kennedy’s misleading statements were part of a long con to effectuate two separate mergers to make Tilray the largest cannabis company in the world.

In the motion to dismiss, which Law Street Media previously covered, the defendants argue that the court must dismiss the second amended complaint because the court found that the first amended complaint did not adequately allege facts to support a single downstream merger, and the plaintiffs have failed to provide additional facts to support the “even more preposterous theory” that Kennedy planned to effectuate two separate mergers. 

In the opinion, the court states that the alleged misstatements fall into three categories, the value of Tilray’s inventory, the misclassification of labor as an input and the value of a high-profile co-marketing deal between Authentic Brands Group and Tilray. The court states that the plaintiffs failed to adequately allege facts to show that the statements regarding the misclassification of labor as an input and granted the defendants motion in that regard. 

However, the court held that the plaintiffs plausibly alleged that the defendants made false or misleading statements pertaining to the value of its inventory and the Authentic Brands Group deal. Accordingly, Judge Crotty granted the motion to dismiss as to the labor statements but otherwise denied the motion. 

The plaintiffs are represented by The Rosen Law Firm, P.A, and the defendant is represented by Baker & Hostetler LLP