NEW YORK, July 19, 2023 (GLOBE NEWSWIRE) -- Pomerantz LLP announces that a class action lawsuit has been filed against Canopy Growth Corporation (“Canopy Growth” or the “Company”) ( CGC), and certain officers. The class action, filed in the United States District Court for the Central District of California, and docketed under 23-cv-04905, is on behalf of a class consisting of all persons and entities other than Defendants that purchased or otherwise acquired Canopy Growth securities between June 1, 2021 and May 10, 2023, inclusive (the “Class Period”). Plaintiff pursues claims against the Defendants under the Securities Exchange Act of 1934 (“Exchange Act”).
If you are a shareholder who purchased or otherwise acquired Canopy Growth securities during the Class Period, you have until July 24, 2023 to ask the Court to appoint you as Lead Plaintiff for the class. A copy of the Complaint can be obtained at www.pomerantzlaw.com. To discuss this action, contact Robert S. Willoughby at [email protected] or 888.476.6529 (or 888.4-POMLAW), toll-free, Ext. 7980. Those who inquire by e-mail are encouraged to include their mailing address, telephone number, and the number of shares purchased.
Canopy Growth produces, distributes, and sells a diverse range of cannabis, hemp, and consumer packaged goods products for recreational and medical use. The Company conducts business through its subsidiaries and a variety of joint ventures, including Tweed, Spectrum Therapeutics, Martha Stewart CBD, and BioSteel Sports Nutrition Inc. (“BioSteel”).
BioSteel, a subsidiary of Canopy Growth, is a sports nutrition and hydration brand originally formulated for professional athletes. Defendants widely touted Canopy Growth’s BioSteel business throughout the Class Period, including its purported “meaningful year-over-year gains in BioSteel distribution and sales velocity” and the entry of BioSteel into various partnerships and agreements with star athletes and professional sports organizations.
The Complaint alleges that, throughout the Class Period, Defendants made materially false and misleading statements regarding the Company’s business, operations, and prospects. Specifically, Defendants made false and/or misleading statements and/or failed to disclose that: (i) issues with Canopy Growth’s BioSteel business, including, inter alia, aged inventory and overspending, had been significantly hampering the Company’s profitability; (ii) there were material weaknesses in the Company’s internal controls over accounting and financial reporting; (iii) as a result, the Company improperly booked sales of its BioSteel business unit; (iv) as a result, the Company’s revenue was overstated; and (v) as a result of the foregoing, Defendants’ positive statements about the Company’s business, operations, and prospects were materially misleading and/or lacked a reasonable basis.
On February 9, 2023, before the market opened, Canopy Growth announced its financial results for the third quarter of the Company’s fiscal year 2023. Among other results, that press release reported third quarter GAAP earnings per share of -C$0.54, missing consensus estimates by C$0.31, and revenue of C$101.2 million, representing a year-over-year decrease of 28.2% and missing consensus estimates by C$15.16 million. The Company also disclosed new cost-reduction initiatives, including, among other things, “transitioning to an asset-light model”, “the organizational restructuring of certain corporate functions,” and “significantly reducing the overall size of [the Company’s] organization.” In discussing the results, the Company also disclosed that “[g]ross margin in Q3 FY2023 was impacted primarily by [inter alia] . . . lower gross margins in the BioSteel business segment primarily attributable to the write-down of aged inventory”; that “the decrease in Sales and Marketing expenses is net of the impact of incremental investments in BioSteel, relating to the activation of the National Hockey League (‘NHL’) partnership announced in July 2022”; and that “a 7% decrease in [free cash] outflow versus the comparable period in FY2022 . . . [was] partially offset by investments in growth initiatives at BioSteel”.
On this news, Canopy Growth’s common share price fell $0.47 per share, or 17.15%, to close at $2.27 per share on February 9, 2023.
On May 10, 2023, after the market closed, Canopy Growth announced that its audited consolidated financial statements for the fiscal year ended March 31, 2022 and the quarters ended June 30, 2022, September 30, 2022, and December 31, 2022 should no longer be relied upon, and would need to be restated. The Company also disclosed that it “identified certain trends in the booking of sales by the [BioSteel] business unit for further review.” The Company specified that “although the BioSteel Review remains ongoing, the Company has preliminarily identified material misstatements” and that “the correction of the misstatements is expected to reduce certain revenues previously recognized.”
On this news, Canopy Growth’s common share price fell $0.18 per share, or 14.8%, to close at $1.04 per share on May 11, 2023, on unusually heavy trading volume.
Then, on May 12, 2023, BNN Bloomberg published an article citing former BioSteel employees, who portrayed BioSteel as “a dysfunctional organization rife with overspending.” The article noted, among other issues, that BioSteel’s “co-founder John Celenza [was] ousted following a testy exchange with Canopy’s Chief Executive Officer David Klein”; that “[s]ources who worked for BioSteel and its partners described the working environment at the company as chaotic and, at times, disorganized”; that “BioSteel’s spending plans often clashed with Canopy’s need to rein in costs”; and that BioSteel staff cuts were tied to Canopy Growth’s February 9, 2023 announcement regarding its transition to an asset-light model. The article also noted that BioSteel’s “sales may have come at a steep cost with costly endorsement deals awarded to a slew of NHL, NFL, MLB, and NBA players,” and that “[i]ndustry sources suggested endorsement deals with well-known athletes could start at $100,000, while contracts with professional teams could often be at least triple that amount.”
Pomerantz LLP, with offices in New York, Chicago, Los Angeles, London, Paris, and Tel Aviv, is acknowledged as one of the premier firms in the areas of corporate, securities, and antitrust class litigation. Founded by the late Abraham L. Pomerantz, known as the dean of the class action bar, Pomerantz pioneered the field of securities class actions. Today, more than 85 years later, Pomerantz continues in the tradition he established, fighting for the rights of the victims of securities fraud, breaches of fiduciary duty, and corporate misconduct. The Firm has recovered billions of dollars in damages awards on behalf of class members. See www.pomlaw.com.
Robert S. Willoughby
888-476-6529 ext. 7980