In our recent article on securities litigation in the burgeoning legal cannabis industry, we noted that companies in this space must be careful and thoughtful in their disclosures to avoid securities litigation exposure. In the past month, at least three additional securities litigation complaints were filed against companies connected to the legal cannabis industry, including pre-M&A disputes in the Southern District of New York and a putative class action under the Securities Exchange Act of 1934 in the Eastern District of New York. These complaints underscore that while the legal cannabis industry may be relatively new, companies looking to pursue an M&A deal or other transactions in this space must be cognizant of securities litigation risks.
Tilray and Helix – Commonplace Pre-M&A Complaints Alleging Misstatements or Omissions in Proxy Statements
Two of the recently-filed suits involved forthcoming merger and acquisition shareholder votes.
Violini v. Tilray, Inc was filed in the Southern District of New York following the announcement of a proposed transaction in December 2020 pursuant to which Tilray, a global legal medical and adult-use cannabis supplier, would merge with a cannabis-lifestyle consumer packaged goods company.  The complaint alleges that the transaction would be unfair to Tilray shareholders as it undervalues their shares and identifies a variety of purportedly false or misleading statements in the proxy statement filed in connection with the proposed transaction. The complaint asserts violations of Section 14(a) of the 1934 Act and Rule 14a-9.
Similarly, in Dillon v. Helix Technologies, Inc., plaintiff filed suit in the Southern District of New York, following the announcement of a proposed transaction pursuant to which Helix, which provides supply chain management and other services to legal cannabis businesses, would combine with a medical analytics company, to create a new company. Like Violini, the Helix complaint alleges that the proxy statement in connection with the proposed transaction contained material misstatements and omissions in violation of Section 14(a) of the 1934 Act and Rule 14a-9.
Putative class actions arising after the announcement of a merger or acquisition deal are commonplace, and regularly involve allegations of the type made in Tilray and Helix. Indeed, we believe legislative reforms are necessary to counter the popular and abusive federal litigation tactic of challenging deals immediately after they are announced.
Neptune Wellness – Section 10(b) Action Following Stock Drop
In Gong v. Neptune Wellness, a putative class action was filed in the Eastern District of New York asserting claims under Section 10(b) of the 1934 Act and Rule 10b-5. The complaint alleges that Neptune, which offers product development and supply chain solutions in various health and wellness areas including legal cannabis, made various alleged material misstatements and omissions in press releases and public filings, including in connection with the cost of integration of another company’s assets after an acquisition.
The legal cannabis industry continues to grow, and as more companies engage in typical business transactions, such as mergers and acquisitions, they will continue to expose themselves to potential securities litigation risks. Companies must exercise constant vigilance to mitigate securities litigation risks, including ensuring appropriate disclosures and cautionary language in any proxy statements related to an acquisition, press releases, or other public statements or SEC filings.
 Seyfarth Shaw LLP, Recent New York Appellate Decision Highlights That Cannabis Companies Going Public are Subject to Typical Securities Litigation Risks—and Defenses (March 15, 2021).
 Id. ¶¶ 26-55.
 Id. ¶¶ 19-20.
 See Markel, Gregory, Sama, Vincent, and Morduchowitz, Daphne, Abusive M&A Litigation Highlights Need for Securities Reform, Law360 (March 4, 2021).
 Id. ¶¶ 23-43.