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Major Canadian pot companies facing proposed class-action lawsuits in the U.S. –



Some of Canada’s biggest cannabis producers are facing proposed class-action lawsuits in the United States after investors were hit with steep financial losses in the stock market.

At least nine U.S. law firms are pursuing cases against Canopy Growth, Aurora Cannabis and Hexo Corp. in American courts.

Although the allegations vary, each pot producer is accused of misleading investors or failing to disclose certain problems with their businesses. When those problems became publicly known, the lawsuits claim, share prices plunged and investors were stuck with losses.

“[Investors] are mad; they were taken by surprise,” said Reed Kathrein, a lawyer at Hagens Berman Sobol Shapiro LLP, which is pursuing claims against all three producers.

None of the allegations have been proven in court.

Each of the companies declined to be interviewed for this story. Canopy and Aurora denied the allegations in brief statements, while Hexo said only its lawyers are reviewing the claims.

Producers ride green crush

These companies were among several Canadian cannabis firms that listed on U.S. stock exchanges, riding a wave of investor enthusiasm surrounding the industry before and after Canada legalized pot.

“But when they hit obstacles, the share prices declined,” said Kevin LaCroix, a Cleveland-based lawyer who is not involved in any of the proposed class actions, but has followed the industry.

“It’s pretty common in the United States, when a company experiences a significant decline in its share price, opportunistic plaintiff lawyers will try and seize on that as an opportunity to try and make some money.”

Lawsuits could create uncertainty

Even if the lawsuits aren’t successful, they could still pose challenges to companies that are trying to win over investors, said Brad Poulos, a lecturer at Ryerson University’s Ted Rogers School of Management.

“Anytime there’s uncertainty about the future of a company, that’s going to create uncertainty in the minds of shareholders,” Poulos said.

“As the market determines the likelihood of a suit being successful, that will start to get priced into the stock,” he said.

The cases against these three companies have attracted the attention of at least nine legal firms because of a feature of U.S. law, Kathrein said. After an investor’s lawyer files an initial securities lawsuit, they publish a notice, which gives other investors 60 days to apply to the court to become lead plaintiff in the case.

‘A beauty contest’

Law firms then issue press releases seeking investors in the hopes that they can attract a client who becomes the lead plaintiff. One of the qualifications to become lead plaintiff is they suffered the greatest amount of alleged losses.

“It’s a beauty contest,” Kathrein said. “These press releases are basically saying, ‘Hey, I’m part of the beauty contest; select me.'”

A Hexo Corp. employee examines cannabis plants in one of the company’s greenhouses in Masson Angers, Que. The company told CBC it does not comment on litigation issues, but that its legal team is looking into the claims against it. (Adrian Wyld/THE CANADIAN PRESS)

Hexo, based in Gatineau, Que., is accused of failing to tell investors that it was inflating its revenue figures through a process called channel-stuffing, which involves sending retailers more products than they are able to sell. A court filing alleges Hexo didn’t tell investors its reported cannabis inventory was misstated and that it was growing pot in an Ontario facility not properly licensed by Health Canada.

A class-action complaint filed with a New York court says when Hexo announced in March 2019 it was buying rival Newstrike Brands, the company said it was acquiring Newstrike’s four production facilities. It also said it was “committing to achieving over $400 million in net revenue in 2020.”

But by October, the company withdrew that commitment after projecting its net revenue for 2019 would hit between $46.5 million and $48.5 million. It blamed a slow rollout of retail stores across Canada, a delay in government approvals for edibles and vapes and early signs of falling prices. Two weeks later, Hexo announced 200 layoffs.

In November, the company revealed one of the facilities it acquired from Newstrike was growing cannabis without the proper federal approvals. A press release said the firm learned about the problem in July, shut down production and notified Health Canada.

“All told, Hexo has lost hundreds of millions of dollars in market capitalization as a result of these disclosures,” the complaint says. “As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiff and other class members have suffered significant losses and damages.”

Hexo Corp.’s share price has fallen in the past year. (CBC )

According to the filing, anyone who bought Hexo shares on U.S. stock exchanges between Jan. 25 and Nov. 15, 2019 can join the proposed class action. During that period, Hexo’s shares plunged by 65 per cent on the New York Stock Exchange.

In a brief email to CBC News, Hexo said it does not comment on litigation issues, but that its legal team is actively handling the matter.

A high bar for lawsuits

LaCroix, the Cleveland lawyer not involved in any of these claims, says law firms pursuing the cannabis class actions have to meet a high bar. It’s not enough to argue that investors lost money. Their lawyers have to prove the defendant companies and executives intended to mislead shareholders when they made the allegedly false or misleading statements, a concept called scienter, he said.

“Scienter is meant to encompass not only actual intent to deceive but reckless indifference or just total indifference to whether or not investors are misled,” LaCroix said.

“That’s often where shareholder claimants fall short, is they don’t sufficiently plead scienter.”

Kathrein, one of the lawyers pursuing the class actions, said he wouldn’t be involved in the cases unless he was convinced he could meet the scienter test.

“We don’t just rely on public facts,” he said. “We have investigators that get out there and try and find witnesses who can tie the information that was allegedly known to them, tie that information to the senior executives.”

Dale Wilesack, senior person in charge, looks at cannabis seedlings at an Aurora Cannabis facility in Montreal in November 2017. The Edmonton-based company is facing claims it exaggerated or over-estimated the demand for its pot and produced too much, leading to oversupply. Aurora denies the allegations. (Ryan Remiorz/The Canadian Press)

Edmonton-based Aurora Cannabis is facing claims the company exaggerated or over-estimated the demand for its pot and produced too much, leading to oversupply. In November, Aurora said it was halting or deferring construction at production facilities in Denmark and Medicine Hat, Alta. It also reported disappointing financial results, including a 24 per cent drop in quarterly net revenues.

A couple of months later, the company told media it was selling a greenhouse in Exeter, Ont.

Another allegation is that Aurora was not up front with investors that it didn’t secure necessary approvals from German authorities to use a certain growing method in that country. After a Marijuana Business Daily report revealed German pharmacists were ordered to stop selling Aurora’s medical pot until there was a review, the lawsuit says, the company’s share price dropped.

“As a result of defendants’ wrongful acts and omissions, and the precipitous decline in the market value of the company’s securities, plaintiffs and other class members have suffered significant losses and damages,” states the complaint, filed a week ago in a New York court.

Aurora shares plunge

The filing says anyone who bought Aurora shares on U.S. stock exchanges between Oct. 23, 2018 and Jan 6, 2020 can join the proposed class action. During that period, Aurora’s shares plunged by 75 per cent on the New York Stock Exchange, from $7.51 per share to $1.90.

Aurora denies the allegations.

“The company believes it has conducted itself in accordance with all relevant securities laws, and refutes these claims,” it said in a brief statement. “The company intends to pursue a full defence against these suits.”

Canopy shares were ‘artificially inflated,’ suit claims

Canopy Growth, Canada’s largest pot producer, is facing allegations it exaggerated or overestimated the potential market for its products in Canadian retail stores, leading to inventory writeoffs and restructuring charges. 

One class-action complaint says the Smiths Falls, Ont.-based company issued press releases leading up to legalization that it was expanding its production capacity to meet projections of growing demand for cannabis in Canada and around the world. 

“As a result of the dissemination of the aforementioned false and misleading reports, releases and public statements, the market price of Canopy securities was artificially inflated,” the complaint states.

In November 2019, the company reported lower-than-expected revenues and a $374.6-million loss. 

Then-CEO Mark Zekulin told analysts at the time the disappointing results were the result in part of a slow rollout of retail stores in Ontario, which cut its potential Canadian market in half. He said some provinces had slowed their purchases of cannabis because of high inventories, though Canopy’s shipments were up in its most recent quarter.

Mark Zekulin was CEO of Canopy Growth when it reported disappointing financial results in November. He said a slow rollout of retail stores was partially to blame. (Submitted by Canopy Growth)

Canopy’s stock fell on the news.

Between Sept. 8, 2017 and Nov. 13, 2019 — the period that the proposed class action covers — Canopy’s share price on the New York exchange fell by more than a third, from $28.26 per share to $18.50.

When asked for comment on the allegations, Canopy referred to a November 2019 press release, in which the company said it believes it has acted “in accordance with all relevant securities laws, and that the claims are without merit.

“The company intends to vigorously defend itself against any such suits.”

Lawsuits could drag on

Kathrein, whose law firm is seeking the class actions, said the cases will start to move ahead after deadlines to select lead plaintiffs elapse, starting Monday. Ultimately, he believes the cases will likely be collapsed into one proposed class action for each of the three companies. 

The defendant companies will likely file motions to dismiss the cases against them, Kathrein said. It could take months to debate those motions, which means they may not be resolved until the end of the year, if not later, he said.

If the lawsuits survive that stage, it could take years to reach a resolution through the courts, though both sides could negotiate a settlement.

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Canadian energy, health, manufacturing sectors were major targets of ransomware attacks: cyber spy agency –



More than half of the known ransomware victims in Canada this year were critical infrastructure providers, according to a new threat assessment from Canada’s cyber spies — and the number is likely even higher.

As part of a new awareness campaign, the Communications Security Establishment (CSE), Canada’s foreign signals intelligence agency, released a ransomware bulletin Monday looking at the key trends of ransomware in 2021.

In its report, CSE’s Cyber Centre said ransomware attacks are “brazen, sophisticated, increasing in frequency, and, for the cybercriminals, very profitable.

“The impact of ransomware can be devastating, and the severity of the financial consequences related to a ransomware attack can be profound.”

For the first time, the agency also confirmed publicly Monday that it has used its new cyber attack powers, granted to it through legislation back in 2019.

“The Communications Security Establishment Act gives CSE the legal authority to conduct cyber operations to disrupt foreign-based threats to Canada, including cybercriminals,” said CSE spokesperson Evan Koronewski.

“Although we cannot comment on our use of foreign cyber operations (active and defensive cyber operations) or provide operational statistics, we can confirm we have the tools we need to impose a cost on the people behind these kinds of incidents.

“We can also confirm we are using these tools for such purposes, and working together with Canadian law enforcement where appropriate against cybercrime.”

Ransomware is a form of malware used by threat actors and criminals who encrypt files on a device then demand a ransom in exchange for decryption. Once successfully hacked, ransomware victims are often attacked multiple times.

CSE said it’s aware of 235 ransomware incidents against Canadian victims from Jan. 1 to Nov. 16 of this year and more than half of those targets were critical infrastructure providers, including those in the energy, health and manufacturing sectors.

The number is likely higher, as the agency said most ransomware events go unreported. 

“The COVID-19 pandemic has made organizations like hospitals, governments and universities more mindful of the risks tied to losing access to their networks and often feeling resigned to pay ransoms,” notes the report.

“Cybercriminals have taken advantage of this situation by significantly increasing the value of their ransom demands.”

Canadian hospitals hit

Newfoundland and Labrador is still reeling after a cyber attack hit its health-care system, cancelling thousands of medical procedures ranging from chemotherapy to X-rays.

Sources have told CBC the security breach is a ransomware attack, but so far government officials have not confirmed the nature of the cyberattack and will not say if they have received a ransom demand.

This summer Humber River Hospital in the Toronto area was forced to shut down its IT systems in order to prevent a ransomware attack. 

A customer pumps gas at Costco as others wait in line on May 11, 2021, in Charlotte, N.C. Earlier this year the Colonial Pipeline, the largest fuel pipeline in the U.S., was hit by a cyber attack attributed to the Russia-based DarkSide RaaS cybercriminal group. (Chris Carlson/The Associated Press)

Staff were unable to access electronic patient records and diagnostic test results leading to long waits in the emergency department and prompting the hospital to cancel clinics and redirect some ambulances to other hospitals.

CSE said it expects high-impact targeting to continue. 

“We assess that ransomware operators will almost certainly continue to target large organizations with operational technology (OT) assets, including organizations in Canada, to try to extract ransom, steal intellectual property and proprietary business information, and obtain personal data about customers,” it warned. 

Canada is far from alone. This year has been marred by the highest ransoms and the biggest payouts around the world.

Earlier this year the Colonial Pipeline, the largest fuel pipeline in the U.S., was hit by an attack attributed to the Russia-based DarkSide RaaS cybercriminal group.

As a result, the company’s operations were affected, resulting in record price increases, panic-buying, and gasoline shortages

Ransomware operators will likely become increasingly aggressive: CSE

In Canada, CSE said the estimated average cost of a data breach, which includes but is not limited to ransomware, is more than $6 million. The average price has stabilized over the past years, a trend CSE attributes to cybercriminals becoming better at tailoring their demands to what their victims are most likely to pay. 

Ransomware operators will likely become increasingly aggressive in their targeting in 2022, including against critical infrastructure, warned the agency. 

Part of the problem fighting ransomware is that many operators and their affiliates are based in countries with lax or non-existent laws against cybercrime, said CSE.

Ransomware operators will likely become increasingly aggressive in their targeting in 2022, including against critical infrastructure, warns CSE.  (PabloLagarto/Shutterstock)

“Mitigating the increasing risks will require concerted national efforts to improve cyber security and adopt best practices to harden critical systems, as well as co-ordinated international actions to undermine criminal infrastructure and tactics,” said the report.

As part of that effort, CSE, working with the RCMP, has published what they call a “playbook” that outlines steps organizations and businesses can take to protect against ransomware, and what to do if attacked.

Organizations urged to implement cyber safety measures

A handful of cabinet ministers have signed an open letter to Canadian organizations urging them to implement basic cyber security measures.

The letter, co-signed by Defence Minister Anita Anand, Emergency Preparedness Minister Bill Blair, Public Safety Minister Marco Mendicino and International Trade Minister Mary Ng, said the federal government is working with its allies to pursue cyber threat actors and disrupt their capabilities. 

“We are also assisting in the recovery of organizations compromised by ransomware and helping them to be more resilient going forward,” they wrote.

“Our message is clear: taking basic steps to ensure your organization’s cyber security will pay swift dividends.” 

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Canadian employers, facing labor shortage, accommodate the unvaccinated



Canada‘s tight labor market is forcing many companies to offer regular COVID-19 testing over vaccine mandates, while others are reversing previously announced inoculation requirements even as Omicron variant cases rise.

Canadian Prime Minister Justin Trudeau‘s government adopted one of the strictest inoculation policies in the world for civil servants and has already put more than 1,000 workers on unpaid leave, with thousands more at risk.

Airlines, police forces, school boards and even Canada‘s Big Five banks have also pledged strict mandatory vaccine policies. But following through has proven less straightforward, especially as employers grapple with staffing shortages and workers demand exemptions.

Job vacancies in Canada have doubled so far this year, official data shows, and vaccine mandates can make filling those jobs harder, potentially putting upward pressure on wages. That could fuel inflation, already running at a near two-decade high.

“It’s already difficult to find staff, let alone putting in a vaccine mandate. You’d cut out potentially another 20%” of potential workers, said Dan Kelly, chief executive of the Canadian Federation of Independent Business.

There are pitfalls to employing the unvaccinated. Companies run a higher risk of COVID-19 outbreaks and many vaccinated employees are uncomfortable working with those who have not had the jab, said industry groups and marketing experts.

At Luda Foods, a Montreal-based soup and sauce maker, president Robert Eiser said he has 14 open jobs, no vaccine mandate and no plans to restrict new hires to the vaccinated.

“I don’t know that I want to reduce the (labor) pool, which is already quite low,” said Eiser. “We need to attract people to meet the demand. If we don’t, our competitors will.”

Data released on Friday underpinned Canada‘s tight labor market, with a hefty 153,700 jobs added in November. It also showed a growing mismatch between available workers and unfilled jobs. And job postings are far above pre-pandemic levels.


The province of Quebec backtracked on a vaccine mandates for healthcare workers last month, saying they could not afford to lose thousands of unvaccinated staff. Ontario, which was also eyeing a mandate, said it would not go ahead.

Toronto-Dominion Bank and Bank of Montreal have both softened their vaccine policy to allow regular testing for workers who missed their Oct. 31 inoculation deadline.

In Canada, 86% of adults are fully inoculated, though that drops under 80% among 18-40 year olds. At least 15 cases of the new Omicron variant in Canada have been reported in the past week.

John Cappelli, vice president of onsite managed services in Canada for global recruitment firm Adecco, said half of his clients are mandating vaccines with the other half allowing regular testing for the unvaccinated.

But he expects the Omicron variant will prompt more workplaces to get strict on vaccination, even as they grapple with the tightest job market he’s seen in his 25-year career.

“We are now starting to see our first workplace (COVID-19) cases in five months,” he said.

The number of Canadian job postings on search website Indeed mentioning vaccine requirements has quadrupled since August.

In the hard-hit manufacturing sector, where 77% of firms say their top concern is attracting and retaining workers, vaccine mandates are more rare.

Dennis Darby, CEO of Canadian Manufacturers and Exporters, said most of Canada‘s factories have operated safely throughout the pandemic. While CME encourages vaccination, “some companies are still using rapid testing if somebody doesn’t want to get vaccinated,” he added.

But companies risk a hit to their reputation if they are overt in efforts to tap into the unvaccinated as a labor pool, said Wojtek Dabrowski, managing partner at Provident Communications.

“If you go out and say, ‘We are intentionally seeking to hire unvaccinated people,’ many customers are equating that with you being anti-science and anti-safety,” said Dabrowski.

(Reporting by Julie Gordon and Steve Scherer in Ottawa, additional reporting by Rod Nickel in Winnipeg and Nichola Saminather in TorontoEditing by Alistair Bell)

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CN trains rolling again after B.C. tracks repaired amid mounting backlogs –



Amid growing backlogs, Canadian National Railway Co. says trains are moving again in southern British Columbia after the third atmospheric river in two weeks descended on the region.

CN says service resumed Sunday after crews worked around the clock on the Vancouver-Kamloops corridor, which was first cut by mudslides and washouts amid torrential rain in mid-November.

The country’s largest railroad operator restored limited activity along the vital supply link late last month before opting to close the line again a week ago as more downpours triggered further flooding, landslides and debris.

“CN crews will continue to monitor both the rail infrastructure as well as the terrain over the coming days and weeks,” CN spokesperson Jonathan Abecassis said in an email.

An aerial view of the Port of Vancouver taken Nov. 21. After service was suspended due to weather-related track damage, freight is now moving by rail again in and out of the city’s port. (Gian Paolo Mendoza/CBC)

The restored connection will allow freight to flow to and from the Port of Vancouver and begin to clear the massive backlogs of incoming shipping containers and outgoing grain.

The repaired lines will also allow Canadian Pacific Railway Ltd, which shares tracks with CN through part of the Fraser Valley, to boost its shipments.

End of year is a critical time for shipment of grain — canola in particular — with the bulk of Canadian grain transported via rail to B.C. ports.

Some can be diverted to Prince Rupert, B.C., the United States or Thunder Bay, Ont., but the window for the latter is nearly closed as winter ice looms, while rail cargo generally is hard to divert en masse.

“Regardless of when the traffic on the mainlines resume handling normal levels of traffic, the reverberations back through the grain supply chain in Western Canada (and all commodities) will be measured in months,” Steve Pratte, policy manager at the Canadian Canola Growers Association, said in an email.

Grain strain

The backlog of Prairie grain may lose much of its value if trains can’t ship it to port before spring, when prices typically drop amid heightened global supply, according to the Western Grain Elevator Association.

Contract extension penalties and demurrage fees — issued by a shipping line when freight exceeds the time allotted at a terminal — also present a threat for farmers and grain elevators trying to clear out brimming barns and silos.

The number of grain cars unloaded at West Coast ports dropped by 83 per cent year over year in the third week of November, according to the federal grain monitoring program’s latest update.

As of Nov. 28, there were 24 grain vessels at berth or at anchor around the Port of Vancouver waiting for deliveries of up to 1.4 million tonnes of grain — mainly wheat, canola and barley — the update states.

“These shipments are critical to ensure that Canadian farms get the cash flow required to cover the operating costs accumulated through the season, and it is a race against winter every year to try to get as much grain to port before winter conditions settle in,” Geoff Backman, markets manager at the Alberta Wheat and Barley Commission, said in a statement.

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