Alberta cannabis producer Sundial targeted in class action suit

Calgary-based licensed cannabis producer Sundial Growers failed to disclose its products’ contamination problems prior to going public on the stock market, a class-action lawsuit contends.

A complaint filed Sept. 25 under the name of plaintiff and company investor Yimin Huang said that defendants, including board member and former University of Calgary president Elizabeth Cannon, were in New York City on Aug. 1 to mark the company’s shares being listed on the NASDAQ.

“The registration statement represented that Sundial was a producer of ‘high-quality cannabis in small batches’ and that ‘we produce high-quality, consistent cannabis’ and that the Company’s operating model results in ‘strong customer loyalty,’ ” reads the complaint.

“These representations were untrue statements of material fact because, before the IPO, due to material quality issues, Zenabis Global Inc., a Sundial customer, had returned or rejected a total of 554 kg of cannabis to Sundial.”

The suit filed by U.S.-based legal firm Rosen Law said the pot worth $2.25 million was returned to Sundial by Vancouver-based Zenabis because it was visibly mouldy and contained pieces of rubber glove, among other foreign material.

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The suit states those facts also weren’t disclosed during a promotional road show in Toronto meant to attract investors and that the value of Sundial stock “has fallen substantially below its IPO price, damaging Plaintiff and Class members.”


Former University of Calgary president and vice-chancellor Dr. Elizabeth Cannon is on Sundial Growers’ board of directors. Supplied


Also named as defendants in the action are Sundial CEO Torsten Kuenzlen, CFO James Keough, Edward Hellard, executive chairman of the company’s board, and board members Greg Mills, Gregory Turnbull and Lee Tamkee. Also named are the company’s underwriters.

The complaint says there are likely thousands of people affected by the failure of Sundial to disclose the product return.

The plaintiff is seeking a jury trial and none of the allegations has been proven in court.

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On Monday, no one from Sundial or Rosen Law responded to requests for comment.

But in a news report, Sundial denied the allegations and said it would defend itself.

Sundial has been rapidly expanding its production and employment numbers since the legalization of recreational cannabis nearly a year ago.

Late last year, one of its grow spaces sustained a small electrical fire that led operators to eliminate four rooms’ worth of production as a quality precaution.

Sundial Growers Inc. shares fell another 4.7% on Monday, after the Canadian cannabis company became the subject of a class-action lawsuit in the U.S. for allegedly failing to disclose that a customer returned half a ton of cannabis because it contained mold and bits of rubber gloves.


The allegations were first reported by MarketWatch’s Max A. Cherney on Aug. 20, and MarketWatch’s reporting is cited in the suit.


The suit was filed in the Southern District of New York, according to The Rosen Law firm.


Sundial SNDL, -3.10% went public on the Nasdaq on Aug. 1, selling 11 million shares priced at $13 each to raise $143 million. In its IPO documents, the company said it produces “high-quality, consistent cannabis.”


The Calgary, Alberta–based company reported earnings on Aug. 20, the same day that another Canadian cannabis company, Zenabis Global ZENA, +7.69% , disclosed that it had returned a half-ton of pot and terminated its agreement to buy cannabis from a “third party” that it did not name.


People familiar with the matter said that party was Sundial, as MarketWatch reported, and Zenabis returned the cannabis because it was of poor quality and contained bits of rubber, among other issues. The batch was worth about C$2.5 million ($1.9 million) at the time.




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Sundial declined to comment in August. A call to a spokeswoman was not returned on Monday.


The class-action suit alleges that the company “made false and misleading statements and/or failed to disclose that: (1) Sundial failed to supply saleable cannabis in line with contractual obligations to Zenabis Global Inc.; (2) due to material quality issues, Zenabis had to return or reject a total of 554 kg of cannabis to Sundial, valued at approximately U.S. $1.9 million (C$2.5 million); and (3) as a result, defendants statements about Sundials business, operations, and prospects were materially false and misleading and/or lacked a reasonable basis at all relevant times.”


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Sundial shares have fallen 66% from their IPO price. The stock is down 42% in the past month, while the ETFMG Alternative Harvest ETF MJ, -0.70% has fallen 19% and the S&P 500 SPX, -0.62% has dipped 0.8%.