Investors File Class Action Against Cronos Group on Eve of Pot Legalization in Canada

(CN) - Canadian cannabis company Cronos Group Inc. has been hit by an investor class action, alleging it artificially inflated its share price by omitting key details about the size of the company's operations.

The class action, filed in the Southern District of New York by lead plaintiff Manik Chanda, cites a Citron Research article “Cronos: The Dark Side of the Cannabis Space.” The article claimed Cronos was “deceiving the investing public by purposely not disclosing the size of its distribution agreements with provinces – unlike every other major cannabis player.”

The article asserted that the agreements were so small they weren’t worth the premium the investors were paying for Cronos’ stock. After the publication of Citron’s article, the company's stock price fell over 28 percent, closing at $9.12 on August 30, 2018.

During the public offering class period prior to Citron’s article, Cronos made public statements about the prospects of the cannabis market.

“Cronos is excited to provide our premium quality products to Canadian consumers for the upcoming legalization and launch of the recreational market,” said Cronos CEO, Mike Gorestein, a named defendant in the action.

Gorestein discussed multiple positive outlooks for the market at large, but allegedly omitted key facts concerning the size of Cronos’s distribution agreements, which were smaller than other cannabis suppliers, according to the complaint.

“Cronos is all talk,” the complaint states. “Last quarter, despite having the first ever license issued by Health Canada in late 2013, Cronos has vastly underperformed every big competitor.”

The class claims Cronos and its executives knew the size of their market and distribution agreements were smaller than led on.

“Had plaintiff and the other members of the class and the marketplace known the truth regarding the problems that Cronos was experiencing, which were not disclosed by defendants, plaintiff and other members of the class would not have purchased or otherwise acquired their Cronos securities,” the complaint states.

The class is represented by Lesley F. Portnoy in New York and Lionel Z. Glancy, Robert V. Prongay and Charles H. Linehan in Los Angeles of Glancy, Prongay & Murray LLP and Howard G. Smith in Bensalem, Pa.

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