Class action lawsuits against cannabis companies are on the rise. The proliferation of these lawsuits can be attributed to industry growth, market volatility, and corporate scandals. While Canadian cannabis companies are facing a variety of claims, including product liability and data breach claims, they, along their officers and directors, have increasingly been the target of several securities class actions in both Canada and the United States. In this article, Matthew Fleming and Ara Basmadjian explain why Canadian cannabis companies are a target and provide several suggestions about how to arm companies and their executives with the ammunition they need to defend securities class actions.
Here are the top ten tips that officers and directors should consider to protect their company from a claim when defending a securities class action:
- Consider whether your company has sufficient controls over financial reporting or whether additional measures should be implemented
- Require timely disclosure of material changes to your company’s business, including any earnings projections which may have been impacted by COVID-19
- Review existing disclosure for compliance with accounting standards and securities law
- Avoid conflicts of interest, particularly when dealing with executive compensation and related-party transactions
- Establish a special committee of independent members of the board of directors when necessary to investigate discrete corporate issues
- Educate your employees and train them on the company’s obligations under securities law and the Cannabis Act and its regulations
- Create anonymous whistleblowing systems
- Implement a strong regulatory compliance regime
- Consult with legal and financial advisors on any material issues that could generate risk
- Adopt effective document retention policies
To learn more, read the article in its entirety here.