With the variety of legal issues now plaguing Canadian cannabis producers, many investors that have not yet been scared off are now wondering just how low this sector can go, if lawsuits become commonplace and begin to cripple producers without earnings or cash to pay out settlements.
One of the most high-profile lawsuits in this sector has been filed against CannTrust Holdings (TSX:TRST), a small to mid-sized cannabis player listed on the TSX. Most of the allegations in the lawsuit are based on the concept that the management team did not act in the best interests of shareholders, causing many investors to lose substantial amounts of money.
Various testing practices carried out by the company, as well as issues pertaining to CannTrust’s financial statements, were cited as reasons for why the auditors have been named in the suit in addition to the company and many of its executives and board members at the time.
The question many investors have is just how widespread such legal cases could be in the industry, as most cannabis investors in most companies have lost substantial amounts of money over the past year, and it is understandable that class action lawsuits seeking to recover or remediate lost funds would likely be oversubscribed.
This is perhaps one of the highest profile lawsuits on the table today, however, at the time of writing, nine total lawsuits had been filed against Canadian cannabis producers, making this now more of a trend than a one-off situation.
These lawsuits, combined with a myriad of other headwinds which continue to blow strong, will continue to result in an overall reassessment, realignments, and slowing down of investor enthusiasm and the associated hype of pundits in the sector, in my estimation.
Invest wisely, my friends.
