New Jersey Will See More Medical Cannabis Dispensary Licenses After Appeals Court Ruling

After a year and a half of litigation, a New York federal judge has tossed a proposed securities class action suit against Curaleaf that alleged the company’s inaccurate labeling of its cannabidiol (CBD) products caused its share prices to drop.

Investors in the company filed the lawsuit in August 2019 after Curaleaf received a warning letter from the U.S. Food and Drug Administration (FDA) for selling CBD products with unsubstantiated health claims about the products treating cancer and Parkinson’s disease, among other health conditions. (Curaleaf responded by removing the health claims from its website and social media accounts.)

The day after the FDA administered its letter, Curaleaf’s stock price fell $0.54, or over 7 percent, and continued to fall in the following days.

The plaintiffs have argued that Curaleaf did not properly disclose the risks associated with selling CBD products.

However, in a Feb. 16 ruling, U.S. District Judge Brian Cogan said Curaleaf has been fully transparent about the legality of its business.

“Starting on its first day in existence, the Company publicly and repeatedly acknowledged the very information that plaintiffs contend it concealed: its cannabis-based products are not approved by the FDA and thus the FDA may regard their promotion as violating established law,” Cogan wrote in his opinion.

According to the opinion, the company’s listing statement (administered when the company made its IPO) disclosed that:

• the company’s cannabis-based products “are not approved by the [FDA] as ‘drugs.’” 

• the FDA may regard their marketing “as the promotion of an unapproved drug in violation of the [FDCA].” 

• the “FDA has issued letters to a number of companies selling products that contain CBD . . . warning them that the marketing of their products violates the FDCA.” 

• an “FDA enforcement action against the [company] could result in a number of negative consequences, including fines, disgorgement of profits, recalls or seizures of products, or a partial or total suspension of the [company’s] production or distribution of its products.”

• “[a]ny such event could have a material adverse effect on the [company’s] business, prospects, financial condition, and operating results.” 

“What more need the Company disclose about this risk? The Listing Statement says it all,” Cogan wrote in his opinion.

The plaintiffs also argued that Curaleaf did not disclose this information in all press releases, “perhaps recognizing the weakness of their claim that the Listing Statement did not adequately disclose this information,” Cogan wrote. However, the judge found that not every public statement needs a full list of disclosures.

An additional argument from the plaintiffs was that Curaleaf claimed its products were safe, effective and had the health benefits advertised. But the plaintiffs alleged the FDA’s letter proved these claims were false.

Cogan, however, found the FDA’s letter did not necessarily dispute these claims.

“The reason that this letter exists at all is because the FDA has not been provided adequate information to determine whether the CBD products are safe or effective for any use whatsoever,” Cogan wrote. “The letter doesn’t opine on whether the products are safe and effective; it just explains that defendants cannot say that they are. And … plaintiffs’ claims fail to the extent that they are based on the lack of FDA approval.”