Cannabis Securities Litigation: Proceed with Caution Before Investing in International Cannabis

Along with a robust cannabis practice, our law firm works with businesses around the globe on legal matters involving dispute resolution, customs, trade, employment, foreign direct investment, manufacturing, technology, intellectual property, and entertainment. Several years ago, these practice areas rarely overlapped; that is no longer the case.

Our international and cannabis business lawyers now regularly counsel individuals and companies looking to succeed in the global cannabis market. At the bottom of this blog post, I’ve linked to just a few recent posts discussing various aspects of that industry.

Meanwhile, Fred Rocafort and Jonathan Bench are receiving accolades for their Global Law and Business podcast, which recently was named one of the top 25 international law podcasts to follow in 2021.

Naturally, the rise of a global cannabis has given rise to numerous investment and partnership opportunities for businesses and individuals. Just as naturally is the rise in litigation involving cannabis that has an international flavor. This post concerns a lawsuit involving cannabis and Malaysia and a recent decision allowing a class action securities fraud lawsuit to move forward. The case is Alde-Binet Tchatchou v. India Globalization Company, No. PWG-18-3396. (Email me if you’d like a copy of the decision.)

The facts are familiar to anyone working in cannabis. Plaintiffs allege that IGC attempted to take advantage of a “hot market trend”— namely the “Hemp/CBD-infused energy drink space.” What’s not as familiar is the international aspect. Plaintiffs alleged IGC did so by promoting its entrance into a marijuana-base products business in partnership with a manufacturer located in Malaysia.  The various press releases and announcements caused IGC’s stock to increase six-fold.

Sounds like an interesting opportunity, no? But manufacturing CBD-based beverages was, and is, illegal in Malaysia. This fact was not disclosed to investors (!) and only revealed upon publication of a MarketWatch report identifying numerous “red flags” surrounding IGC. The publication of this report caused a precipitous decline in IGC’s stock price, a delisting of IGD from the NYSE American exchange, and eventually a suspension in trading.

Two class action lawsuits followed, alleging false or misleading statements in violation of Section 10(b) of the Exchange Act and Rule 10b-5. Setting aside the merits of the lawsuits, the problem for the plaintiffs is whether there is anything to recover. My bet is that most investors will see little, if any, of their money returned.

So before you or your business jump on the “hot new trend” of international cannabis, consult an international business lawyer with cannabis experience. In the meantime, check out the following: