b'Statement was misleading with respect to the companysalleged that this was due to the companys deficient relationship with JUUL, omitting references to themanufacturing and quality control processes that led proposed ordinances and the conduct of the companyto adulterated cannabis products, adding that the and its executive after the enactment of the ordinances.facilities were kept in dilapidated conditions which Rejecting each argument, the court concluded that thegenerated mold spores and caused crop infections.Registration Statement was not misleading. Defendants filed a motion to dismiss the plaintiffs On February 5, 2021, plaintiffs appealed the courtsconsolidated state court claim on the basis that decision to the Eleventh Circuit but subsequently movedplaintiffs failed to allege a materially false or misleading for voluntary dismissal of the appeal, which was granted. statement or omission in the Registration Statement, that the statements plaintiffs did allege couldnt form a basis for a Securities Act claim, and that there were Sundial Growers, Inc.:sufficient warnings and risk disclosures attending In re Sundial Growers, Inc. Securitiesdefendants statements. Defendants also argued Litigation, Case No. 1:19-cv-08913-ALCthat the New York Supreme Court lacked personal jurisdiction over Sundial, the individual defendants, (S.D.N.Y. Sept. 25, 2019) and Sundials foreign underwriters. Sundial Growers, Inc. (Sundial) is a Canadian companyOral argument on the motion to dismiss was cancelled that began producing cannabis in December 2018in light of the COVID-19 outbreak, and instead and operates several facilities in Canada and thethe judge issued a written order on May 15, 2020 United Kingdom. dismissing the case. The courts ruling found that On August 1, 2019, Sundial completed an IPO,Defendants had sufficient contacts with New York selling 11 million shares of common stock at $13 perto justify the courts personal jurisdiction over them. share. In its Registration Statement the company statedHowever, the court found that all of Sundials statements that it was a producer of high-quality and premiumwere either (1) corporate puffery, too vague to be cannabis produced in its indoor grow rooms locatedactionable, (2) a sincere statement of corporate optimism, in Alberta, Canada. or (3) sufficiently offset by robust risk disclosures. The court specifically noted that [h]ere, the terms On August 16, 2019, MarketWatch published anhigh quality and premium are clear examples of puffery article alleging the existence of severe quality controlbecause they are general and not subject to verification.deficiencies in Sundials products that would likelyOn June 15, 2020, plaintiffs appealed to the First Judicial impact 10% of the companys sales for the quarter endedDepartment arguing that the lower court erred because June 30, 2019allegedly equivalent to 60% moreit ignored the fact that the cornerstone of the companys product than the company sold in its entire first quarterbusiness model was consistent production of high-quality, of 2019. The article also claimed that prior to the IPO onepremium cannabis, and, therefore, any related statements of the companys corporate buyers, Zenabis, returned awere false and misleading. Plaintiffs also argued that half ton of the companys production on the purportedthe court erred by holding that the company had basis that it contained visible mold, parts of rubberadequately disclosed any risks. In a brief decision and gloves and other non-cannabis material. Relatedly, in itsorder, the appellate court rejected each of plaintiffs disclosure of its financial results for the quarter endedarguments and upheld the lower courts decision.June 30, 2019, Zenabis stated that certain third-party producers failed to supply saleable cannabis in line withIn the federal case, defendants filed a motion to dismiss contractual obligations and that they had to return a totalin May of 2020, and briefing on the motion continued of 554 kg of cannabis to the supplier. Zenabis did notthrough July of 2020. On November 12, 2020, the court name any of the third-party suppliers. issued a stipulation and order confirming plaintiffs In September 2019, investors filed parallel state andvoluntary dismissal of the complaint as against three federal actions against Sundial, alleging violationsof the individual defendants, but the case remains of Sections 11, 12(a) and 15 of the Securities Actactive against Sundial and several other defendants. against the company, certain directors and officers,Defendants filed a letter in February 2021 bringing the and the companys underwriters. Plaintiffs allegedFirst Judicial Departments decision on appeal to the that the Registration Statement contained false andfederal judges attention. On March 30, 2021, the court misleading statements because it failed to discloseheld a telephone conference and the next day denied that some of its cannabis batches were of low-qualitydefendants motion to dismiss except with respect to and not fit for sale to its customers, which caused aplaintiffs Section 12(a)(2) claim against Sundial, which large return of its product by Zenabis. They furtherwas deemed abandoned. Defendants are scheduled to answer plaintiffs complaint in May 2021.13'