Kaplan Fox & Kilsheimer LLP (www.kaplanfox.com) continues investigating claims on behalf of investors who purchased shares of Sundial Growers Inc. (“Sundial” or the “Company”), a “craft pioneering cannabis” company.

On August 1, 2019, the Company closed its initial public offering, selling 11 million shares at $13 per share, for gross proceeds of $143 million. The Company represented that it was a producer of “high-quality cannabis in small batches” and “we produce high-quality, consistent cannabis.”  Furthermore, the Company purported to warn about risks of failure of the Company’s quality control systems, contamination of, or damage to, its cannabis inventory.

On August 14, 2019, cannabis producer Zenabis disclosed that “[c]ertain third-party producers failed to supply saleable cannabis in line with contractual obligations. Due to quality issues, Zenabis had to return or reject a total of 554 kg of cannabis from a third-party. To ensure there was sufficient inventory on-hand in order to provide consistent supply to provincial counterparties beyond June of 2019, Zenabis held back certain products it had produced in May and June. Subsequent to the quarter end, Zenabis provided notice to terminate its agreement to purchase cannabis from the third-party who shipped the cannabis that was not saleable.”

On August 19, 2019, Marketwatch published a story titled “Wall Street’s latest billion-dollar pot company had a half-ton of bad weed returned as it was going public.” The article stated, in part, that the “newest cannabis company on Wall Street, Sundial Growers Inc., sold a half ton of pot that was returned by corporate buyer Zenabis Global Inc. because it contained visible mold, parts of rubber gloves and other non-cannabis material, according to people familiar with the matter. The attempted sale would be the equivalent of 10% of Sundial’s SNDL, -0.85% total second-quarter cannabis sales of five metric tons. The batch of cannabis would be worth roughly C$2.5 million ($1.9 million), assuming a price of C$5 per gram.”

“The company included a number of risks around inventory spoilage in its IPO filing but not did not include a reference to a half ton of returned cannabis. Sundial did not mention the half-ton return during a road show presentation in Toronto, according to one investor who heard the pitch. In the IPO filing and its quarterly-earnings filing with the Securities and Exchange Commission, the company disclosed about $3.3 million in penalties for not delivering cannabis as promised to partners; those contingencies were from 2018.”

On August 19, 2019, the Company issued a statement in response stating: “Sundial is aware of an online article involving a commercial relationship with another Licensed Producer. There were factual inaccuracies in the article. While Sundial cannot comment on specific customer agreements due to contractual confidentiality, we can confirm that this isolated immaterial matter is being resolved between Sundial and the Licensed Producer. There is no impact on Q2 financial reporting and we anticipate that the impact on Q3 earnings will be negligible. Sundial follows strict Good Production Practices (GPP) in accordance with all Health Canada standards. Our company also uses standard provisions for potential returns which is consistent with industry practice. Sundial is committed to producing safe, innovative and high-quality products.”

SOURCE Kaplan Fox & Kilsheimer LLP