A class action lawsuit was filed Tuesday against Canopy Growth Corporation alleging the company “made materially false and misleading statements regarding Canopy’s business, operations, and prospects” related to its Claybourne pre-rolls and Storz & Bickel vaporizer brand.
In a press release, Pomerantz LLP, which filed the lawsuit, contends Canopy’s financial statements around the Claybourne product launch, and that the company failed to disclose it had “incurred significant costs producing Claybourne pre-rolled joints in connection with the Claybourne product launch in Canada” and that indirect costs associated with the Storz & Bickel devices “were likely to have a significant negative impact on the Company’s gross margins and overall financial results.”
“…Accordingly, Defendants had overstated the efficacy of Canopy’s cost reduction measures and the health of its gross margins while downplaying issues with the same; and as a result, Defendants’ public statements were materially false and misleading at all relevant times.” — Pomerantz LLP, in a press release
The law firm points to a February 7 press release from Canopy announcing its financial results for the third quarter of its fiscal year 2025 wherein it reported that its “gross margin decreased by 400 basis points to 32%” in the quarter compared to the same quarter the year prior “primarily due to the incremental costs related to the Claybourne infused pre-roll launch in Canada, and an increase in indirect costs of Storz & Bickel vaporizer devices.” The lawsuit argues “these factors contributed to Canopy reporting a wider-than-anticipated Q3 2025 loss of C$1.11 per share compared to the C$0.48 per share loss estimated by analysts.”
That same day, during a conference call with investors, Canopy Chief Financial Officer Judy Hong, who is named as a defendant in the lawsuit, indicated that the Claybourne product launch costs were “primarily attributable to [the] higher initial cost to produce Claybourne” products and that the “indirect costs” related to Storz & Bickel devices were attributable to shipping costs, the law firm said in the press release. The news caused Canopy’s common share price to fall 27.34% – or $0.76 per share to close at $2.02 per share on February 7.
During the quarter, Canopy allegedly touted the positive impact that the products were having on its margins, despite the gross profit margin decreases.
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