A proposed class action lawsuit is being launched against a Langley-based cannabis company that was at the centre of a furor around vague plans for its licence to produce small amounts of cocaine.
On March 9, law firm Slater Vecchio LLP announced the proposed lawsuit, claiming that Adastra Holdings Ltd. was liable for “secondary market misrepresentation” under the B.C. Securities Act because of their Feb. 22 press release.
The proposed lawsuit, based on allegations that have not been proven in court, is being brought on behalf of anyone who purchased stock in Adastra Holdings between Feb. 22 and March 3.
Someone who bought stock as it peaked following the widespread news of the licence would have lost money as it dropped in price over the next few days.
Adastra issued a press release on Feb. 22, announcing it had been granted a license by Health Canada to produce up to 250 grams of cocaine, and to import coca leaves.
The press release did not indicate that these types of licenses are only granted to labs to produce and sell cocaine for sale to a limited number of customers – the drug can only be sold to other labs doing research, or to medical facilities using it as a topical anaesthetic in a handful of surgical procedures.
It did include a quote from Adastra CEO Michael Forbes discussing recent harm reduction measures in B.C. which decriminalize the possession – but not the sale – of small amounts of hard drugs such as cocaine, heroin, and fentanyl.
“We proactively pursued the amendment to our Dealer’s Licence to include cocaine back in December 2022. We will evaluate how the commercialization of this substance fits in with our business model at Adastra in an effort to position ourselves to support the demand for a safe supply of cocaine.”
However, there is no legislation allowing for the sale of cocaine for safe supply in B.C. or elsewhere in Canada. Sale to the general public remains illegal.
Before the press release was issued, Adastra’s stock was trading on the Canadian Securities Exchange at between 39 and 25 cents a share.
On Feb. 21, the day before the press release is dated, it rose to 89 cents a share.
On March 3, before the retraction, it briefly spiked to $1.33, before plunging back to under 50 cents two days later. Adastra stock as of this week was trading for about 71 cents a share.
When the first news stories about Adastra’s press release were published on March 1 and 2 – most of them simply reporting what the press release said – it ignited a political firestorm.
On March 2, both Prime Minister Justin Trudeau and B.C. Premier David Eby were asked about Adastra’s cocaine production license at press conferences, while in Question Period in the B.C. Legislature, Solicitor General Mike Farnworth was grilled about it by BC Liberal leader Kevin Falcon as well as other MLAs.
All the political leaders affirmed that cocaine remained illegal to sell to the general public.
Also on March 2, the Langley Advance Times confirmed that information.
On March 3, Health Canada issued a strongly-worded press release, and Adastra issued a correction and retraction.
“The Dealer’s Licence issued to Adastra Labs does not permit Adastra Labs to sell coca leaf, psilocybin or cocaine to the general public,” Adastra’s new statement said.
Andrea Ross, a senior strategist with the BC Securities Commission, said it is BCSC policy not to comment on whether they are investigating or planning to take regulatory actions against companies because it can harm shareholders before there has been a determination of wrongdoing.
“Public companies are required to provide timely, accurate disclosure of material information about their businesses so investors can make informed decisions,” Ross said in a statement. “It is illegal to misstate material information, including by omission. If the BCSC has reason to believe an issuer’s disclosure is misleading or inaccurate, the BCSC could seek more information from the issuer to decide whether the issuer needs to file amended disclosure. Other steps could include issuing a cease trade order, a temporary order or a notice of hearing (an allegation that a person or entity violated the Securities Act).”
The Langley Advance Times has reached out to Adastra Holdings for comment.
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