In Reasons released on
By way of background, the defendants in the proposed class action are a Canadian company involved in the cultivation, manufacturing and marketing of cannabis and cannabis-derived products for both the medical and recreational markets and members of its management. In the proposed class action, the plaintiff alleges that :
"[D]uring the class period, Cronos and other public cannabis issuers were under pressure to show increasing revenues and sustainable growth. Faced with that pressure, Cronos allegedly "orchestrated a scheme to inflate its reported revenue figures" by entering "into simultaneous transactions with third parties to both sell to them cannabis dry flower and to purchase back cannabis resign and tinctures, transactions that were concluded in contemplation of one another." The claim alleges that Cronos then improperly "booked these sales as revenue" rather than "properly accounting for these transactions at the carrying value of inventory transferred by Cronos"
It was alleged that these misrepresentations affected the share price and that, when the misrepresentations were corrected in a
On the initial motion,
The Court of Appeal fundamentally disagreed with
"...the claim alleges one central misrepresentation, namely that Cronos misrepresented its revenues for 2019 Q1 and Q3 by treating transactions involving the exchange of cannabis products with a third party as generating revenue .... Cronos ultimately corrected those documents and line items. The issue of whether this core misrepresentation should be broken down and treated as several misrepresentations for the purpose of calculating damages is to be decided at trial and not at this early stage of the proceedings."
In deciding that leave to proceed should be granted,
In this case, it was found that the court below made a palpable and overriding error in characterizing the action as involving 7,449 misrepresentations rather than "...a core allegation that Cronos and the other defendants misrepresented their revenues by characterizing the exchange transactions as generating revenue." The Court of Appeal found that the motions judge's analysis in the court below tipped "into the realm of a mini-trial" and, finding that "the evidence in support of the claim is well beyond de minimus," it overturned the decision below and granted leave for the plaintiff to proceed.
The issue of certification of the action as a class action was not decided but, rather, remitted back to the
This case is just the latest example of how the courts continue to wrestle with the application of the leave test under Part XXIII.1 of the Securities Act. Seven years after the "more than a speed bump but not a mini-trial" directive of the
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Mr
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