A Canada-based marijuana company, Adastra Holdings, is now facing a proposed class action lawsuit from a shareholder who alleges that the company made misleading statements about its ability to legally sell cocaine. The notice of civil claim, filed on March 9 in the Supreme Court of British Columbia, also names Adastra CEO Michael Forbes as a defendant. Forbes has not yet provided a comment on the matter.
Adastra’s Defense: Denying the Allegations
Adastra Holdings, formerly known as Phyto Extractions and based in Langley, British Columbia, denies the allegations made in the claim. On February 22, the company announced that it had received an amendment to its Controlled Drug and Substances Dealer’s License to legally possess, produce, sell, and distribute cocaine. However, as MJBizDaily previously reported, the amended license did not allow Adastra to sell cocaine to the general public.
Analyzing Adastra’s Statements
Though Adastra’s February news release did not explicitly state that the company planned to sell cocaine to the public, CEO Forbes mentioned that Adastra would “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.” This statement has led to confusion and the current lawsuit.
Recent Decriminalization in British Columbia
British Columbia has recently decriminalized the possession of certain illegal drugs, including cocaine, as part of a pilot project with authorization from Canada’s federal government. This decriminalization has contributed to the confusion surrounding Adastra’s announcements and its implications for the public.
Inconsistencies in License Disclosures
When comparing Adastra’s previous material-change report about receiving its dealer’s license to possess and process psilocybin and psilocin, similar language does not appear in Adastra’s disclosure about the license amendment for cocaine or in the company’s February news release. This discrepancy has raised questions about the company’s intentions and the validity of the shareholder’s allegations.
Stock Price Surge and Political Repercussions
Following Adastra’s cocaine announcement, the company’s share price experienced a significant spike, and the issue even briefly became political news in Canada. Both B.C. Premier David Eby and Canadian Prime Minister Justin Trudeau expressed their astonishment and surprise at Adastra’s announcement.
Adastra Retracts the News Release
On March 3, Adastra formally retracted its February news release, clarifying that it could not sell cocaine to the public and was only permitted to sell to other licensed dealers who have cocaine listed on their license, such as pharmacists or hospitals. At this time, Adastra’s stock (XTRX) was trading on the Canadian Securities Exchange (CSE) at 1.38 Canadian dollars ($1) per share, according to the court filing.
Share Price Plunge and Plaintiff’s Purchase
When the CSE reopened on Monday, March 6, the price of Adastra shares fell significantly. Plaintiff Trevor Silverwood bought 220 Adastra shares on March 3 at CA$1.45 per share. The court filing states that the action seeks to hold
