It has been a tough stretch for Portland-based Cura Partners, Inc. (“Cura”) and its parent company, Massachusetts-based Curaleaf Holdings, Inc. (“Curaleaf.”)
Cura produces the popular Select brand of THC vaping products and was declared Oregon’s first “cannabis unicorn.” In May of 2019, Cura announced its sale to Curaleaf for more than $1 billion in an all-stock transaction. Around the same time, Curaleaf announced it would pay some $875 million, mostly in stock, to acquire a Chicago based cannabis company, Grassroots. These deals made Curaleaf one the world’s largest marijuana companies. Sounds good right?
It didn’t last long. One year ago today, Curaleaf was hit with an FDA warning letter for “illegally selling” CBD products and making health claims about those products. That was followed by a class action securities lawsuit alleging that Curaleaf made knowingly false statements to the investing public. Shortly after, Curaleaf was fined $250,000 by the State of Massachusetts for failing to disclose change of ownership to state regulators. You can find our comprehensive analysis on that brutal stretch here.
Things don’t seem to have improved much for the Curaleaf family of companies in 2020. In January, Cura paid a record $110,000 fine for mislabeling products in Oregon, and found itself defending a class-action lawsuit alleging it mislabeled cannabis products. In February, the vaunted $1 billion Curaleaf deal finally closed, but for a cash payment of $285 million for 55 million shares, and other incentive bonuses. By March, Curaleaf’s shares had dropped to $2.75/per, down from $6.31/per to start off the year.
Although the share price has since recovered to match last July’s peak, last week another large lawsuit was filed against Cura, Curaleaf’s newly minted acquisition. This one is $10 million class action, styled as Blackford v. Cura CS, LLC, No. 20CV25203. The lawsuit was filed on the same day that Curaleaf announced the closure of its deal with Grassroots for approximately $830 million. (Email me if you’d like a copy of the complaint.)
The gravamen of the complaint is the allegation that the Select Elite brand of THC vape products “do not contain anywhere near the quantities of THC advertised.” According to the plaintiff, independent lab testing reveals that the Select Elite products contained only 55% THC despite promising (on labels and other advertising) that they would contain 76.9% THC. Industry watchers know that mislabeling is a common problem in the cannabis industry, but 76.9% to 55% is quite a spread.
Plaintiff seeks relief individually, and as a class action on behalf of similarly situated purchasers of Cura’s products, for: (i) breach of express warranty; (ii) breach of the implied warranty of merchantability; (iii) unjust enrichment; (iv) fraud; and (v) violation of Oregon’s Unlawful Trade Practices Act (“UTPA”), ORS 646.605, et seq. These are the usual claims in any class action; notably, the trade practices claim permits an award of attorneys’ fees as well as statutory damages. (See here).
Plaintiff seeks to certify a class comprised of all persons who purchased Select Elite THC Products in Oregon. But this lawsuit may be just the beginning, as Cura sells its Select Elite products in more than 900 dispensaries, including in California. I would expect enterprising plaintiff’s attorneys to look into similar actions in other states where Select Elite products are sold.
Over the years, we have seen similar class action lawsuits concerning CBD products to the lawsuit filed last week against Cura. It is no surprise that these lawsuits target the largest players in the hemp and marijuana industries. (See here). But class action lawsuits are not confined to multi-state operators, particularly in states where unfair trade practices law allows a plaintiff to seek her attorneys’ fees. Anyone involved in the manufacture or sale of THC products is a potential defendant and at risk of not just civil lawsuits, but action by state regulators.
For past blog coverage on Curaleaf, check out the following: