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UK Cannabis Cultivator Caught Up In $7M New York Court Wrangle

CLAIMS a Canadian cannabis producer misled investors over its purchase of a UK horticultural farm have been dismissed by a New York court.

While raising C$70m to fund the acquisition of Lincolnshire firm Bridge Farm Sundial executives Edward Hellard, and Torsten Kuenzlen told potential investors the acquisition target possessed ‘hemp licenses allowing for cultivation, processing, and export of finished product from the UK’.

And continued ‘this would allow it to be the first-mover in mass-scale, global hemp-derived CBD products’.

This was in early 2019, however, later that year on a site visit it emerged that  Bridge Farm was growing hemp in a ‘limited capacity under an industrial hemp licence’ which ‘did not allow the hemp to be sold or the flowers of the plants to be extracted for CBD’ (as per UK rules), the court heard.

‘Breach Of Contract & Fraud’

In May 2020, E-Squared Investment Fund, LLC and four other investors lodged a $7m claim for damages against Sundial alleging a violation of the 1934 Securities Exchange Act. 

This asserted claims of ‘breach of contract, fraud in the inducement, and negligent misrepresentation’.

However, in a judgement dated September 30, this year, the US District Court Southern District Of New York found the plaintiffs had not ‘adequately demonstrated circumstantial evidence of conscious misbehaviour or recklessness’.

The court also found the forward-looking statements by the defendants are protected by the 1995 Private Securities Litigation Reform Act’s ‘safe harbor’ provision.

The court said: “The safe harbor provision . . . requires dismissal if the plaintiffs do not prove that the forward-looking statement . . . was . . . made . . . with actual knowledge . . . that the statement was false or misleading.”

Sundial Faced Bankruptcy

Alberta-based Sundial had said it expected Bridge Farm to generate C$256m (£150m) in revenue and C$115m of EBITDA in 2020. 

During its fourth-quarter NASDAQ earnings call for 2019, it reported that its net loss for that quarter was C$145.1m which was ‘primarily due to the impact of a non-cash impairment charge of $100.3m related to the goodwill recorded upon the acquisition of Bridge Farm’.

On March 30, 2020, the company announced that it planned to sell Bridge Farm to help it avoid ‘bankruptcy’, as earlier reported by BusinessCann.

Bridge Farm Reunited With Founding Family

Spalding-based Bridge Farm is one of the UK’s leading producers of plants, flowers and herbs, with two million sq ft of covered growing facilities. Its customers include Tescos, Sainsbury, Morrisons and Asda.

Bridge Farm was launched by Tony and Jayne Ball in 1988 and at the time of the last year’s sale to Sundial Growers it was run by their son David.

Bridge Farm, Spalding

Following the sale to Sundial, Mr Ball Jnr, who had led Bridge Farm since 2010 joined cannabis investors Artemis Growth Partners as operating partner and senior advisor.

In May, last year Artemis purchased Sundial for £67m. Bridge Farm is currently progressing with its cannabis plans and holds UK licences for the cultivation of low-THC cannabis and an R&D licence for high-THC cannabis.

BusinessCann approached it for a comment and has yet to receive a reply.

Meme Stock Favourite

In early 2020 Sundial announced Executive Chairman Mr Hellard and Chief Executive Mr Kuenzlen would be leaving the business.

By the end of April 2020, the company’s stock had fallen to $0.50 per share, more than 95% below its $13 original NASDAQ list price from August 2019.

Its stock currently trades at $0.64 despite being boosted by the Robin Hood meme stock frenzy in the spring of this year which saw its rally to almost $3.

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