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An Ontario court has denied leave for a potential securities class action against a cannabis company, Cronos Group Inc., finding that the company’s stock price was more likely affected by the market-wide disruption caused by the onset of the Covid-19 pandemic rather than alleged misstatements in the company’s financial disclosure.

The Ontario Superior Court of Justice denied a motion from a retail investor who sought to bring a shareholder class action against Cronos Group and various officers and directors of the company, alleging that investors suffered losses due to numerous misrepresentations in the company’s public disclosure.

The allegations stemmed from financial reporting issued by the company, starting in 2019, that was ultimately amended and restated to address accounting errors, including changes in revenue recognition practices.

According to the decision, the plaintiff alleged there were over 570 individual misrepresentations in Cronos’ 2019 quarterly financials and management discussion and analysis, which were ultimately corrected in restated financials in March 2020.

The plaintiffs argued that the numerous accounting issues amounted to a material misrepresentation.

However, the court found it wasn’t clear that the accounting errors were material to the company’s stock price.

“The possibility exists that there were misrepresentations in the form of inaccuracies in financial statements, but that they had negligible market impact and so were not material in the [securities law] sense of the term,” the court said in its ruling.

Moreover, the court found that the bigger factor affecting the company’s stock price when it publicly corrected its accounting issues was the pandemic-driven market turmoil.

Citing a report from Morningstar at the time, the court said, “The market decline in late March 2020 that is pointed to by the plaintiff and his economics expert is, according to this evidence, more reflective of the materiality of the pandemic than of anything that Cronos did or did not announce to the public.”

The court also said that the company’s accounting issues were “relatively obscure, with market analysts generally perceiving them as insignificant in both the long and the short term.”

And it noted that a report issued by Raymond James Ltd. at the time regarded the accounting restatement “as a positive rather than a negative reflection on the company.”

Ultimately, the court found that, while the company may have had accounting issues, those issues didn’t appear to impact its stock price, noting “materiality is in the eye of the investors, not the accountants.”

The court said the evidence of materiality “is weak and tends to confuse market-wide movements in share prices, especially those coinciding with the March 2020 onset of the Covid-19 pandemic, with company-specific movements.”

The court denied leave to pursue the case as a securities class action and denied a motion for certification as a class action on other grounds too, citing the lack of evidence of market impact.