Cannabis Securities Litigation: Alleged Failure to Disclose Material Information Leads to Federal Lawsuit
Keeping up with the multitude of (shifting) state and municipal cannabis regulations is a daunting task for any multi-state cannabis operator. One well-known tool for doing so has been CannaRegs, which offers a web-based subscription service to aggregate and organize cannabis rules, regulations, and legislation. In January 2020, CannaRegs was acquired by Fyllo, “a digital marketing company focused on the cannabis industry,” for approximately $10 million in cash and stock. Recently, a stock transaction that preceded the Fyllo deal has become the subject of a lawsuit filed in the Southern District of New York (Firstenberger et al. v. Regs Technology, Inc. et al., S.D.N.Y. No. 1:20-cv-07169-JGK).
The lawsuit centers around whether CannaRegs and its CEO had a duty to disclose the Fyllo deal to minority shareholders in connection with the sale of their interests to two other entities, Phyto and Panther. According to the Complaint, Plaintiffs are former CannaRegs executives who left the company in 2018 but retained shares representing about 11% of the company. Sometime in 2019, the CEO of Cannaregs approached the Plaintiffs to propose the sale of their stock to Phyto and Panther and, also allegedly, approached Phyto and Panther and proposed they purchase of Plaintiffs’