From employee grievances to claims of defrauding investors, class action lawsuits against cannabis firms are yet another warning sign of the turbulence of the emerging cannabis industry.
While class action lawsuits occur in every industry, the circumstances which can lead to these costly legal disputes are abundant in the emerging cannabis industry.
Notably, leading west-coast cannabis firm MedMen is being accused by former employees in a suit that is seeking certification as a class-action on behalf of all current and former MedMen workers. The accusations include a failure to pay overtime, to provide proper breaks, or to log work hours properly. If the class-action is certified, MedMen could be facing a multi-million dollar liability.
The MedMen suit is notable because although the accusations amount to violations which could happen in any industry, the potential for such violations is elevated in cannabis because of the slow onset of industrial norms and best practices as the industry evolves from an informal criminal enterprise to another theater of business-as-usual. That MedMen, a polished industry leader, is dealing with these sorts of problems is a discouraging indicator of the current state of the cannabis industry in general.
Another discouraging indicator can be seen in a suit being brought against Aphria on behalf of its investors. Aphria has been under fire of late for a series of reports alleging fraudulent behavior, and now is being sued for failing to disclose certain assets lacked adequate licensure, were overvalued, and that their acquisitions would enrich Aphra insiders.
This sort of alleged misconduct can occur in any industry, but the cannabis industry is particularly vulnerable to this kind of misconduct because of a combination of:
- investor zeal leading to a lack of due diligence;
- the newness of the industry making due diligence difficult because of a lack of corporate histories for establishing reputations;
- and the fact that cannabis has been a criminal market for so long that many criminally-inclined people are attracted to the emerging legal cannabis industry without much concern for following the rules. Informal arrangements plague the industry as a relic from the past, leaving businesses wide open to a plethora of uphill legal battles.
Taken in combination, both of these recent class-action suits should serve as a warning to investors that the cannabis space will likely be particularly vulnerable to such threats until a stable legal market emerges globally which offers no special appeal to criminal crossovers and in which robust norms and best practices emerge across the industry.