A British Columbia (B.C.) court dismissed a lawsuit from owners of licensed cannabis retail shops. Last year, this group of cannabis retailers sued the province for not enforcing cannabis regulations.

While licensed cannabis retailers jump through bureaucratic hoops and pay excessive taxes on the faulty premise that this contributes to “public health and safety,” the B.C. Bud market of “illicit” retailers doesn’t face these same hurdles.

Particularly on Indigenous Reserves, where the plaintiffs claim damages of at least $40 million in lost revenue.

Justice Basran considered whether the province owed the plaintiffs a private law duty of care in this context. The plaintiffs claimed the province committed torts of negligence and negligent misrepresentation.

But what does this mean? And was Justice Basran’s dismissal of the lawsuit justified? 

Details of the Plaintiff’s (Cannabis Retail) Argument

While the cannabis retailers suing the province wished to remain anonymous, CLN uncovered who they were. Their position is understandable. The government sold them a bill of goods.

When Canada legalized cannabis, the province of B.C. effectively said, “play by the rules and you’ll profit.” The reality has been anything but.

Obviously, licensed cannabis retailers are at a competitive disadvantage vis-a-vis the unlicensed cannabis shops. 

So why did Justice Basran dismiss the lawsuit? 

First, let’s look at what the plaintiffs claimed in their suit. What do “torts of negligence” and “negligent misrepresentation” refer to in this context?

Tort Law

Negligence is a fundamental concept in tort law. It means a failure to exercise a degree of care reasonable people would exercise in similar circumstances.

To establish a claim of negligence, the plaintiff (in this case, a group of licensed cannabis retailers) needed to prove the following:

• That the province of B.C. owed a duty of care to the licensed cannabis retailers. 
• That the province breached that duty by failing to meet the standard of care expected under the circumstances (i.e. The province’s cannabis enforcement authority should have been raiding unlicensed shops more than they were)
• That the province’s breach of duty directly caused harm or damages (i.e. Causation) to the licensed cannabis retailers
• And that these actual harms (or losses) result from the province’s breach of duty.

The plaintiffs alleged that B.C. failed to enforce cannabis regulations (specifically, the Cannabis Control and Licensing Act) on Indigenous Reserves. They claimed this negligence resulted in damages of at least $40 million.

Negligent misrepresentation is a specific type of negligence claim that arises when one party provides false or misleading information to another party, and the party receiving the information relies on it (to their detriment).

To establish negligent misrepresentation, the licensed cannabis retailers had to prove the following:

• That the province made a false statement, whether intentionally or not
• That the plaintiffs relied on this false statement
• The plaintiffs suffered financial (or other) losses from relying on this false statement.

In this case, the plaintiffs said that B.C. promised them a viable, legal, above-the-board retail cannabis industry. One way of ensuring this would be to take enforcement action against unlicensed retailers, whether on Indigenous Reserves or not.

Did the B.C. Government Owe a Duty of Care to the Cannabis Retailers?

Justice Basran considered whether the province owed the plaintiffs a private law duty of care. The B.C. government argued that it did not owe such a duty because the parties had no direct relationship.

But what does this mean?

In tort law, a “duty of care” is a legal obligation imposed on an individual (or group, entity, etc.) to exercise reasonable care and caution to prevent harm to others affected by their actions and omissions.

Of course, not all actions or omissions give rise to a duty of care. That’s where proximity comes in, which refers to the direct relationship between the parties. In this case, whether a direct connection between the province’s cannabis regulators and the cannabis retailers justifies imposing a legal duty.

Justice Basran had to determine whether the province of B.C. owed a “private law duty of care” to the cannabis retailers. Of course, B.C. argued that it did not. They argued that their duty was the “public interest,” not the economic interests of specific businesses.

Justice Basran agreed that no duty of care existed due to lack of proximity. 

How Did the Court Come to this Decision?

Justice Basran dismissed the B.C. cannabis retail lawsuit based on the “plain and obvious” legal standard used when deciding to strike pleadings. 

The court considered the Anns/Cooper test to determine whether a duty of care existed. This involves two stages. First, whether the harm alleged was reasonably foreseeable. And second, whether there is a close relationship between the parties (proximity).

Justice Basran found no prima facie duty of care between the province and the licensed cannabis retailers. The court argued that B.C.’s cannabis regulations do not establish a legislative intention to create such a duty.

The court also ruled that the claims made by the province (i.e. Get licensed and profit) did not create a sufficient relationship to impose a duty of care.

Suppose the court had recognized that such a duty exists. Justice Basran was concerned such a decision could result in more of these types of lawsuits where the province (and its regulators) are held liable for the economic losses of numerous businesses due to their incompetence.

Justice Basran weighed the potential negative consequences of such a decision and decided it wouldn’t be in the best interests of the legal system, taxpayers, or society as a whole to impose such a duty.

B.C. Court Dismisses Cannabis Retail Lawsuit

A B.C. court has dismissed the cannabis retail lawsuit. The decisions sound as if what’s convenient for the government overrules what’s just and fair.

Was Justice Basran’s dismissal of the lawsuit justified? Judges are, after all, only human. And there is an appeals court. So, there may be more to the case in the future.

In the meantime, to argue that judges in Canada have far too much power, that they are, in effect, legislating from the margins is considered a “far-right” viewpoint. 

But there is nothing “far-right” or even “far-left” about upholding the values that underpin our rule of law. 

Suppose governments can evade the consequences of their actions because of the potential cost to taxpayers or the legal system. In that case, there is no rule of law.

It’s rule by fiat masquerading as a rule of law.

A recently published retrospective study suggests medical cannabis reduces neuropathic pain without serious side effects.

Algea Care, Europe’s leading telemedicine platform for medical cannabis, conducted the study in cooperation with the University Medical Center Hamburg-Eppendorf.

Published in the journal Medical Cannabis and Cannabinoids, CLN sat down for a chat with the CEO of Algea Care, Dr. Julian Wichmann, who was also instrumental in the study’s design.

 “While the study looked at it retrospectively,” says Dr. Wichmann, “Does [medical cannabis] work and the answer is, yes, it works.”

Details of the Medical Cannabis Reduces Neuropathic Pain Study

How did this study discover that medical cannabis can reduce neuropathic pain? One way was having patients report their “pain score.” At the start of the treatment, 96% said a pain score of 6 out of 10, with 10 being the most pain.

However, within six weeks of beginning medical cannabis, the reported reduction in pain score was significant. The average pain score went from 7.5 to 3.75.

Follow-up consultations with their doctor found that 90% of the patients reported reduced neuropathic pain. Over six months, 99% would eventually report improvement in their general condition.

No patient reported severe adverse effects. Patients reported dry mouth (5.4%), tiredness (4.8%), and increased appetite (2.7%).

“I think the observation data in the study that we published is crucial,” says Dr. Wichmann. “Because it shows cannabis is extremely safe and comes without any severe side effects.” Adding that the side effect of tiredness is something patients with neuropathic pain welcome. 

Dr. Wichmann says sleep disorders are typical in patients suffering from pain.

So when you see these patients as a doctor, you don’t only treat them for pain; you have to treat them for a sleeping disorder, and you know traditional medicine often means at least two separate medications. Something against the pain or maybe multiple medications, but also something to help them sleep. What we saw here was that the single medication, cannabis, works well to help with both neuropathic pain but also sleeping disorders.

What About Stigma?

Like in Canada or the U.S., German doctors are hesitant about prescribing medical cannabis, whether for neuropathic pain or sleep.

“The reality of it is that probably only two percent of doctors have ever treated a patient with cannabis.”

Dr. Wichmann says stigma is what prevents many doctors from acting. However, he expects studies like this (and future ones) will turn the tide. As well as broader legalization efforts.

Still, having pharmacies dispense medical cannabis is a novel concept.

“I think there’s a stigma, but we see a lot of improvement there and therefore also see a lot of referrals of cannabis treatment,” says Dr. Wichmann.

The European Union and international obligations have curtailed Germany’s legalization efforts. Instead of broad commercial legalization, like Canada’s, the Germans will take a more low-key approach, emphasizing community gardens and non-profit cannabis clubs. 

Canada had developed a similar medical cannabis system, often called “compassion clubs.” But this wasn’t a state-approved program. Since legalization, authorities have been attempting to eradicate these grassroots efforts in favour of large corporate cannabis conglomerates.

Dr. Wichmann answered negatively when asked about illicit markets in Germany and whether medical patients have to find relief there. 

German (and European) health care compared to North American health care couldn’t be further apart. “We’re in an interesting situation,” says Dr. Wichmann, “where out-of-pocket cannabis from the pharmacy is already cheaper than the illicit market.”

While medical cannabis stigma exists in Germany and Europe, it’s nothing like in parts of North America, where neuropathic pain is treated with conventional medicines.

“I think that’s typical for the German health care system understanding if there’s any reason for you to take cannabis to treat even, you know, mild to moderate sleeping disorder, medical will be safe.”

What About Psychosis?

Health authorities in North America would rather discuss cannabis-induced psychosis than medical cannabis benefits like reducing neuropathic pain. 

But as Dr. Wichmann points out, 

There’s data showing that the number one risk for developing cannabis-induced psychosis is you have a history of psychosis, maybe even your family history, and dosage, of course, makes a big impact.. if you control for these and that’s what you can do in a medical environment, not only is it an extremely safe medication, we’re seeing that it has fewer side effects than traditional medication.

So long as your medical cannabis:

1. Comes from a pharmacy, so there’s a guarantee of quality control.
2. You’re communicating with your doctor (“Even if it’s just a video called every four to six weeks,” says Dr. Wichmann)
3. It is medicinal. You’re not self-diagnosing your condition but seeing a medical doctor who can control for things like susceptibility to psychosis or cardiovascular issues that cannabis may complicate.

Of course, the study suggesting medical cannabis reduces neuropathic pain is only the beginning. As cannabis is normalized, Dr. Wichmann expects future research opportunities. 

“Millions would benefit from cannabis to treat their symptoms,” he says. And thanks to changing German laws, it’ll be easier for doctors to prescribe it medicinally. 

“Tilray is too dangerous,” said CNBC’s “Mad Money” host Jim Cramer. “It is a spec stock that is losing money, and we don’t recommend stocks that are losing money.”

Cramer isn’t the only one shying away from the Canadian cannabis producer. Kerrisdale Capital called the company a “failing cannabis player” in a recent report.

We are short shares of Tilray Brands, a $2.4bn failing Canadian cannabis player running a familiar playbook for unsuccessful businesses trading in the public markets: given structurally unprofitable operations, the company has resorted to ongoing, shameless and massive dilution to stay alive, even as management compensates itself generously while operating metrics further deteriorate.

But is this true? Is Tilray a failing cannabis player? Is Tilray too dangerous for investors?

CNBC is not a Reputable News Organization

Of course, CNBC is not a reputable news organization. It’s corporate press, the entertainment division of the military-industrial complex.

Likewise, Jim Cramer has been wrong so many times that it’s surprising people still take him seriously.

But Kerrisdale Capital doesn’t share Cramer’s reputation. Following their report, Tilray’s shares dropped 12% to around $2.75 per share.

Of course, it’s not all Kerrisdale’s fault. The other week, Tilray requested shareholders approve raising common stock shares from 980 million to 1.208 billion.

Tilray argues that the dilution is necessary to remain flexible in response to market uncertainty. But, as indicated by declining stock prices, shareholders weren’t happy.

But is Tilray too dangerous for investors?

Among Canadian cannabis producers, Tilray stands out as the dominant player, having succeeded where others have failed. Its global presence in pharmaceuticals and craft beer industries bodes well for future cannabis distribution.

But if Tilray is diluting its share to mask its fiscal health, is the company too dangerous to invest in?

Is Tilray Too Dangerous?

Kerrisdale Capital’s report isn’t a single-page newsletter. It’s a comprehensive takedown of Tilray’s fiscal and operational health. But is it accurate? Is Tilray too dangerous for investors?

“Tilray has a dilution problem,” the report reads. It refers to Tilray’s cash payments to a partner named Double Diamond Holdings. These are “recurring cash obligations” that Tilray has been increasingly using its stock for payment.

This means Tilray is giving away ownership to fulfill its financial obligations.

Likewise, the report highlights that these payments have grown from $24 million in cash to $100 million in shares. The report suggests Tilray is undervaluing its stock when making these payments to Double Diamond Holdings.

The report also criticizes Tilray for not being transparent about these payments during their quarterly calls.

Kerrisdale Capital calls the adjusted EBITDA (Earnings Before Interest, Taxes, Depreciation, and Amortization) and free cash flow figures provided by Tilray “materially misleading.”

They criticize how these stock payments are missing from Tilray’s definition of free cash flow. The report says if you strip away “accounting gimmicks” and “other one-time benefits,” Tilray’s underlying financial performance is not improving but steadily (and significantly) deteriorating.

What About Craft Beer & USA Legalization?

Kerrisdale Capital’s report is critical of how rescheduling cannabis in the United States might benefit Tilray. It’s less of a question of “Is Tilray too dangerous,” and more of “Is this relevant to Tilray’s success?”

Or even detrimental to it? 

The report suggests rescheduling cannabis to Schedule III will benefit pharmaceutical companies looking to patent cannabis-based FDA-approved drugs. There are also tax benefits for state-level operators.

But since Tilray doesn’t have significant U.S. cannabis operations, what benefit is there? Consider that rescheduling favors U.S.-based companies. It’s a net negative for a Canadian cannabis company like Tilray as it empowers its competitors with no tangible benefit to themselves (like cross-border trade).

The report also criticizes Tilray’s acquisition of brands from beer giant Anheuser-Busch InBev (ABI). Kerrisdale Capital says the acquisition lacks strategic clarity, and the lack of financial details about the purchase is a huge red flag.

And it gets worse.

According to Nielsen data, the retail sales of these acquired brands have been declining. Looking at the numbers, it appears ABI was happy to sell off its lackluster brands.

Do Investors Consider Tilray Too Dangerous?

Is Tilray too dangerous? Is the company diluting its stocks to mask its financial health and maintain operations? If you’re a Tilray fan, consider taking a second look, suggests Kerrisdale Capital’s report. 

While Tilray’s rationale for acquiring ABI brands was for future distribution into the THC-infused beverage market, Kerrisdale Capital’s report questions this logic. 

They argue that the brands require significant investment, marketing and distribution. Without the support of ABI, Tilray has created more work for themselves. Exploiting the distribution opportunities is not as cut-and-dry as Tilray has made it sound.

Likewise, the report expresses concern about Tilray’s valuation, even before the news about rescheduling cannabis spiked their shares. 

The report points out that on the news of a potential rescheduling, Tilray’s shares were trading 36 times higher than their EBITDA and three times higher than their revenue. 

But ultimately, the report is concerned about near-term dilution risk related to refinancing. It mentions the payment patterns to Double Diamond. It suggests that over $40 million in stock will be paid to the supplier ahead of the $127 million in convertible notes set to mature on October 1.

Not exactly what you want to hear if you’re a Tilray shareholder. Which brings us back to our central question: Is Jim Cramer right? Did Kerrisdale Capital hit the nail on the head?

Is Tilray too dangerous?