Auxly Cannabis Group Inc., Investors allowed to proceed into discovery

(June 16, 2021) The Ontario Superior Court of Justice has granted investors’ motion to allow them to proceed into discovery finding that there is a reasonable possibility that Auxly (“XLY”) released its 3Q 2018 MD&A with misrepresentations about its relationship with FSD Pharma Inc., (“HUGE”) and the status of the cannabis production facility it was developing with FSD Pharma. The court’s decision can be found at Gowanlock v. Auxly Cannabis Group Inc., 2021 ONSC 4205, with the important paragraphs being:

The court, on the other hand, comes to the event in retrospect, after the market impact (or lack thereof) has taken place. In the circumstances, the task at hand is to determine whether the alleged public correction was understood in the market as a correction. At this point, the market impact can be objectively determined by an examination of the stock’s subsequent price movements, and the market, reflecting economically rational investor behaviour, becomes the determinant of what the reasonable investor might think…

I say this with respect, but the [Auxly’s expert] report suffers from what I would characterize as too much science and not enough art. In fact, it is reminiscent of computer-generated legal research results in which the researcher has collated and calculated the statistical occurrences of key words and phrases in a database of case law, but has not actually read the cases themselves: see Peoples, Lee F., “The Death of the Digest and the Pitfalls of Electronic Research: What is the Modern Legal Researcher to Do?”, (2005) 97 Law Library Journal 661. The collation of data, while undoubtedly helpful, does not always on its own tell the most accurate story.

The decision will protect investors that purchased Auxly’s securities between November 12, 2018 and February 7, 2019.

Investors are represented by Andrew Morganti, Albert Pelletier, and Charlotte Harman.