The Ontario Superior Court of Justice has granted leave for a securities class action to proceed against cannabis giant Canopy Growth Corporation and two of its former executives1. In a decision released on December 22, 2025, Justice E.M. Morgan certified the action on behalf of investors who purchased Canopy shares between June 1, 2021, and June 22, 2023. The lawsuit centers on allegations that the company made material misrepresentations regarding the financial performance of its sports nutrition subsidiary, BioSteel Sports Nutrition Inc., and failed to maintain adequate internal financial controls. The ruling allows the representative plaintiff, Craig Dziedziejko, to pursue claims under the Ontario Securities Act as well as a claim for oppression under the Canada Business Corporations Act.
The roots of the legal battle trace back to October 2019, when Canopy acquired a controlling interest in BioSteel. At the time, Canopy promoted the acquisition to investors as a strategic entry into a product line with predictable revenue growth, which stood in contrast to the volatility of its primary cannabis business. Under the purchase agreement, the price paid to BioSteel’s selling shareholders was subject to adjustment based on a multiplier of the subsidiary’s 2019 net revenue. This structure created a financial incentive for BioSteel’s previous owners and management to report the highest possible revenue figures. While Canopy initially disclosed BioSteel’s 2019 net revenue as $14.54 million, a dispute arose with minority shareholders who claimed the true figure was significantly higher.
By April 2020, this dispute had evolved into litigation, with BioSteel’s minority shareholders suing Canopy. In its defense against that suit, Canopy explicitly argued that BioSteel had artificially inflated its revenue. Canopy’s legal filings at the time stated that the disputed sales were unsupported by written contracts, had no likelihood of collection, and lacked strong evidence that control of the product had actually been transferred. Despite making these assertions in private litigation, Canopy continued to report BioSteel’s financial results to the public without disclosing these known accounting irregularities during the subsequent class period.
The situation came to a head for public investors in May 2023. On May 10, Canopy issued a series of corrective disclosures revealing that it had identified material misstatements in its financial statements for the 2022 fiscal year and the first three quarters of the 2023 fiscal year. The company announced that these prior financial statements should no longer be relied upon and that the audit report provided by KPMG for 2022 was also compromised. Canopy further admitted that it expected to report material weaknesses in its internal control over financial reporting. The market reaction was swift and negative. The day following the announcement, Canopy’s share price dropped by 14 percent on the Toronto Stock Exchange and 15 percent on the NASDAQ, accompanied by unusually high trading volumes.
A second wave of bad news followed on June 22, 2023, when Canopy released its annual report for the 2023 fiscal year. The report confirmed that revenue had been recognized for BioSteel sales where products had not been shipped, where products were shipped without enforceable contracts, or where products were shipped but rejected by customers due to short shelf life. These were the same types of revenue inflation tactics Canopy had identified privately years earlier. The final set of corrective disclosures revealed drastic reductions in reported figures. For example, BioSteel’s fourth-quarter revenue for 2022, originally reported as $13.479 million, was restated to just $3.475 million, a decrease of 74 percent. Similarly, the subsidiary’s full-year 2022 revenue was revised downward by $10 million. Following this second disclosure, Canopy’s stock price fell another 12 percent on the TSX.
In determining whether to grant leave for the statutory cause of action, the court had to assess whether there was a reasonable possibility that the plaintiff would succeed at trial. A significant portion of the motion hearing was dedicated to a debate between expert witnesses regarding the materiality of the misstatements. The plaintiff’s expert, Professor Ramy Elitzur, employed complex statistical methodologies, including Benford’s Law and the Beneish Manipulation Index, to argue that the financial data showed clear anomalies indicative of intentional earnings management. Benford’s Law posits that naturally occurring numbers follow a specific frequency distribution of their first and second digits. Professor Elitzur’s analysis suggested that Canopy’s financial figures deviated significantly from these natural patterns.
The defense countered with an expert report from Mr. Jake Dwhytie, who criticized Professor Elitzur’s methodology. Mr. Dwhytie argued that the sample sizes used in the analysis were too small to be statistically reliable and that the plaintiff’s expert had conflated different data sets. He produced detailed charts attempting to demonstrate that the p-values used by Professor Elitzur—a unit of measurement regarding the deviation of results—were misinterpreted. The defense argued that even if the data did not conform to Benford’s Law, that non-conformity did not necessarily prove intentional manipulation.
Justice Morgan provided a candid assessment of this “battle of the experts.” He noted that the debate was largely impenetrable and self-referential, with both experts focusing on abstract quantification rather than the qualitative reality of the case. The judge criticized the reliance on purely theoretical models to prove what was already evident from the facts. In a memorable passage of the decision, Justice Morgan compared the experts’ debate to organic chemists examining the molecular interactions of ingredients in a petri dish to opine on the taste of a Hawaiian pizza without ever actually tasting it. He concluded that the statistical analysis was unnecessary because the market itself had already provided the verdict on materiality. The immediate and significant drop in Canopy’s share price following the corrective disclosures served as objective evidence that the misstatements were material to reasonable investors.
Beyond the statutory claims for misrepresentation, the court also certified a claim for oppression under the Canada Business Corporations Act. The plaintiff alleged that Canopy and its CEO, David Klein, acted in a manner that was oppressive and unfairly prejudicial to shareholders. The core of this claim is that the company failed to rectify known deficiencies in BioSteel’s internal controls and failed to terminate or monitor executives who were inflating revenue, despite knowing about these issues as early as the 2020 BioSteel litigation. The plaintiff argued that investors had a reasonable expectation that the company would adhere to its own Code of Conduct and maintain effective corporate governance.
Canopy’s legal team argued against certifying the oppression remedy, contending that oppression claims rely on the individual, subjective expectations of each shareholder, making them unsuitable for a class action. They cited earlier case law suggesting that reasonable expectations are highly individualized. However, Justice Morgan rejected this argument, aligning with more recent jurisprudence which holds that shareholder expectations have an objective component. The court found that every shareholder can reasonably expect a public company to adhere to basic standards of market integrity and accurate disclosure. The judge noted that public pronouncements and corporate codes of conduct create objective commitments to the shareholders as a group.
The court also addressed the definition of the class itself. The certified class includes all persons, other than excluded defendants, who acquired Canopy securities in the secondary market between June 1, 2021, and June 22, 2023, and held them until the corrective disclosures were made. The defense sought to exclude all shareholders who reside outside of Canada, arguing against a “global” class action. However, the court found that since Canopy is an Ontario corporation headquartered in the province, and its principal regulator is the Ontario Securities Commission, Ontario courts have jurisdiction. Justice Morgan ruled that non-resident shareholders who purchased shares on the TSX or other non-U.S. exchanges could reasonably expect a Canadian court to determine their rights. Investors who purchased shares on U.S. exchanges were excluded, as they are covered by parallel litigation in the United States.
The decision also touched upon the defense’s reliance on a dismissal of a similar class action in the United States. The U.S. District Court for the Southern District of New York had previously dismissed claims by American shareholders on the grounds that they failed to prove “scienter,” or an intent to deceive. Justice Morgan clarified that this U.S. legal standard does not apply in Canadian securities litigation. In Ontario, a plaintiff does not need to prove that a defendant intended to deceive or manipulate the market to establish liability for secondary market misrepresentation. Consequently, the outcome of the U.S. proceedings had no bearing on the viability of the Canadian action.
The court ultimately concluded that the plaintiff had met the low threshold required for leave to proceed under the Securities Act and satisfied the criteria for certification under the Class Proceedings Act. The judge found that the proposed common issues, which include determining whether the documents contained misrepresentations and whether the defendants are liable for damages, were appropriate for a class proceeding. The certification order appoints Craig Dziedziejko as the representative plaintiff and his lawyers as class counsel. The action will now move forward to the next stages of litigation, including discovery and eventual trial, unless a settlement is reached. The parties have been invited to make written submissions regarding the costs of the motion.
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