8-K: Tilray Brands Settles Canadian Class Action Lawsuit for CAD $30 Million

Tilray Brands settles a Canadian class action lawsuit related to Aphria's past acquisitions for CAD $30 million, avoiding a trial scheduled for January 2025.

Summary

• Tilray Brands has reached a settlement in the Aphria Canadian Class Action lawsuit.
• The lawsuit, initiated in February 2019, concerned Aphria's acquisitions of Nuuvera Inc. and LATAM Holdings Inc.
• Plaintiffs alleged misrepresentation of asset values and insider benefits, seeking CAD $875 million in damages.
• The settlement involves a payment of CAD $30 million (approximately US $21 million) to dismiss the class action and four related individual lawsuits.
• Aphria will fund approximately CAD $8.5 million (approximately US $5.9 million) of the settlement, with the remainder covered by insurance and individual defendants.
• The settlement is contingent upon court approval, with a hearing scheduled for March 2025.
• The settlement does not constitute an admission of liability or wrongdoing by Aphria or the other defendants.

Sentiment

Score: 7

Explanation: The settlement is a positive development as it resolves a significant legal issue and avoids a potentially costly trial. The financial impact is manageable, with a portion covered by insurance. However, there is still a cost to Tilray and uncertainty remains until court approval.

Positives

• The settlement resolves a significant legal uncertainty for Tilray Brands.
• The settlement amount is significantly less than the original damages sought (CAD $875 million).
• A substantial portion of the settlement will be covered by insurance.
• Aphria's portion of the settlement is already accrued, minimizing the impact on future earnings.
• The settlement avoids the costs and risks associated with a trial.

Negatives

• Tilray Brands, through its subsidiary Aphria, will still need to fund approximately CAD $8.5 million (approximately US $5.9 million) of the settlement.
• The settlement requires court approval, introducing a degree of uncertainty.

Risks

• The court may not approve the settlement, potentially leading to a trial.
• Unforeseen costs associated with the settlement could arise.

Future Outlook

The company anticipates court approval of the settlement in March 2025. The company does not undertake any obligation to publicly update such forward-looking statements to reflect new information, subsequent events or otherwise unless required by applicable securities laws.

Industry Context

Class action settlements are common in the cannabis industry, as companies navigate evolving regulations and market conditions. This settlement allows Tilray to focus on its core business operations without the distraction of ongoing litigation.

Comparison to Industry Standards

• Comparing this settlement to other securities class action settlements, the amount is relatively modest, especially considering the initial damages sought.
• Other cannabis companies, such as Canopy Growth and Aurora Cannabis, have faced similar lawsuits related to acquisitions and financial disclosures.
• The fact that insurance covers a significant portion of the settlement is a positive outcome for Tilray, aligning with industry norms for D&O insurance coverage.

Legal Proceedings

• The Aphria Canadian Class Action was commenced in February 2019 in the Ontario Superior Court of Justice.
• The lawsuit stemmed from Aphria's acquisitions of Nuuvera Inc. and LATAM Holdings Inc.
• The settlement agreement provides for the complete dismissal of the Aphria Canadian Class Action, with prejudice.
• The settlement agreement also provides for the dismissal, with prejudice, of the four individual Canadian lawsuits pursuing the same allegations of wrongdoing against Aphria and former and current officers and directors.

Stakeholder Impact

• Shareholders: Resolving the lawsuit reduces uncertainty and potential financial risk.
• Employees: The settlement allows management to focus on core business operations.
• Customers: No direct impact expected.
• Suppliers: No direct impact expected.
• Creditors: No significant impact expected.

Next Steps

• Obtain court approval for the settlement in March 2025.
• Finalize the funding arrangements for Aphria's portion of the settlement.

Key Dates